ONDC Benefits Will Not Impact Zomato, Swiggy: Jefferies Report Players on ONDC network may not be able to sustain higher discounts or lower delivery fees if incentives from the ONDC are withdrawn, says the report
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
Open Network for Digital Commerce (ONDC) does not pose an immediate threat to the Zomato-Swiggy duopoly in the food delivery segment, brokerage firm Jefferies said in a report.
"As ONDC is funding most of the delivery cost currently, the seller and buyer apps can afford to charge a lower commission from the restaurants as compared to Swiggy/Zomato. As the commissions are lower, restaurants can afford to offer better pricing on ONDC-enabled platforms. However, if ONDC withdraws the incentive scheme post-May, either the platforms or the customers will have to pay for deliveries," the firm said in its report.
The analysts at Jefferies also stated that the delivery subsidy of INR 75, which is limited to INR 2.25 lakh per seller app per day and translates to INR 125 per order, is unsustainable. Notably, although the incentive scheme was initially supposed to run until March 2023, it was later extended till May 2023. According to some reports, this may continue until the end of this year.
To sum up, according to Jefferies analysis, ONDC-enabled platforms cannot continue to offer higher discounts or lower delivery charges compared to Swiggy or Zomato in the absence of ONDC-funded incentives.
Interestingly, brokerage firm Motilal Oswal Securities also recently said that ONDC did not pose an immediate threat to Zomato.
The buzz around ONDC
For the uninitiated, ONDC is a government-backed network enabler platform that did Beta testing in September 2022. The daily transaction on the platform has jumped from 50 in January this year to 25,000 orders last week.
In the food delivery space, the platform has created a buzz as it promises to offer lower food price as compared to Swiggy and Zomato. This is also being looked at as the end of the Swiggy-Zomato duopoly.
ONDC has witnessed a rapid increase in onboarding retail merchants on its platform, the network said in a statement, while also adding that its retail merchants have risen from 800 in January this year to 35,000 now. It has also expanded to a number of cities, notably from 85 cities at the beginning of the year to more than 230 cities now.
The network's participants have also surged from 26 in January to 46 today. The list includes PhonePe's Pincode as well, which recently crossed 50K installs in Bengaluru.