The connection between Ambani and Dunzo began last year when Reliance Retail invested $200 million to acquire a little over 25% ownership in the Bengaluru-based startup.
And as per reports, since July, Dunzo has been seeking at least $20 million, which is around Rs. 165 crore, more from Reliance Retail after it fell short of its target to raise $75 million by offering convertible notes.
They are in need of more cash and have held discussions with Reliance Retail to invest around $20 million, but it is not clear if Reliance Retail has given any clear answer to that yet.
In April, the Bengaluru-based firm was able to raise just about $45 million, with only Reliance Retail and Google subscribing to the convertible notes and its other shareholders staying away, which has caused an adverse cash flow situation at the company.
The worst part is that Dunzo can’t really tap any other strategic investors because of Reliance’s presence as well.
Reliance Retail owns a 25.8% stake in Dunzo, while Google holds just under 20%. The ongoing discussions are anticipated to result in the Mukesh Ambani-led conglomerate making an additional investment, which would consequently raise its stake in Dunzo.
Things have been quite disturbing for a few months for the people working in Dunzo as well, due to its liquidity crisis.
Delayed payments and layoffs
Dunzo delayed the salary of employees again, which was supposed to be paid by September for the months of June, July, and August, due to what founder Kabeer Biswas described as a “cash flow issue” during a meeting with employees.
The salary was supposed to be paid on September 4, but was eventually postponed again to the first week of October. Above that, in July, Dunzo had promised to pay 12% annual interest on the salary amount held back for June and July to the affected employees.
Over the last eight months, it has fired around 400 employees (30% of its staff) as it was forced to scale down its consumer-facing business, Dunzo Daily, and move its focus to the B2B vertical.
Shutting down dark stores
As per a few reports, it shut down 70% of dark stores, shifting its focus to the B2B unit, Dunzo for Business, from the business-to-consumer (B2C) unit, Dunzo Daily.
This large number of shutdowns of dark stores is due to one of the major reasons: the off-roll employees of the company’s dark stores in Bengaluru refused to work starting August 15 after their July salaries were delayed. However, they resumed their work on August 19 at the seven dark stores in Bengaluru after receiving the payouts for July.
These off-roll employees are mostly involved in packing groceries and handling them to assigned delivery partners in the Dunzo Daily service.
It is very hard to believe that Dunzo, which had nearly 250 stores all over the country, has now come down to single digits.
What are a few major reasons behind the downfall of Dunzo?
The company is reported to have engaged in discussions with debt investors to potentially revise the credit terms and aims to use some of the company’s available cash to settle outstanding payments owed to both vendors and staff salaries.
Dunzo earned Rs 54.3 crore from revenue from operations in FY22, up from Rs. 25.1 crore in FY21. On the other hand, its net loss has more than doubled—from Rs 229.1 crore in FY21 to Rs 464 crore in FY22.
The biggest expense factor for the company was employee benefit expenses, totalling Rs 138 crore. This was followed by advertising and promotional expenses, amounting to Rs 64.4 crore, representing a nearly six-fold increase compared to the Rs. 11 crore spent in FY21. Additionally, during the initial half of 2022, from January to June, Dunzo incurred a loss of Rs. 230 on each daily order.
Written By Shivani Singh
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