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Dunzo CEO Kabeer Biswas Explains The Tech Behind Faster Deliveries


Hyperlocal delivery firm Dunzo is turning to store automation and IoT tech applications like smart baskets to offer quick deliveries through its new dark-store model called Dunzo Daily.

The online grocery space is currently ruled by industry behemoths such as the Tata group (via its recent acquisition of BigBasket), Reliance JioMart and traditional ecommerce players like Amazon and Flipkart. But Dunzo says that its USP will be getting groceries delivered to customers in under 18 minutes by leveraging its smart fulfilment centres or FCs (aka dark stores). 

In simple terms, a dark store is a small neighbourhood warehouse for inventory storage and an order collection point for Dunzo’s riders who enable doorstep deliveries. 

Powered by the dark-store model, Dunzo Daily is currently doing business worth INR 260 Cr+ in gross merchandise value (GMV) per quarter. Furthermore, this model may account for the majority of its business in the next year, cofounder and CEO Kabeer Biswas told Inc42.  

With the Dunzo Daily category growing at nearly 2x every quarter, the company plans to invest more in automation and robotics to be installed in its dark stores within the next 15 months.

“Automation does not mean complete elimination of the human workforce in our warehouses. Instead, it will help with faster processing and result in a higher volume of orders every day compared to what humans can do,” explained Biswas.

“Currently, each fulfilment centre spans 1,800-2,000 sq. ft and processes around 200 orders an hour. But a combination of robotics and human functions can easily bring that number to more than 500-600 orders an hour,” he added.  

To start with, Dunzo is redesigning the in-store baskets (those used in its dark stores) that help store assistants pick and sort the items faster. Essentially, these ‘smart baskets’ recognise the items inside, read expiry dates and understand other details such as product freshness.

Biswas said that these cutting-edge technologies eventually reduced the order processing time to 1-2 minutes within its dark stores. This is significantly lower than the existing timeline of 15 minutes or more required by a human to navigate several aisles and pick up a product from a retail store rack.

“We also make sure that the order is packed within 60 seconds. And we realise that our average delivery time is now coming down to 15-18 odd minutes. In fact, for the last 18 months, the average delivery timing has been 20-21 minutes. So, we are now pretty much convinced that speed is the USP for Dunzo,” said Biswas. 

From One-day Delivery To 15-Minute Delivery: The Next Big USP For Online Grocery

Interestingly, the concept of smart stores was first envisioned by ecommerce behemoth Amazon in 2018 for its Amazon GO outlets, first set up in the US. These stores use computer vision, image recognition, smart sensors and contactless payments to provide consumers with a cashless checkout experience that is fast and hassle-free. Dunzo is taking a similar approach in terms of technology but focuses on helping human employees process online grocery orders faster at its fulfilment centres.

Nearly a decade ago, when grocery delivery platforms first came up in India, an average consumer frequented e-grocery stores once or twice a week. Now, this frequency is growing faster, analysts reports showed. 

The first few e-grocery players, namely BigBasket, Grofers and PepperTap (now defunct), started around 2012 and focussed on order efficiency and expansion to gain market share. But by 2021, these businesses are betting big on efficient logistics to ensure fast order delivery and gain traction.

In fact, faster delivery has become the new USP of many e-groceries during ecommerce 3.0, and Dunjo is not the only exception. 

Foodtech startup Swiggy was the first to publicise its faster-than-most delivery. The Bengaluru-based company launched the service a month ago and promises deliveries in 15-30 minutes via its Instamart service. It is currently operational in seven cities, and Swiggy is planning to expand the Instamart hyperlocal grocery delivery to five more cities.  

A few days after Swiggy’s initial announcement, Gurugram-based hyperlocal delivery firm Grofers stated it was planning to launch 10-minute grocery delivery in 10 cities. Grofers said it would use dark stores in residential neighbourhoods to fulfil its delivery promise.

But the rush to get groceries delivered at a breakneck speed comes at a high cost that is yet to make sense to analysts and many experts in the online grocery delivery industry. 

Is The Rush For Quick Deliveries Sustainable?

The founder of a hyperlocal delivery startup, who recently left the company and did not wish to be named, told Inc42 that the average order value (AoV) of quick-commerce firms is quite low (around INR 300). So, the average delivery cost of INR 60-65 per order does not make sense, considering the unit economics. 

