Biswas believes free but slower deliveries will be the endpoint for quick commerce in India.
For its entire existence, Dunzo has been like a young batsman whose T20 debut series goes spectacularly well but pundits doubt whether this boy can survive the rigor of test and one-day cricket.
Dunzo that started in 2016 rose to cult status in Bengaluru by delivering and facilitating cigarettes and junk food through the night to the city’s energetic yuppies and techies. True to the startup playbook, it raised funding rounds nearly every year from well-regarded investors but its real potential remained unclear. After all, you can’t make a billion-dollar company that depends on just one city, right? What about other cities?
Dunzo may have silenced some critics with its latest funding round where the retail arm of India’s largest conglomerate Reliance acquired a 25.8 percent stake by leading a $240 million investment that valued the firm at about $800 million.
The critics may still have a point though. While Dunzo chief executive and cofounder Kabeer Biswas stresses that 10-minute delivery — the industry fad — is not the firm’s priority, rivals Swiggy’s Instamart, Bigbasket, and upstart Zepto are breathing down its neck.
In an interview with Moneycontrol, Biswas spoke about why he went with Reliance, why India will opt for slower but free deliveries, and his ambitions to build an independent company that will hit the public markets in three years.
Edited excerpts:
Why Reliance, why not Swiggy or Tata, considering you were already running a pilot with Tata-owned Bigbasket?
I think you’re optimising for a few things. First, we wanted to be able to build an independent business. Second, the idea was to be able to say there are multiple parts of this business where we will learn more things while we go ahead and build this and none of the answers is 100 percent known right now. And thirdly, we’d like to be able to find a path to being able to be a public company over the next three years, hopefully.
I think I’ve had some of the most insightful retail conversations (with Reliance). And I think the fact that they are the biggest retailer in the country comes across in some of those conversations. And I think we were able to go ahead and be able to find a match on learnings and what we were optimising for. I’m not going to comment on any of the other ones.
Are you happy with the valuation of around $800 million? It was widely expected that this will be a unicorn ($1 billion valuation or above) round for Dunzo?
I don’t care. We don’t even talk about it. It’s just not something that’s in our DNA. And we don’t really think about that every day in the morning, we care about our customers, and we want to be able to make the best possible user experience for them. And we’ll always focus on that. That’s the number one thing that we like to talk about.
We’re at a very curious phase in quick commerce globally, where quick commerce is both one of the hottest themes in the world and one of the most controversial with companies losing a lot of money. How do you make sure that you don’t lose money on every order? And what will it take to become positive at a unit economics level?
So in Bengaluru, I think we have launched the model and we have been able to perfect it to a point where you can go out and start thinking of being able to make money on it. So we have done a few things, one, I don’t think our marketing, etc, is based on quick (commerce).
Because the first thing that we have learned over the last 18-24 months while going ahead and delivering to customers from local stores has been that in the long run customers care a lot more about what you said about selection, about quality and about the price of products that you are going ahead and selling. So what are the items that you have in the store?
And it’s got to do with the hierarchy of how people think, do you have the item? What’s the price point? Will you give me good quality? And will you bring it? I think that’s the hierarchy. People think about the problem, right. And bringing quickly is important, but just optimising on that is not going to be enough.
So we fundamentally optimise on the first three over that, because that’s what leads to long-term customer retention. The second one we are learning is that global markets might have gone ahead and done a model from which we can all go ahead and be inspired from.
But it’s important to go ahead and be realistic to India’s economics and density and all of that. So we are not marketing 10-minute delivery, we are actually marketing the fact that you should go out and try and buy fresh flowers and stuff like that. You can get the order delivered within about 20 minutes with a delivery charge. And if you want it for free, it will take about 45 minutes to get delivered.
An instant order is going to cost you money. And then slightly delaying the order is going to come to you for free. And we see the adoption for free being really high. At least what we have right now is a fundamental way of going about it and making money.
How many Indians are willing to pay for delivery?
Right now it is 50:50. We do believe that customers prefer free delivery in the country. And it’s very, very important to scale across 20 cities. And I think you will start seeing the delayed free delivery option also settled between 20 and 30 minutes, you will be able to find enough density to be able to batch orders and be able to deliver it for free within 30 to 40 minutes. And we do believe that the models will innovate and iterate for everybody to hopefully get them. That’s the model that we are following. And for that, we have seen massive adoption.
Is there an average ticket size for which consumers will be willing to pay? Are they willing to pay for higher ticket sizes?
I think ticket sizes are a terrible way to think about it, what you think about is occasions. I think the endpoint is it will be free delivery, it will be slower. It’s okay to create adoption in some fashion. But we fundamentally believe that it will be free delivery, but it will be slower. That’s the only way that you can go ahead and make this work.
