Dunzo investment thesis

Why I wouldn’t invest in the online hyperlocal delivery startup


  • Dunzo is an on-demand parcel delivery startup founded in 2016, clocking $100MN+ GMV
  • It has improved its unit economics & built strong network effects from its logistics network, merchants, & customers
  • Indians are slowly but surely realizing convenience & willing to pay more for deliveries; food, grocery, medicine are large verticals
  • Merchant delivery marketplace is big with high growth but competition is fierce amongst demand aggregators (Zomato, Swiggy, BigBasket, Grofers, Jio, Amazon) 
  • There’s uncertainty around true TAM, GMV post discounts, unit economics of food vs merchant delivery, & post-Covid retention
  • Leadership in delivery costs a moat in the “winner takes most” type of market


  • Users want to save time & need “runners” who they can rely on for small, daily life tasks 
    • 25MN high-income users culturally habitual to the convenience of “do this task for me”
  • 50MN+ merchants having a limited online presence, limited by ways to do home delivery 
    • Tech barrier hinders unorganized merchants from engaging with users online
    • Owning logistics is expensive & profitable only at a scale 
    • Users find it hard to discover merchants & get stuff delivered 
  • 140MN two-wheelers (120MN owners) are underutilized assets with owners looking for additional income
    • ~1MN partners working with delivery platforms


  • Dunzo is an on-demand logistics company, acting as an intermediary between local merchants & buyers who want things delivered at home
    • A managed marketplace where Dunzo “owns” discovery, logistics, & payments
    • Users can order chores or purchases from listed merchants using the app


  • Demand
    • $700BN physical retail (90% unorganized)
    • 20MN+ daily retail transactions (90% offline)
    • Delivery: food ($6.5BN), grocery ($3BN), medicines ($1BN)
  • Supply
    • 13MN kiranas ($600BN turnover), 150K+ restaurants, 10MN street vendors ($4BN)
    • Intracity road logistics ($20BN)

Important metrics

  • 8 cities, 11K merchants, 10K delivery partners, 5MN users, 25 mins delivery time
  • Annual GMV grew 5X to $100MN; ~20% returns/cancellations
  • Annual orders grew ~4X to 14.5MN
  • Annual revenue grew ~4X to $15MN
  • Unit economics (per order)
    • AOV = $6.9, merchant take rate = 10% of AOV, delivery fees = 5-10% of AOV
    • Revenue = $1.1, variable cost = $7.4 (delivery = $4.5) -> losing $6.3/order
  • EBITDA negative 11X of the revenue 
  • Cash burn $46MN (FY20); spent $13 to earn $1
  • To become a $10BN business it needs $1BN revenue: 1BN orders (2.8MN/day); assuming 10 deliveries/partner/day -> 280K delivery partners

Positive signals

  • Contribution margin positive in pin codes in Bangalore; Chennai & Mumbai market maturing
    • Easier to operate in dense areas with short distances 
  • Successfully acquires & retains customers
    • Low CAC (acquired 700K users through word of mouth) & high retention (80%) -> high LTV:CAC
    • ~70% orders from repeat users. Monthly ARPU/repeat user up by 3X
    • High order frequency from power users -> top 1% users Dunzo twice/day
  • Growing AOV ($6.9) vs Zomato ($5.5), Swiggy ($5)
  • Powerful flywheel effects


  • Hyperlocal startups succumb to death/pivot due to negative unit economics
    • Grofers pivoted from marketplace to inventory-led
  • Blitzscaling approach by competitors, deploying capital without much regard for economics
  • Low margins & high continual cash burn makes profitability a far fetched reality
    • Low AOV, discounts, cancellations/returns, affect the bottomline on the balance sheet
    • Expected contribution margin/order ~5%
  • Aggregating demand across verticals for maximum capacity utilization to lower delivery costs 

The rationale for not investing

  • A strong reason for existence
    • Solving high-frequency problem & saving time for users, executing complex chores & P2P tasks
  • BUT market size for chores unknown & unit economics varies for food vs merchant delivery
    • Negative gross margins with no clear sight of profitability
  • Tough to scale & assume cost leadership in the current market structure
    • Need to aggregate demand in adjacent verticals to minimize delivery costs
    • Large competitors better positioned with consolidated demand in “winner take most” type market
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Rohit Manchanda

Rohit Manchanda

In pursuit of understanding the new worlds around me. I use writing as a way to deep dive into trends or observations within technology, startups, or markets that I’m learning about.
Rohit Manchanda

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