ONDC not an immediate risk for Zomato and Swiggy as lower prices are due to discounts
ONDCdoes not actually offer cheaper food on its platforms, claim analysts. Lower prices are on account of ONDC-funded discounts.
- Discounts will have to be withdrawn at some point by ONDC, which will bring it on par with
Zomatoand Swiggyin terms of cost.
- In the food delivery business, scale matters as delivery costs are linked to the number of orders per rider each day. Over the long-term, ONDC could be a threat but not in the near-term.
AdvertisementFood delivery app Zomato’s stock price has been languishing between ₹52 and ₹64 for the last one year as its losses continued to widen in FY23. The latest threat to the food delivery company stems from the rise of ONDC (Open Network for Digital Commerce), often touted as the slayer of e-commerce players in India. Soon after launching food delivery on its network, ONDC is now seeing 25,000 orders a day. What makes this worrying is not just order volumes but the pricing. Data seems to suggest that ordering food on ONDC is cheaper than what it is from Zomato and Swiggy, market leaders in the food delivery space.
The obvious question to ask is: Will ONDC’s food delivery service kill these existing players?
Analysts are working on the assumption that at some point the discounts will be withdrawn at some point, thereby creating a level playing field between the players. After the initial discounts are withdrawn, ONDC will have to contend with higher costs unless it chooses not to invest in customer support, which may impact customer retention. Currently, analysts only see a limited impact on Zomato in the near term. According to Kotak, the long-term impact is, for now, tough to call.
ONDC is born out of the need for an inclusive online commerce marketplace for sellers, which prevents platforms like Zomato, Swiggy, Amazon and Flipkart from becoming monopolies in their respective segments. Soon after launching delivery of food, groceries and retail, it is clocking daily orders of over 25,000. The prices currently being offered are less than what consumers are paying on other platforms. According to analysts, the lower prices are primarily due to ONDC-funded discounts.
If one looks at the numbers on delivery partners, then Zomato had at the end of December 2022, 330,000 active delivery riders, which is more than third party logistics aggregators. Zomato’s delivery cost in FY23 stood at ₹75 per order. The cost of delivery depends on the number of orders delivered, which means that higher the number of orders the better are economies of scale. Experts like
Over time, ONDC will have to invest in customer support going forward if it seeks to compete with them on the same plane.
While Zomato has been bringing down its delivery costs steadily, it will have to spend more towards restaurant appeasement and customer experience. It will also have to arrive at some agreement with restaurant partners on how it shares customer data. The two food-tech players have been at loggerheads with their respective restaurant partners. The National Restaurant Association has been fighting against some of the practices adopted by these two unicorns without much avail.
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