SUMMARY
If ONDC withdraws the incentive scheme post-May, either platforms or customers will have to pay for deliveries: Jefferies
Subsequently, if the price difference goes away, order volumes are expected to be impacted
ONDC recently said that it witnessed a jump in its daily transaction from 50 in January 2023 to 25,000 orders in the first week of May 2023
While Open Network for Digital Commerce (ONDC) has gained significant buzz over the past few days, the government-backed network enabler platform 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 brokerage noted in its report.
Subsequently, if the price difference goes away, order volumes are expected to be impacted, the report read.
On the other hand, if the platforms decide to absorb a bulk of delivery costs, they will eventually have to charge higher commissions from restaurants, which, in turn, will result in higher listing prices.
“It is unsustainable for ONDC-enabled platforms to offer higher discounts or lower delivery charges vs Swiggy or Zomato in the absence of ONDC incentives,” the report added.
Meanwhile, ONDC has reported a 500X increase in its daily transactions. ONDC started its pilot in April last year, followed by beta testing in September 2022. The network enabler has recently witnessed a jump in its daily transaction from 50 in January 2023 to 25,000 orders in the first week of May 2023.
It had around 800 retail merchants in January this year, which rose to 35,000 now, a 4,275% increase within five months, the platform said. Its network participants have also increased from 26 in January to 46 so far.
ONDC has also expanded its geographic footprint, with the number of cities from 85 at the beginning of the year to more than 230 cities now.
On May 10, brokerage firm Motilal Oswal Securities, too, said that ONDC did not pose an immediate threat to Zomato.
“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 brokerage said.
