ONDC Poses No Immediate Threat To Zomato: Motilal Oswal

ONDC Poses No Immediate Threat To Zomato: Motiwal Oswal

SUMMARY

The brokerage firm said that ONDC will become a potential threat to Zomato, only if it meaningfully scales up across categories, allowing it to achieve greater efficiency

It further pointed out, while ONDC currently delivers 10,000 orders a day, Zomato orders 1.8 Mn per day on standalone basis

Motilal Oswal stated that if Zomato’s efforts to rationalise its take rate are hindered, then there is a possibility that the company’s goal of achieving profitability will get further delayed

Over the past few days, ONDC (Open Network for Digital Commerce) has gained significant attention among netizens, potentially posing a threat to the duopoly enjoyed by food delivery giants Zomato and Swiggy. The Internet is abuzz with news articles and screenshots showcasing price differences of the same food items on Swiggy, Zomato, and ONDC.

Against the hullabaloo, brokerage firm, Motilal Oswal Securities said ONDC does not pose an immediate threat to Zomato. It said, “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.”

Motiwal Oswal said that ONDC will become a threat once the platform scales up in multiple categories ranging from food to ecommerce. The brokerage firm said that at present while Zomato orders 1.8 Mn per day on a standalone basis, ONDC delivers a mere 10,000 orders. It further contested that the free delivery on ONDC platform is limited to the first order on the platform where the restaurants bear the cost.

“After the first free delivery, in some cases delivery charges are higher than Zomato/Swiggy,” it said.

The brokerage platform said that difference in food pricing is not sufficient to override the wider selection of food options that are available on either Swiggy or Zomato.

Motilal Oswal stated that if Zomato’s efforts to rationalise its take rate are hindered, then there is a possibility that the company’s goal of achieving profitability will get further delayed.

Inc42’s deep dive on how ONDC poses a threat to Swiggy and Zomato can be read here.

In the meantime, Zomato share price declined by 7% on the BSE to INR 60.35 during the intraday trading on Tuesday (May 9). This drop was attributed to Zomato piloting B2B delivery services and concerns about potential disruptions to the food tech sector due to ONDC. In addition, Invesco, a significant investor in Zomato’s competitor Swiggy, has further reduced its valuation by half to approximately $5.5 Bn.

Zomato’s share price stood at INR 61.82 on BSE at the time of publishing the story.