SUMMARY
Dunzo’s logistics arm has joined ONDC but sellers accuse the Reliance-backed company of misusing data to boost its parallel quick commerce business
Dunzo has denied the allegations and claims it doesn't have access to data from all sellers on the ONDC network
Sellers allege that despite ONDC’s open nature, the absence of regulations could likely lead to market dominance by large players
Nearly a month into the public pilot of the Open Network for Digital Commerce (ONDC) in Bengaluru, various onboarded sellers in the city have spoken out about the potential impact of large players like Reliance-backed dunzo
joining the network.
Dunzo’s logistics arm, formally known as Dunzo For Business (D4B), has been empanelled as an ONDC partner along with relatively smaller pure-play logistics tech companies to enable fulfilment services for onboarded sellers.
But ONDC sellers in Bengaluru are concerned about how Dunzo leveraging data collected through ONDC fulfilment to boost its parallel dark store-led quick commerce business.
Sellers have reservations since they believe this is how Dunzo originally grew its quick commerce business between 2020 and 2022. They contend that by leveraging data from its original hyperlocal delivery model, Dunzo was able to get an accurate picture of the demand for certain products in certain locations of the city.
Sellers Raise Data Privacy Alarm
Deepak Khemani, a retailer in Bengaluru’s JP Nagar area, told Inc42 that Dunzo’s foray into quick commerce was only possible because its hyperlocal delivery service had collated customer data and ordering patterns.
Dunzo’s dark stores network, which facilitates deliveries within 20-30 minutes, has eaten into the business of small brick-and-mortar stores, he told us.
“Post this (hyperlocal deliveries), it was just a matter of time and cash infusion for Dunzo to set up its dark stores in every neighbourhood in Bengaluru, resulting in small sellers eventually scaling down and losing income,” added Khemani, who had to shut two departmental stores in JP Nagar.
Besides this, the order volume from ONDC has not assured sellers about its potential either.
Khemani, who was one of the first sellers on ONDC claimed to have fulfilled a few orders, but said the pace of orders hasn’t picked up since the pilot. However, he also added, “That is not worrying us. Even in the few pincodes of Bengaluru where ONDC is live, many sellers/ buyers dont know of this initiative and hence the order volume is almost stagnant.”
Even as sellers want to benefit from the greater reach that ONDC would enable, they are conflicted about working with Dunzo, at a time when many small stores and kirana owners have only started their recovery after the pandemic.
Flipkart’s logistics arm Ekart is in the process of being brought on board as a fulfilment service provider on ONDC, while Shiprocket has already been empanelled.
Flipkart forayed into quick commerce last year but has a limited scale so far, while Shiprocket said it would be partnering with its investor Zomato for last-mile deliveries. Zomato acquired Blinkit and has expanded its quick commerce play recently.
The Gurugram-based food delivery giant has even integrated Blinkit within the main Zomato app in certain cities.
Khemani and other small sellers also said that the entry of large well-funded companies such as Dunzo, Amazon India, Flipkart and other marketplace giants defeats the purpose of ONDC.
Open Network & Conflict Of Interest Fears
A Dunzo spokesperson told Inc42 that Dunzo For Business (D4B) is focussed on logistics alone and hyperlocal deliveries even before the term hyperlocal was coined.
“We are excited to partner with ONDC to help realise its vision to democratise ecommerce, which means we want to see more players enter the ecommerce universe and benefit from it. Our logistics service will enable and strengthen local commerce on ONDC and unlock the growth potential of these businesses by giving them access to seamless last mile delivery,” an emailed statement from the company says.
But the data collection and process is still a huge question for the sellers. Dhirendra (name changed) who is a seller on ONDC claims that Dunzo might join the network as a rival seller while also being a logistics partner.
“Dunzo can be onboarded as a seller since ONDC is an open network. So on the one hand, sellers have to partner with this company for fulfilment and on the other hand, it will be our rival. It can easily gauge the data of our consumers and attract them at discounted prices which other sellers cannot afford,” he told Inc42.
