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When I first moved to Mumbai three years ago delivery app Dunzo became an essential lifeline in the semi-locked down megacity at the tail-end of the coronavirus pandemic.
Even before Covid, the pioneering digital courier service, which hooked up customers with the country’s legion of small family-owned stores and grocers, had developed a fan following in its home base of Bengaluru, sparing residents outings in the notorious traffic of India’s technology hub.
Since then ultra-speedy deliveries within 20 minutes have become ubiquitous in the country’s congested metros. Online disrupters hastily shuttling small volume orders also caught favour among families with low disposable incomes and limited storage in cramped homes.
The intensive cash-burning operations have overcome initial industry scepticism after establishing deep networks of dark stores that house a wide-range of goods — from fizzy drinks to fresh vegetables — in a compact delivery radius.
While remaining a sliver of India’s overall retail market, the country’s digital quick commerce sector has witnessed a more than 10-fold annual expansion over the past couple of years to become a $3bn market in 2023, according to JM Financial.
The Indian investment bank estimated earlier this year that the industry size could reach $40bn by the end of the decade, as millions of urbanite Indians become addicted “to a hypnotic dose of value and convenience”.
“The rise of quick commerce has taken a whole lot of people, including me, by big surprise,” says Arvind Singhal, chair of India retail-focused consultancy Technopak Advisors. “Now to me anything more than 20 minutes looks very slow — it’s incredible.”
But more recently it has become difficult for me to get deliveries with Dunzo and several of my orders have been cancelled. It appears to have come under financial pressure despite deep-pocketed investors including Google and Reliance Retail, an arm of Mukesh Ambani’s conglomerate.
Indian media have reported that the start-up laid off 75 per cent of its core staff last month, with just 50 remaining, and that any further capital raise would likely sharply reduce the $744mn valuation it received last year.
While Dunzo’s founder Kabeer Biswas did not respond to a request for comment, analysts say the app failed to convince users to shift to its in-house Dunzo Daily service, its dark network of stores.
Many customers were likely put off as its delivery fees climbed in a country where every rupee is counted by thrifty households, Singhal says. Akshay D’Souza, a consumer consultant, adds: “They got driven towards a more profitable model a little too soon.”
Dunzo’s demise is one part of a wider industry consolidation.
Many of India’s once 10 active players have folded and quick commerce is now dominated by a trio of trendsetting apps — Blinkit, owned by listed takeaway company Zomato; Softbank-backed Swiggy and Zepto. The latter recently raised funds at a $5bn valuation, indicating there is still investor appetite to back the winners of the consolidation.
While the market leaders remain unprofitable, they are steadily growing revenues as they look to expand further outside India’s three biggest cities — Bengaluru, Delhi and Mumbai.
Redseer Strategy Consultants expects at least 500 new dark stores will be added this year with a focus on the top 30 to 50 urban centres.
Their hold will be increasingly challenged by powerful local and foreign giants, which were initially caught off guard. India’s Tata Sons, as well as global ecommerce titans Amazon and Walmart, are heavily investing and launching their own rapid services.
Maintaining standards while expanding outside of India’s most affluent cities will be crucial. A survey of 24,000 people by Indian pollster LocalCircles late last year found many consumers were moving away from buying fresh produce online.
The quality of fruit and vegetables provided by the platforms was low, according to 73 per cent of the respondents, who said they were heading back to their local markets after facing issues with poor inventory stock and as the apps reduced discounts.
Customer loyalty will be further tested if delivery fees are raised to boost profitability. “It is a cash burn business,” says D’Souza, who expects that direct costs to the consumer will have to go up. “Eventually there will be pressure on a lot of these quick commerce platforms to drive profitability.”
chris.kay@ft.com
