Dunzo's bumpy road to profitability: From layoffs to fresh capital
What's the story
Dunzo is one of the major players in India's quick commerce segment. The Google and Reliance-backed company has grown multi-fold over the last couple of years.
However, it is still in search of profitability. The company has now decided to fire 30% of its workforce in an attempt to revamp its business model.
Interestingly, it has also secured $75 million in funding.
Context
Why does this story matter?
India's quick commerce segment is still in its early stages of growth. Companies in the segment have managed to win customers with their promise to deliver in less than 10 or 20 minutes.
The sector is fast evolving and is expected to grow 15 times by 2025. Despite the growth rate, companies have not found a sustainable business model yet.
Crunch
Post-pandemic world has been tough on quick commerce companies
The pandemic was the golden hour for quick commerce companies like Dunzo. However, the hype died down sometime in 2022, leaving companies with increased costs and supply chain constraints.
A funding crunch added to the growing pains of instant delivery platforms. Dunzo has been making moves to steer its business toward profitability since then.
Profitability
Dunzo has been bleeding money
Dunzo has been bleeding money for a while. This is despite the company's growing sales.
In FY22, Dunzo's losses grew 2x and crossed the Rs. 460 crore mark. Meanwhile, revenue also grew two-fold to Rs. 54.3 crore.
The revenue growth is still not much, considering the start-up's age and funding. In FY21, it recorded Rs. 25.1 crore in revenue.
New strategies
The company fired 3% of its workforce in January
The company has been testing many things in an effort to drive its business toward profitability. The company first shut a few of its dark stores (fulfillment centers) in the National Capital Region (NCR) and Hyderabad.
This was followed by laying off 3% of its workforce, or 60-80 employees, in January. The same strategy has now been enhanced.
Funding
Dunzo has been trying to raise capital for several months
Dunzo has been in the market to raise capital for several months. However, uncertain economic conditions made it hard for the company to raise funds.
The company planned to raise at least $70 million, and now, it has received the same. Google and Reliance contributed around $50 million of that.
It is plausible to think that the funding came with some contingencies.
New business model
The company will shut down 50% of its dark stores
The new business model is an effort by the company to appease its investors and grow its business toward profitability.
As a part of this, Dunzo has decided to shut down 50% of its dark stores. The company will run only those stores that are profitable or near profitability.
It plans to achieve profitability in the next 18 months.
Layoffs
Dunzo plans to raise funds from ADIA
The decision to fire over 300 workers is also part of the company's new business model. It is in talks with Abu Dhabi Investment Authority (ADIA) to raise more capital.
However, investment from ADIA or any new investor will come only after the company stabilizes its business. It will also have to meet some metrics.