The government-backed Open Network for Digital Commerce (ONDC) platform, which has been receiving much praise online for offering better pricing than food delivery services Zomato and Swiggy, will be a threat to the major players in the food delivery business only if the platform meaningfully scales up across various categories.
According to a report by Motilal Oswal, ONDC needs to scale up across different categories, including e-commerce, food, and grocery, to pose a credible threat to major players in this segment.
"We do not perceive direct ordering as a major concern for the industry. However, we see ONDC as a potential threat to Zomato only if it meaningfully scales up across categories, allowing it to achieve greater efficiency compared to the walled gardens," the report said, adding, there is no evidence right now to alter Motilal Oswal's base case for Zomato.
Food items from various fast food chains, including Pizza Hut, Taco Bell, McDonald's, Cafe Coffee Day among others were available at a steep 30-80 per cent discount on ONDC platforms such as Magicpin and Paytm when compared to Zomato and Swiggy, a recent report by Economic Times had revealed. ONDC, which was launched in 2021 under the Department for Promotion of Industry and Internal Trade (DPIIT) is now available in multiple cities in the country.
The current 10,000 deliveries per day (40 per cent in Bengaluru) across categories do not present enough scale to absorb the delivery rider cost for the platform, the Motilal Oswal report said. In comparison, Zomato currently delivers 1.8m orders per day on a standalone basis.
"However, the industry-wide figure across multiple categories (relevant for ONDC) would be several times greater than this," the report said.
According to the report, the ONDC apps offer free delivery only for the first order. Restaurants will have to bear the cost of delivery or discount on subsequent deliveries, and this, according to Motilal Oswal, may not be sustainable.
However, pricing alone may not be enough for ONDC apps to beat the competitors as platforms such as Swiggy and Zomato offer a wide selection of food menu.
"With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong 29 per cent CAGR over FY23-25. While the management expects to turn profitable latest by Q2FY24, we believe the company should break even in FY25," Mint quoted the Motilal Oswal report as saying.
The report, however, said it is possible for ONDC to pose a credible threat if it continues to scale up eventually.
Currently, ONDC is offering discount coupons of Rs 50 per order to new users.
