ONDC has now reportedly set a maximum incentive threshold of INR 2.25 Lakh on the seller-side app per day, along with a cap of INR 3,750 per seller per day
The new mandates come as transactions related to food and groceries on ONDC rose to 25,000 orders over the weekend
With ONDC capping some of the incentives, seller-side apps could likely pass on delivery charges to customers
Seller apps could likely resort to a price hike as the Open Network for Digital Commerce (ONDC) has reportedly capped the incentives for subsiding delivery costs. The new subsidy slabs came into effect on May 9.
In a communication sent on May 7, ONDC added a couple of conditions on seller-side apps for availing such incentives, The Economic Times reported.
Earlier, the state-backed platform offered a discount of INR 75 for logistics-related costs for every eligible order. However, ONDC has now set a maximum threshold of INR 2.25 Lakh for incentive amount on the seller-side app per day, along with a cap of INR 3,750 per seller per day.
The new mandates came close on the heels of ONDC scaling up transactions related to food and groceries in the recent months, with the number of orders rising to 25,000 over the last weekend.
The report, citing sources, said that the platform was bound to bring in these mandates as the discounts were offered initially to woo customers and attract them to the new platform.
The communication also wound up some other facets of the incentives, which had essentially ensured that the user was not charged for most hyperlocal orders.
Under the previous incentive regime, seller-side apps had to ‘send zero delivery charges for all hyperlocal deliveries’ while intercity deliveries had to be offered at subsidised prices. For availing the stimulus, buyer apps were also expected to ‘communicate free delivery to the buyer as soon as possible in the buyer journey to generate demand’.
As per the new communication, this mandate now stands cancelled.
Blessing In Disguise For Zomato, Swiggy?
With this, the seller-side apps on ONDC could likely pass on delivery costs to users once the cap threshold is breached by the listed restaurants and grocery stores. The move is expected to close the price chasm between ONDC and foodtech giants such as Zomato and Swiggy.
Inc42 recently found that Swiggy was 95% more expensive compared to ONDC, even after hefty discounts. On similar lines, a burger from McDonald’s was priced 158% cheaper on the ONDC compared to Zomato.
This difference in pricing is largely the result of lesser commissions and incentives offered on ONDC. Both platform commissions and third-party logistics charges account for less than 8% of the average order value (AOV) on the state-backed platform, while Zomato and Swiggy charge commissions in the range of 18-24% of the average order value.
This allows restaurants and grocery shops to sell their products at a cheaper price, offering competitive prices than the foodtech duopoly. But with ONDC capping the charges, the price difference could diminish by a big margin and could also see seller-side apps charging delivery charges from customers.
Meanwhile, industry analysts believe that while price differences will likely decrease in the long term, the growth, going forward, will largely be dictated by quality of service.
“ONDC will definitely help make the ecosystem more competitive by allowing users to search across platforms. So in that sense, it will create pressure on established platforms to rationalise prices. Having said that, ONDC does seem to be offering discounts at the moment to drive uptake. In the long term, price differences are likely to decrease and may be dictated by differences in quality of service,” public policy firm The Quantum Hub’s founding partner Rohit Kumar told Inc42.
Earlier in the day, brokerage firm Motiwal Oswal Securities also said that ONDC posed no immediate threat to Zomato as the listed foodtech major currently processes 18 Lakh orders a day on a standalone basis compared to ONDC which delivers a mere 10,000 orders. Noting that price difference alone is not sufficient to override Zomato, the brokerage added that ONDC could emerge as a threat once the platform scales up across multiple categories.
Meanwhile, ONDC is reportedly also said to have been offering a logistics-related incentive of INR 50 to buyer-side apps such as Paytm and PhonePe’s Pincode on orders above INR 100. However, under a new diktat, ONDC has also capped the number of transactions availing such incentives at 2,000 orders per day
Alongside, the platform has also been dishing out multiple other incentives and offers to further shore up buyer-side demand and onboard more merchants. The report added that these will also be rolled back as the network grows to scale.
Since commencing its pilot run in April last year, ONDC has so far scaled up the platform to launch its beta phase across Bengaluru and Meerut. It counts big names such as Paytm, Pincode, and Mystore among companies that are operating on the buyer side.
The platform is backed by major banks in the country such as State Bank of India (SBI), Axis Bank, Kotak Mahindra Bank, HDFC Bank, ICICI Bank, and others, which have cumulatively pumped in INR 180 Cr in the initiative.