Why ONDC is Set to Shake Up India’s Food Delivery Market
The entry of ONDC (Open Network for Digital Commerce) into the food delivery market in India is expected to drive up digital consumption. The government-backed platform is expected to challenge the duopoly of Swiggy and Zomato, India’s leading food delivery platforms that have till recently enjoyed significant overseas capital influx. As ONDC’s low commission rates and direct-to-consumer model present an opportunity for businesses to sell products at lower prices, more customers and sellers are likely to be attracted to the platform. Meanwhile, a McKinsey report predicts that ONDC will increase the number of digital transacting consumers in India to 450-500 million by 2030.
The Indian government-backed digital commerce platform, ONDC, has launched its food delivery service in multiple cities following a successful trial in Bengaluru. It is important to note that ONDC is a network and not a standalone app. With its direct-to-consumer model and lower commission fees, ONDC is poised to challenge the dominance of Swiggy and Zomato in the food delivery market and drive digital consumption in India.
The ONDC is a government-backed initiative in India aimed at creating an open digital commerce network that connects buyers, sellers, and service providers. The objective of ONDC is to democratize e-commerce by reducing the entry barriers for small and medium businesses, and enabling them to participate in the digital economy.
By allowing restaurants to sell food directly to consumers through various buyer apps, ONDC is set to disrupt the food delivery industry while offering significantly lower commission fees than its competitors. Paytm, Phonepe’s Pincode, Meesho, Magicpin, and Mystore are among the buyer apps that have joined the platform, and several seller apps, including Alpino, Bitlsila, Bizom, BoAt, Delhivery, and Digiit, are already live on the network.
ETtech reports that ONDC platforms like Paytm and Magicpin are offering food items at a discount ranging from 30-80 percent compared to the prices on Swiggy and Zomato. Notably, Zomato has a stake of about 16 percent in Magicpin.
According to the official website, ONDC is now operational in over 236 cities, including Mumbai, Pune, Bangalore, Noida, Kolkata, and Chennai. It claims to have onboarded over 29,000 sellers who sell more than 3.6 million products on the platform.
The ONDC platform has garnered attention from consumers and businesses alike, as it presents an opportunity to purchase products at lower prices, potentially leading to increased sales for participating businesses. However, it remains to be seen how this will impact the food-delivery market and whether other platforms will respond with their own competitive pricing strategies.
ONDC’s entry challenges Swiggy and Zomato duopoly in the Indian food delivery market
Swiggy and Zomato, two of India’s largest food delivery platforms, have been facing increasing financial pressure as they struggle to turn a profit. In addition to this, the emergence of ONDC as a potential competitor in the food delivery market has added to their business pressures. According to a recent report by HSBC Global Research, Zomato held a market share of 54 percent in the food delivery sector in the October-December 2022 quarter, while Swiggy held the remaining 46 percent.
To maintain profitability, Zomato has taken the approach of increasing commission fees from various restaurant chains by two to six percent. Meanwhile, Swiggy has introduced a “platform fee” of INR 2 per food delivery order in certain cities like Bengaluru and Hyderabad, in addition to the delivery charge. However, these strategies may not be sustainable in the long run, especially with the entry of ONDC into the market, which offers significantly lower commission rates to restaurants.
The competition in the food delivery space is likely to intensify.
How the ONDC can transform India’s digital commerce landscape by 2030: Insights from McKinsey report
A McKinsey report from April 2023, titled “Democratising Digital Commerce in India” highlights the potential of ONDC to revolutionize the digital commerce landscape in India. By providing a level playing field for small and medium businesses, ONDC can unlock significant economic value and drive growth, propelling India’s digital consumption from US$65 billion in 2020 to around US$340 billion by 2030.
The report predicts that ONDC will increase the number of digital transacting consumers in India from 165-190 million to 450-500 million by 2030. This increase will result from the democratization of e-commerce, which will allow more businesses to enter the digital economy, creating a virtuous cycle of growth. Overall, the ONDC has the potential to be a game-changer for the digital economy in India, providing consumers with a wider range of choices and better prices, while also helping India to become a leading digital economy in the world.
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