“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. At its current scale, we do not have enough evidence to alter our base case for Zomato,” Motilal Oswal said in a report.
The brokerage firm underscored that the risk posed by ONDC will only become significant once it scales up in multiple categories (food, e-commerce, grocery), which would give it the scale to override the delivery scale of the existing players.
“The current 10,000 deliveries per day (40 per cent in Bangalore) across categories do not present enough scale to absorb the delivery rider cost for the platform. For 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,” said Motilal Oswal.
Motilal pointed out that the delivery on ONDC apps is only free for the first order. In the case of a discounted /free delivery, this cost has to be borne by the restaurant (possibly to increase competitive advantage against incumbent duopoly) and is not sustainable, said Motilal Oswal. Also, after the first free delivery, in some cases, delivery charges are higher than Zomato/Swiggy.
The brokerage firm added that the difference in pricing is unlikely to be sufficient to override the wider selection of food options (early mover advantage) and a well-oiled delivery machine of incumbents.
Nevertheless, Motilal believes if ONDC continues to scale up over time, this could become a significant risk, as it would enable greater delivery efficiency making the system sustainable.
The brokerage firm underscored the food delivery business is still at a nascent stage in India with a long runway of growth.
“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,” Motilal said.
ONDC is a government-backed platform which works as a network of interconnected e-marketplaces. With ONDC, sellers can sell their products directly to customers.
The Department for Promotion of Industry and Internal Trade (DPIIT) launched ONDC in 2021 with the aim of giving a push to the Digital India program.
ONDC is being seen as a major threat to food-delivery platforms such as Swiggy and Zomato as it connects restaurants directly to customers. In simple terms, ONDC lets restaurants sell food directly to consumers without the need for a third party (like Zomato and Swiggy).
Read more: Is ONDC cheaper than Zomato, Swiggy? Here’s the difference in price
ONDC network has been around since September 2022 but has begun to gain popularity recently. As per reports, the network has surpassed the 10,000 daily order mark. Netizens are comparing the food delivery prices offered by ONDC, Swiggy, and Zomato and have found ONDC cheaper.
Many buyer apps such as Paytm, Meesho, etc. have joined the platform along with several seller apps, including BoAt and Delhivery.
ONDC is not a separate app that you can download from Play Store. Instead, ONDC works like UPI, which means it can be added to existing apps like–Paytm, PhonePe and Meesho, etc. ONDC has more than 29,000 sellers that are selling 36 lakh plus products.
One can use ONDC via the Paytm app. Go to the Paytm app and type ‘ONDC’ on the search bar. Now you can order food from the restaurant. It must be noted that not all restaurants are selling food through this network as it is relatively new.
Disclaimer: The views and recommendations given in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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