However, Dunzo denied allegations of potential data misuse and leveraging access to ONDC data for its quick commerce business. “The premise that logistics players like D4B have access to all the data visible to sellers on ONDC is absolutely inaccurate. In the ONDC network, logistics providers have access to information needed to ensure seamless delivery of a product,” the company told us.
Uttam, who runs a confectionery shop in Bengaluru’s City Market, isn’t completely aware of ONDC, but is concerned about bigger players having the first mover advantage, increasing their competitive edge over small store owners. “The government at this point has to step in and assure us that the challenges faced by retailers in terms of deep discounting, misuse of data will be looked into and then only the initiative will achieve its true objective,” he added.
The founder of a Bengaluru-based logistics tech startup concurred with this idea. “The questions of price parity, deep discounting remain. Sellers have still not been assured that these concerns will be addressed. That is a huge gap which ONDC needs to address,” the founder said.
The same founder added that even if a new ecommerce policy is brought in, the law is yet to be established and it’s not yet clear how it will address these issues.
Detailed queries sent to ONDC went unanswered till the time of publication. We will update the story in case we get a response.
Dunzo’s Quick Commerce Ambitions
In 2021 and 2022, Dunzo aggressively expanded its dark stores network across the country — especially after Reliance’s $200 Mn investment for a 25.8% stake in February this year.
The company is reported to be in the process of raising further funds and is looking to cut customer acquisition costs in the quick commerce vertical.
Dunzo’s ONDC foray will be critical for hyperlocal and delivery players to reach MSMEs and sellers that are not part of their network.
The other worry for Dunzo and quick commerce players is that this segment is still very far from showing healthy margins. Zepto, Swiggy Instamart, Zomato-owned Blinkit and Dunzo are all losing cash on each order placed. As they expand their and look to grab users, they will have more data related to consumption and user behaviour, which could help them finally cut down on discounts.
In terms of financial performance in FY21, Dunzo’s revenue grew by 66.5% to INR 45.8 Cr, compared to INR 27.5 Cr in FY20. Losses narrowed by 33.3% to INR 225.Cr from INR 338.4 Cr in FY20.
Dunzo incorporated Dunzo Merchant Services Private Limited in December 2020, which manages some portion of the D4B offering.
The company further clarified that D4B was set up in 2019 through the incorporation of Dunzo Logistics Private Limited, well before the launch of the Dunzo Daily quick commerce service in 2021.
“Dunzo For Business will continue to build stronger, affordable and accessible last-mile logistics delivery services so that local merchants can also benefit from the ecommerce growth in India.”
Can ONDC Unlock Profits For Dunzo?
“ONDC does provide them (Dunzo and others) with a huge platform for bigger reach right now. It could also help Dunzo and others achieve sustainability and lower their customer acquisition costs,” a senior market analyst observed.
While quick commerce continues to be a capital-intensive play with an evolving unit economics playbook, Dunzo is likely to turn to B2B deliveries, such as through ONDC, to boost its margins. As ONDC goes beyond Bengaluru, Dunzo is likely to bring its D4B services to other metros and Tier 1 towns where it is not yet present.
“Since our launch in 2019, we have worked with over 20k merchants, and many of them are local merchants who have seen their business grow with Dunzo For Business. Additionally, we take data and privacy seriously and have strict guidelines and compliance around this,” Dunzo told Inc42 in a statement.
Even as ONDC goes through these growth pain points and evolves into a fully functional network, there’s a lot of uncertainty among all stakeholders. Logistics players may end up charging commissions to sellers for deliveries which would further impact these small retailers. This is not yet clear.
Similarly, there are plenty of unanswered questions about seller discovery and price matching, which we have touched on earlier and ONDC leadership would need to provide confidence to sellers about the perceived threats from ecommerce and delivery giants.
