The business of fresh (fruits and vegetables) has always been a tricky one, which most established retail businesses have shied away from. The likes of Godrej Industries entered into retail business with a proposition of selling fresh, but burnt their fingers and quickly evolved into a world food store (Godrej went on to sell its food retail brand, Nature's Basket to the RPSG Group in 2019). Since fruits and vegetables are highly localised and perishable and can lead to a high degree of wastage, most retailers have taken a cautious approach. Even Amazon India’s country manager, Manish Tiwary, in a recent interview with Fortune India, had said that the e-commerce giant is still finetuning its fresh and grocery business in India. “There is still a lot of improvement to be done and we have a lot to learn.”
Quick commerce start-up Dunzo is taking an audacious step aimed at making its fruits and vegetables (fresh) portfolio as its engine for growth. Fresh, claims Kabeer Biswas, CEO and co-founder, Dunzo, contributes 30% of the start-up’s overall revenue and Biswas aspires to be the sought after ‘subziwala’ of his consumers.
He intends to use fresh as an entry point into consumer homes and then up-sell and cross-sell other products. “We have taken a technology and products lens and are trying to build a better supply-chain experience,” explains Biswas, who recently sold a 25.8% stake to Reliance Retail.
He claims the quick commerce platform has built a robust replenishment model that is looking at multiple data points. “We are able to create the right selection, which means in this geography this is what the customers want. This has brought our wastage down to 3%.”
Dunzo’s fresh vertical, claims Biswas, has acquired enough density to source fruits and vegetables directly from farmers as opposed to buying from mandis and aggregators. “In the 8 cities we are present in, in every city we have a distinct plan as far as sourcing of fruits and vegetables is concerned.”
The company is even automating its warehouses and supply chain to ensure quality control. “We have gradations at the point of sourcing, entry into stores as well as despatch. We are trying to automate the process of gradations and quality checks. We are far from perfection but we are putting in a lot of hardwork in terms of ensuring quality,” says Biswas.
With the company acquiring scale, it has now increased its focus on unit economics. Biswas claims that he has doubled his unit economics in the past few months. One of the steps that the company has taken towards that is moving away from the claim that Dunzo would deliver in 10-20 mins. Biswas says that the 10-20 minute delivery claim is a marketing gimmick and would never make business sense.
“Quick commerce’s 10-20 minute delivery claim will never ever be profitable. It requires a different level of warehousing and manpower which makes it unaffordable in the long run. Most of the 10-minute delivery products are small-ticket items with low margins,” agrees a senior supply chain and logistics company CEO.
Biswas is currently incentivising consumers, who are willing to wait for 60 minutes. “The 10-minute delivery is mostly impulse, and is one off. Most consumers want to buy fresh, and buy what is required for their house, and that they don’t need in 10 minutes.”
In fact, none of the online fresh food companies such as Licious are promising quick deliveries. The earliest Licious promises to deliver is within 90 minutes.
Dunzo has also started sourcing over 30% of its inventory from Reliance Retail, which has also helped improve its margins. Biswas says that it would soon be selling Reliance’s private brands on its platform.
Dunzo, which was launched as a courier service, continues to get 20% of its revenue from that vertical. However, the courier service is more into B2B deliveries rather than B2C. “Our services are mostly used by 20,000-odd small businesses for deliveries within the city. That part of the business is already gross margin and EBITDA profitable.”
On how Dunzo is managing its unit economics, Biswas says that while the company goes aggressive with promotions during the festival season as well as the Indian Premier League to acquire customers, it tries to stabilise its unit economics. “Now that we know what our customers are buying on our platform, we are able to negotiate better margins on what is available on our platform. We also don’t have to procure extra, so our wastage comes down.”