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Mukesh Ambani has dealt another significant blow to Dunzo, pushing the startup towards an inevitable distressed acquisition. To grasp this situation, let’s rewind a bit. In January 2022, Reliance Retail invested $225 million in a $240 million round, gaining slightly over 25% ownership of Dunzo.
Why was this such a strategic move?
- Legal requirements state that a 75% shareholder majority is needed for special resolutions. This means any fresh share issuance or fundraising requires Reliance’s agreement.
After that,
- Fueled by ample funds, Dunzo, led by Kabeer, swiftly set up 250 of its own dark stores within only 6 months. But, they were losing a staggering Rs 230 for every order, as reported by Entrackr.
This alarmed investors and led Reliance to step in.
Result: Dunzo drastically cut down its dark stores to just 6-7.
Dunzo shifted to a partner model where external parties own the stores while Dunzo generates demand and handles delivery. In the midst of this, Dunzo concentrated on developing Dunzo Merchant Services (DMS), managing deliveries for others.
How does the revenue model work?
- DMS charges a fixed sum for each delivery attempt.
- For instance, if a Jiomart order required two attempts, DMS could bill twice the agreed fee. Guess who the primary customer was? Jiomart Express – Reliance’s in-house q-commerce business.
However, due to the economics involved, Reliance closed down Express in February. This move, along with the crackdown on dark store-led q-commerce, caused Dunzo’s scale to shrink by around 60% in just 6 months.
Furthermore, Reliance’s decision to change what it pays DMS dealt another blow. Jiomart revised the rates:
- Rs 35 for bike deliveries vs. the previous Rs 58 (-40%)
- Rs 45 for light commercial vehicle (LCV) deliveries vs. the previous Rs 58 (-22%) Plus, they stopped paying for repeated or failed delivery attempts by DMS.
This hit Dunzo hard, especially considering its financial struggles:
- Dunzo owes employee salaries from June.
- Pending PF & TDS payments.
- Unsettled vendor dues.
Dunzo urgently needs fresh funds, but Reliance stands as a major obstacle. Any new fundraising requires Reliance’s agreement:
Either Reliance invests more money. Or it permits issuing new shares to others (given its 25%+ ownership and vital approval). Otherwise, Dunzo’s fate is grim, making it a ripe target for Reliance’s distressed acquisition.