“It is almost impossible to make a profit out of the last-mile cost even for same-day delivery. Hence, it is not clear how things would work out for 15-minute delivery. After all, the overall margin in the online grocery space is 10-20%. Then again, apart from the delivery cost, there is capex spent on warehousing, leasing, maintenance and other expenses incurred to operate fulfilment centres,” the person said.  

The founder, however, pointed out that companies could transfer part of the per-delivery cost to the shopper. Theoretically, the cost would then come down to INR 40-45 per order from the earlier INR 60-65 borne by e-grocery players currently attempting 15-minute deliveries.

As quick commerce, or qcommerce, is a premium offering, customers may be willing to pay a little more. But the path to profitability is still not clear, the founder added. 

According to Biswas, Dunzo Daily already sees an average order value of INR 400 or so, at a 15% margin, compared to the 6-7% earned from the marketplace model. However, the startup is still working on improving the dark store density across its current markets.

He believes that the current spike in qcommerce (15-20 minute delivery) reinforced by the company’s plans to open 300+ dark stores in new cities within the next 24 months, will help reduce the cost per order. 

Dunzo’s qcommerce model (Dunzo Daily) registered a GMV of INR 267 Cr during the first quarter of the current financial year (Q1 FY22), a 1.9x growth compared to the previous quarter (Q4 FY21). In FY21, Dunzo recorded an overall GMV worth INR 590 Cr, a 1.6x growth compared to INR 360 Cr in GMV in the previous financial year.

In a press statement in August this year, Dunzo said that the growth in quick commerce “is largely led by a behavioural shift of Indian consumers, who are adapting to more frequent, small-sized purchases compared to larger, monthly purchases for everyday products and consumables”. 

This has worked well for the company. Combined with a reduction in operational costs, Dunzo reduced its overall cash burn by 35% in FY21, while its advertising and marketing expenses dipped by 86% YoY. 

But the question remains: Can qcommerce make any money per order even if Indian consumers widely adopt the model? 

Management consulting firm RedSeer estimates that the current market opportunity of qcommerce in India is $0.3 Bn in terms of overall GMV in 2021. This is expected to grow 10-15x in the next five years to reach $5 Bn by 2025. But this scenario could be a bit different in India. 

Consider this. Around 20 Mn Indian households already use online grocery platforms, leading to an addressable market size of $50 Bn.

RedSeer says that in metro cities, around 70% of consumer spending on groceries and home consumables is an impulse purchase, further validating the scope for qcommerce in the country. 

Redseer estimates for quick commerce

Biswas said that after Bengaluru, Chennai is the second-largest city in terms of GMV processed via the quick delivery model (Dunzo Daily). 

We had a pilot of our qcommerce offering in about seven cities. And we have seen great adoption in all those places. In fact, Chennai is the second biggest city after Bengaluru. That is surprising. We believe if Chennai continues to operate in this fashion, it may become a bigger market for qcommerce than what Bengaluru looks like right now,” he added. 

But as pointed out earlier, this new model will require heavy investments. The company will have to spend heavily on capex, leasing new spaces and hiring fresh talent for its fulfilment centres. 

One way of curtailing capital spending is to strike deals with existing supermarkets and big-box retailers who are willing to share space and revenue for inventory said a management consultant at a leading consulting firm that advises startups. The consultant wanted to remain anonymous as he could not publicly comment on brands.  

Dunzo can be a great differentiator in this space, and I see it sustaining well if it can double the number of retailers, kiranas and supermarkets as their personal FCs. This way, you don’t need to invest too much in capex in building your fulfilment centres,” the consultant added. 

Dunzo may have to find ways to increase its cart size or strategically grow its fulfilment centres without incurring high capex if it wants to make the most of its dark-store model and ensure growth. 

Media reports indicate that the company has been in the market for a potential merger and fresh funding round. 

Dunzo did not officially confirm these developments, but according to market rumours, the startup is looking at two options. It can either expand its dark stores faster or partner with a strategic FMCG giant to get faster access to larger geographies. 

The Tata group has reportedly offered an acquisition deal, seeking majority control of Dunzo à la BigBasket. But its cofounders are not keen on giving up control. Dunzo is also said to be in talks with investors for an infusion of $100-120 Mn to expand its dark stores in other cities. 




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