E-food delivery majors may instead partner the govt network
Meanwhile, ONDC is not the only firm that’s gearing up for a fight
Online food delivery majors Swiggy and Zomato may not immediately give in to the price war waged by ONDC, say experts.
“Companies such as Swiggy and Zomato are in a wait-and-watch mode, and may not reduce the prices in the immediate future as a knee-jerk reaction,” said a person familiar with the strategy of Swiggy and Zomato. However, these firms may partner with ONDC in the coming weeks, like Paytm and PhonePe, the person said.
ONDC doesn’t have an app and allows users to buy food from restaurants via buyer apps, such as Paytm and Magicpin. While users can buy the same food items listed on Swiggy or Zomato, they have to shell out 20 per cent less on ONDC – the government-backed network. But experts say that the non-profit set up by the Department for Promotion of Industry and Internal Trade faces challenges. One is the discounts itself.
“ONDC is funding the discounts, but we don’t know how sustainable that is. Also, there is very little clarity about their food delivery processes, price structure, and delivery staff that they aim to build,” said a person in the know.
Swiggy and Zomato can also offer a larger roster of restaurants to users compared to ONDC, which is in its nascent stage, according to food-tech industry sources. These firms have also spent years building various technologies and processes to deliver food. Swiggy has around 300,000 delivery partners across 500-plus cities in India, while Zomato’s count stands at 330,000.
But Shireesh Joshi, chief business officer, ONDC, has a different take. “Some of the discounts are funded by ONDC while others are borne by restaurants, and discounts vary from item to item,” Joshi told Business Standard. The discounts, he said, are just a way to start activity on the network and “not an ongoing strategy”.
“We expect this to help create initial interest. People will try out the network, as they have, and find that this is also a way to shop that works. Thereafter, sustainable propositions can take over,” Joshi said.
Zomato and Swiggy declined to comment about the move by ONDC to offer food items.
Experts said the extent of ONDC’s disruption, in the long run, depends on numerous factors such as institutional capacity of sellers; buy-in of restaurant partners, and customers; and long-term vision for financial sustainability. Currently food deliveries are either being fulfilled by restaurants themselves, or through third-party logistics providers such as Dunzo and Loadshare, according to reports.
“The extent to which they (ONDC) can continue to do that in a manner that assures quality and speed is crucial to the success,” said Kazim Rizvi, founder of The Dialogue, a tech policy think tank. “This is indicative of the larger picture, wherein we will have to see how successfully the logistics capacity of sellers and third parties can be leveraged to fulfil orders.”
ONDC’s deliveries though haven’t been late, says Joshi.
“We have had a fairly good track record of food delivery within 45 minutes, and grocery delivery within the same, or next day. On occasion, there might have been instances (of late deliveries), but as a system, no,” Joshi added.
Next, the presence of a large number of buyers and sellers is important as customers want to use apps that have a significant number of options, say experts. An increase in the number of restaurants will attract more consumers. On the other hand, sellers want to showcase their offerings to a large customer base and an increase in consumers will attract more sellers. The network effects, therefore, eventually need to set in.
“Existing platforms will have to adjust to this new reality, and see how they can also benefit from this,” said Joshi from ONDC.
The extent to which a consumer or seller is prepared to use multiple apps for the same function is also important. “Before placing an order, will the consumer compare prices on the ONDC-enabled app with food aggregator apps, or will the customer stick with the app that they are accustomed to? These are all important factors,” said Rizvi of The Dialogue.
Experts said that the long-term financial sustainability of the network also has to be given due consideration. A substantial number of entities, including banks, have invested in the network, providing an important initial push.
“However, providing discounts requires substantial investments and may not be sustainable in the long run,” said Rizvi. “Eventually, you have to attract a large volume of orders and take care of the unit economics to be financially sustainable in the e-commerce space. The approach taken by the network, i.e., the extent to which it will continue to provide discounts is a crucial part of the equation. The success of the network can only be judged with time.”
However, Rahul Rai, partner and co-founder, Axiom5 Law Chambers, said that ONDC is looking to reduce barriers to entry at each layer of e-commerce transaction.
“For example, if someone with a fleet of ten scooters can plug into ONDC to find orders for delivery within their narrow catchment area, large restaurant partners may decide to operate their own delivery fleet and use ONDC platform to fulfill orders,” said Rai. “In the long run, the success will depend on unit economics. If per unit cost of delivery stays profitable, ONDC will make it easier for newer delivery service providers.”
As of now, the food delivery space has settled into an effective duopoly. Zomato has gained around 13 per cent of the food delivery market share since FY22, according to analysts at HSBC, and as of the fourth quarter of FY23, the Gurugram-based firm holds 56 per cent market share, versus Swiggy’s 44 per cent.
Meanwhile, ONDC is not the only firm that’s gearing up for a fight.
In April this year, Coca-Cola acquired a minority stake in online food delivery platform Thrive. Set up in 2020, Thrive is a food search and delivery platform that competes directly with Swiggy and Zomato. The strategic investment will reportedly give Coca-Cola a distinct edge over rivals and may push consumers to order Coca-Cola’s beverages along with the food orders they place on the Thrive app.
ORDER CANCELLED
Many online platforms couldn’t face the competition in the food delivery space
- 2016: Ola closed its Ola Café business, which operated in New Delhi, Bengaluru, Mumbai and Hyderabad
- 2017: Ola Cabs bought food delivery start-up Foodpanda from Germany-based Delivery Hero, but later stopped operations
- 2020: Uber sold Uber Eats to Zomato in an all-stock deal valued around $300-350 million
- 2022: Amazon closed Amazon Food which was introduced in 2020 as a pilot in Bengaluru
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