Yesterday, I read a post on why Meituan’s IPO would leave Investors hungry, and tweeted out the following
This followed a tweet storm where I tried to discuss the future of On-demand and why the best option for Dunzo is to become Swiggy, and for Swiggy to become Meituan.
The entire tweet storm as a post:
I have a lot of free time (and hence have probably discussed Swiggy, Dunzo with enough people already). The most common statement people make is that Dunzo is trying to become Swiggy. Or that Swiggy is going to kill Dunzo soon.
This thread discusses the evolution of both.
I think the best thing Dunzo did to differentiate from other Delivery apps was to become a Concierge app. Instead of trying to compete with Swiggy, Zomato on Food or BigBasket on Groceries they became an on demand app which gave you everything and operated only in a particular area (Bangalore).
Want to get your laundry? Use Dunzo. Want to get Cigarettes late night? Use Dunzo
But when you try to give everything you don’t occupy the mindshare that an app like Swiggy does. I literally use Swiggy everyday.
How many times people use Dunzo? I would say not more than once a week (even for its power user)
So it was necessary that Dunzo would soon try to focus on specific niches and try to increase deliveries/user and also optimise their fleet usage. Hence they changed their UI.
50 Rs Biryaani came. 20Rs Dessert too. Anything which can position you as a place there people can order food from. A swiggy alternative.
Now to Swiggy.
Swiggy started with Restaurants. Currently at 6 Lakh orders/day. It is an amazing scale. And since coupons cash burn is equally beared by restaurants and Swiggy I think they have a healthy margin too. But what about delivery fleet utilisation? Since you are competing with Uber and all other players you have to make sure you get your drivers to earn enough. It does not hurt that it helps you improve the unit economics per delivery too.
If you improve your margin per delivery and get to million orders/day you are suddenly in a different territory altogether. How do you do that?
You start with Alcohol. It is like Food. On demand + With a 1 hour delivery constraint. Dunzo is doing this well. But I assume Swiggy will take over this market soon.
The next ones are Meds, Groceries etc. It is on demand but without the time constraint of 1 hour delivery. You can utilise your fleet during off hours like afternoon.
But soon even these new categories (with even thinner or negative margin) wont be able to justify the valuation of Swiggy. What else? You become a platform, let other players use your delivery fleet, like Runnr. Even this won’t be enough.
The final solution is obvious. Soon you start offering local deals, launch as many other verticals to improve the transactions/ user now that you are super app. So basically just copy the Meituan playbook. The only difference being owning the distribution fleet and having better margin than Meituan.
What happens to Dunzo?
I think unless Dunzo raises a massive round they will probably sell themselves to one of the bigger players. There is no tech play here. Everything is around distribution, launching more categories and improving unit economics to a point where you can IPO in NASDAQ. Or before that some Chinese Behemoth (maybe even Meituan) acquires you. Meituan has already invested in Swiggy’s series F. So this is not far fetched.
P.S One thing I missed mentioning is how much I love Dunzo. Probably it has the highest NPS score in its category. People rave about it. :)
P.P.S A friend commented on the thread: You’d be very surprised about the Dunzo power user :)
My reply: Maybe power user is the wrong term. The goal of every product is to move the user across the AARRR funnel. And if you are a retention PM, you spend your days trying to figure out how to increase the retained cohort. For me I was maybe loosely classifying users who are retained and use Dunzo once a week as a power user. That means they are using Dunzo atleast 5 times a month which is not a bad number. I am sure there are people who will be using 20 times. But for me I would just try to plot a histogram and see the frequency of usage. I am pretty sure most users who Dunzo classified as retained users don’t use the product 20 times a month. I am betting it is much lower than that.