Nimble moves help the hyperlocal delivery service sync in with changing consumer behaviour in a post-covid world
You could even ‘Dunzo’ a package to a friend in another part of town. Yes, its popularity is such that Dunzo has become a verb
Hyperlocal delivery startup Dunzo’s founder Kabeer Biswas appears hyperactive on a Zoom call. Slight of build, fit and wiry, he swivels to the side to consider a question or just stands up and paces about. Both thoughtful and nimble, the founder’s demeanour reflects that of his startup, which has confounded sceptics with the scale and manner of its growth during the pandemic.
Dunzo caught the attention of the cool crowd in Bengaluru when it was launched in 2015. They loved the idea of an app to order anything from anywhere, from food and grocery to fast-moving consumer goods, household items and medicine. Most of it came from local restaurants and kirana stores, which made the delivery superfast. Delivery charges calculated on a kilometre basis were modest, and later became free if you ordered from a store registered on Dunzo within a 3km radius.
Plus, you could even ‘Dunzo’ a package to a friend in another part of town or get a document you left behind at home ‘Dunzoed’ to you. Yes, its popularity is such that Dunzo has become a verb, like Google.
Against all odds
However, it seemed too good to last for many sceptics. Hugely-funded entities such as Swiggy and Zomato for food, BigBasket and Grofers for grocery, and Amazon and Flipkart for everything else had established themselves in urban India. Some reports last year dismissed Dunzo as a cash-guzzling business that would go down like several other startups that had sprouted in the hyperlocal hype of 2015-16. Processing payments and hanging on to delivery persons were expensive, after all.
Nevertheless, Dunzo is not only standing but has accelerated its growth in 2020, turning the covid crisis to its advantage after initial hiccups. This, says Biswas, did not come by “throwing money at the problem" but rather from a demand spike and better unit economics. “Our average order value has gone up. Costs have also increased a little because we wanted our delivery partners to be better compensated during covid. However, the spread in between is more than earlier," he says.
Dunzo mainly makes money from merchants who register with it and the number of them using Dunzo increased by more than 50% in the past six months. The rest comes from delivery charges paid by users. A frugal culture keeps fixed costs low. These factors, along with product innovations and data-based choices about PIN codes to serve, have made Dunzo profitable in Bengaluru. It also has a presence in Delhi, Gurugram, Hyderabad, Chennai, Mumbai, Pune and Jaipur, but only Bengaluru has the scale to be profitable as of now.
Dunzo tried to pre-empt the covid effects on its business 10 days before the first lockdown, but still took a hit from stores being shut and many delivery people returning to their hometowns. The supply chain for merchants was also disrupted.
The app also saw a surge in demand. Soon, the advantage of its close connection with local stores started kicking in as the supply disruption for Dunzo was less severe than for malls and e-commerce. Merchants on its platform have recovered to more than 80% of their pre-covid levels by now, according to Dunzo.
“Two things played out positively for us. The first is that the categories we are in are mostly daily essentials, which saw massive demand. The second is that we are basically trying to support local commerce and local stores were pretty much the only ones that were allowed to keep functioning (in the early days of the pandemic)," says Biswas.
However, he candidly admits that the lockdowns and supply chain disruption have left deep scars on its merchant network. “Some of them are going to find it very hard to get back on their feet. We are trying to figure out if we can help them financially, but there will be casualties. So, we have to find other suitable merchants in the area and cultivate relationships with them. That’s a long, painstaking process."
“So, we may have had a dead cat bounce. The immediate bounceback has been good, but the long-term road to recovery may be 18 months away," he says.
Biswas sees a fundamental change in consumer behaviour. “People have realized that they never had to travel to the office every day for work. You also never had to go to your local store or walk into a supermarket unless it was for an experience. What we are realizing from consumers is that despite cities opening up, they are not going back to that normal. It takes 21 days to form a new habit and covid has lasted much longer than that," he says.
There are many players who will benefit from this shift, but Dunzo’s value proposition comes from its horizontal play across multiple categories. It is also expanding the choice for consumers by tying up with brands and other platforms for quick deliveries. From PepsiCo snacks to Bisleri mineral water and Tupperware products, they can now be Dunzoed directly to consumers instead of via distributors and stores.
It is interesting that Biswas sees another side to this, which also illustrates the flexible thinking and consumer connect that goes into improving the app.
Dunzo, which has crossed 2 million monthly transactions, started noticing a difference among new customers coming to the platform. “After the first million or two consumers transacted on the platform, the next set actually don’t want a broad-based offering. They want to basically transact in a much smaller segment of stock-keeping units (SKUs). We are trying to figure out what this means for us next year," says Biswas.
Others have noticed a similar pattern. Grofers, for example, which targets the lower-income mass market in cities, realized that the needs of its consumers were different from those of the creamy layer. So, it drastically cut back on SKUs to aim for efficiency and lower cash burn.
Biswas has no such plans to reduce categories or SKUs, because it does not depend on extensive warehousing such as Grofers. He just wants to make the entry of a new user easier.
“The idea is to let the new user do the first transactions with less SKUs. Then, their graduation process into all the other categories and SKUs becomes simpler. The product currently doesn’t do a great job of creating that kind of transacting journey," he says.
Biswas’ own journey into hyperlocal delivery started on a WhatsApp group. He took to delivering orders himself, familiarizing himself with his customers and the localities in Bengaluru that he served. That focus on tuning in to customer priorities continues to this day.
“The No. 1 thing that every user has ever told me is that Dunzo is the fastest way to do something. So, we have baked that into the organization’s goals to say that we will continue to be the fastest answer irrespective of anything else," says Biswas.
Dunzo’s delivery turnaround time averaged 23 minutes during the covid lockdowns, despite new requirements of social distancing and hygiene measures.
Malavika Velayanikal is a Consulting Editor with Mint. She tweets @vmalu