How Dunzo scaled its revenue by 1.6x in FY21 with a focus on Dunzo Daily
Online delivery of essential items emerged as a lifesaver during the pandemic, allowing customers to shop conveniently while following the required social distancing guidelines.
While the increase in demand proved beneficial for ecommerce grocery players like Dunzo, Bigbasket, Grofers, and Swiggy, it also meant these startups changing levellers and building their systems to suit the specific needs of customers.
Hyperlocal delivery platform, which had started focussing on the core needs of consumers before the pandemic, recently launched fast grocery delivery service Dunzo Daily to deliver essentials to customers in 19 minutes.
Kabeer Biswas, Co-founder and CEO, Dunzo
Dunzo Daily, which is already growing at 25 percent week-on-week, is focussed on the user’s buying patterns, and it stocks only those items that are frequently purchased by the users in a geography.
Riding on back of the organic demand, the Bengaluru-based hyperlocal giant scaled its GMV, which includes value of products sold on the platform and user delivery fees, by approximately 65 percent in FY21, with more than 90 percent of users signing up on the platform organically in the last year.
Backed by Google, Dunzo also managed to scale its revenue by 1.6x in FY 21, and has reduced cash burn by 43 percent.
Mini warehouses and unit economics
While Dunzo Daily seems to be offering a service similar toInstamart, Kabeer Biswas, Co-founder and CEO, Dunzo, says, their differentiation lies in being denser.
“We are going 2x denser than Instamart. We are sharper in selection and are focussing on the important things that people are buying in that geography rather than a larger selection that isn’t moving at all. We are here to help the middle class customer to bring their daily and weekly spends online, which we haven't been able to do as an industry,” says Kabeer.
By leveraging mini-warehouses strategically located across each neighbourhoods in the city, the ecommerce startup is able to bridge the demand and supply gap to ensure faster delivery and a seamless ordering experience through its app.
“We realised that a lot of local stores were running out of milk every day. With these mini warehouses, that problem is solved. Also, with a focus on deep vertical integrations, we have been able to keep the prices competitive,” says Kabeer.
Founders of Dunzo- Dalvir, Mukund, Kabeer, and Ankur
However, the average order value (AOV) of these items are higher -- at Rs 200 to Rs 300, and that is primarily because an item is available all the time.
“We have seen that your basket is never complete when you buy from local merchants. Since we have all the items, the AOVs are significantly higher by 16-17 percent, and the cost of delivery is cheaper, making us contribution margin positive,” says Kabeer.
As a result, Dunzo has been able to drive advertising and marketing expenses down 86 percent YoY. Combined with a reduction in operational costs, Dunzo is beginning to display operating leverage and has cut overall burn by 35 percent in FY21.
Working with Kiranas
While there are several unorganised Kirana stores across the country, Kabeer says the Dunzo team is procuring products from these Kiranas.
In an earlier conversation, Abhishek Chauhan, Associate Partner, RedSeer, said, close to 75 percent of the retail industry is run by the FMCG and grocery segment. And local Kiranas, or mom and pop stores, comprise 95 percent of them.
“During the pandemic-led lockdown, we realised that these unorganised retailers were the backbone and the most reliable. But the disruption of the supply chain made them woefully aware of how disconnected they were without access to digitisation. This, in turn, hurts hyperlocal delivery players as well. What works and will work is a B2B2C play, where Kirana stores become an epicentre for hyperlocal delivery.”
Catering to demand and supply
Speaking about Dunzo Daily, Kabeer says, “Dunzo has always delivered on customer experience and convenience. We work with our network of delivery partners, merchant stores (Kiranas), and fulfillment centres to ensure we are always within one to two km radius of our customers.”
“Generally, we have witnessed that users shop from local stores, which are no more than a 10 minute walk. By digitising the inventory and optimising the online catalog for the top 2000 SKUs that customers order on a daily/weekly basis, we’re able to help the Kiranas as well as our mini warehouses with better stock management, and therefore improving the overall ordering experience on the app,” adds Kabeer.
He explains, typically, the average order turnaround time is 10-15 mins from start to finish. The app’s interface is designed to make the checkout experience a lot faster and efficient. Once the order is placed, the local store is able to receive and pack the order before the delivery partner arrives, reducing the wait time of a delivery partner at the store.
Since these stores are located in a two km radius to the users, the partner is able to safely deliver the items that would normally take around 10 mins if they were walking.
Kabeer says, there's a great deal of mixing and matching of supply and demand that goes into play for Dunzo to deliver on its promise, and that is really the secret to the business.
“We want to be able to build the density of our partner stores in the neighbourhoods, and keep bringing down the delivery turnaround time,” says Kabeer.
The team is now looking at reducing the delivery time from 19 minutes and expand Dunzo Daily to the top 20 cities. The startup is also looking to raise another $200 million in the coming months.
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