The other part of this is the average order values do come in at about Rs 350-400. So you can actually go out and get enough margins in the business to be able to make your economics work. But I think what’s happening is a lot of category creation and adoption, which is being understood as the endpoint of what the category might look like. I think there’s a lot of information that’s now coming out of European and American markets. What everybody is realising is you need to slow down to make money.
The last time we spoke, you mentioned you are doing 40,000 orders a day in Bengaluru. So can you give us a sense of what your weekly order numbers are now? And also your GMV (gross merchandise value)?
The GMV numbers we won’t be able to quote. So we just launched in one city rather than going ahead and launching in 7-8-10 cities at the same time. We are expecting to do a million and a half orders on a monthly basis. So weekly 300,000-400,000. Maybe this month or next month. I think as a one-city business, we might be the biggest right now because we just got one city’s model right. We were very concerned about the fact that it’s important to get the model perfectly right in one city before launching in multiple cities.
There is so much money going into the space from other players, and therefore what you’re doing will also, to some extent, be determined by what other players are doing. But does the market size justify the amount of money that’s going into space today?
So if you were to think about white spaces in the country, right, in terms of what are the biggest commerce white spaces that can get digitised? What you’re most likely looking at is the largest space in the country, right now. This is your daily and weekly transactions happening in the top 30 cities in the country. Think of them as the biggest 2,000 demand centres where people do buy local, right, and those local transactions are going to get digitised at some point in time. And I’m not saying everything will come through this medium and stuff like that. Some of it will be enabling local stores. Some of it will be coming from these online-only locations.
And so what you will see will most likely become one of the largest online categories that bring GMV online over the next two or three years. You want to look at the data that will most likely be smaller than ecommerce but bigger than everything else. Because of the organic nature of the use cases, people buy two or three times a week. And the average order value is in the range of Rs 300-400 per order.
Does this round make a difference for you as a founder psychologically? Psychologically, you’ve been in a place where you constantly have to look at your next round. Now, one, you’ve raised your largest round ever and, two, you got an investor who can bankroll many future rounds.
I think the doggedness of the business doesn’t change. This is a tough business, right? It’s a business where you need to be very, very interested by the nuances and by the inches, to be able to go ahead and actually make money. I think what does change is most likely the investments that we can make in the really long term of what this business can look like. We don’t think of capital being available in any fashion if you’re not going out and hitting it out of the park. And so for us, being able to go ahead and hit it out of the park, be category leaders, be number one, is very important. And we will go out and keep indexing on that as we have before.
Our means of getting might be different because we understand the economics of this business really well. So I think those don’t change, we will go out and constantly be focused on the right way to build a retail business. I think, though, the investments that we can make over a five or 10-year period do change. Because I think for the first time we are able to go ahead and say that hey you know we understand this business really well. This is growth capital and the growth capital needs to be deployed in a growth fashion. We will raise money. I think everybody on our existing cap table and our investors are excited to be able to raise capital from other investors externally. I think just the audacity of the bet changes, that we can go ahead and commit for the long term.
Will Dunzo continue to be an independent entity after this investment? And can you also tell us more about your plans to go public in the next three years?
I think it was one of the key thoughts behind being able to find a lot of philosophical sync, in being able to do this. One was, just the understanding of retail. And the pace of decision making, etc, that I’ve seen from Reliance has been very, very exciting to learn from.
We were optimising for the fact that we wanted to build an independent business, an independent brand, be able to keep iterating because a lot of this is us going ahead and tinkering with what can happen next for us to be able to find new markets and new customer experiences.
And the fact that we wanted to be an independent business and be able to list in the next two or three years was something that I think everybody on our captable has been able to sign up for.
How will this work on the backend? Because the announcement said Dunzo will start servicing last-mile delivery for JioMart. So can you take us through how this is going to work?
Some of this is still work in progress and we haven’t firmed up everything. There are two lines to businesses for us, one is the Dunzo daily, which is about delivering quick and daily and weekly essentials to our customers within 15 minutes. And the second one is that because of that, we go out and have a really large delivery network. And that delivery network then goes ahead and becomes available for absolutely everybody else out there in the country to be able to ship packages on. So it is our B2B (business to business) business.
On both of them, there are clear areas of partnerships that we are considering. On the daily and weekly essentials side of it, it just supercharges our entire supply chain network. And the second one is that the B2B business can go ahead and enable a lot of deliveries that are happening off the Reliance Retail network, the JioMart network. Some of these are still things that are being discussed or a work in progress. It really allows for the cost of the network to get optimised a lot.
