Can ONDC Outpace Blinkit, Dunzo, Zepto In The Grocery Delivery Space?

In the face of fierce competition from players like Dunzo, Blinkit, Zepto and Instamart, who had been encroaching on his share of the hyperlocal grocery market within a 1-2 km range, Deepak Khemani, a Bengaluru-based shopkeeper, onboarded the government-backed ONDC (Open Network for Digital Commerce) last year. 

Although it took him 12 months to stabilise the market share he had been losing to the delivery giants, Khemani believes that joining ONDC was a step in the right direction.  

“From three to four orders per day a year ago to 30 orders a day now, I think the decision to onboard ONDC has started yielding positive results,” the retailer said.

If one could recall, grocery and essentials was the first category to go live on ONDC, almost a year ago, when the network was trying to onboard small shopkeepers directly via seller apps. 

“The order volumes did not pick up pace last year, but with the government strongly backing the open protocol, slight changes are now apparent,” said the grocery store owner that Inc42 spoke with.

While the situation may seem to be improving for now, it doesn’t address the larger question of whether these changes are sufficient to ensure the long-term sustainability of kirana store owners, particularly when tech platforms like Amazon, Flipkart, and Big Basket, along with quick delivery players, are striving to dominate the hyperlocal grocery space with their convenience-led offerings.

Having said that, let’s take a closer look at what industry experts have to say about the fate of traditional grocers, especially when ONDC is being seen as a saviour.

What’s In The ONDC Store For Small Retailers?

Many small retailers in India have been unenthusiastic about the ecommerce wave that swept the country, especially during and after the Covid pandemic. They believe that major etailers like Amazon and Flipkart have favoured their own sellers through exclusive agreements, manipulated prices and discounts, and imposed high commissions on retailers.

Furthermore, the emergence of cash-intensive quick commerce startups, offering rapid grocery deliveries, has only added to the existing challenges faced by local neighbourhood stores.

According to the Retailers Association of India (RAI), which has been at the forefront of mobilising its members to onboard ONDC, a key advantage of joining an open protocol for sellers is enhanced visibility and access to wider markets.

“Still 95% of the retail market is present offline despite the ecommerce adoption. The fragmented retail market has the opportunity to be more visible and accessible through ONDC which was not possible via traditional marketplaces,” CEO of Retailers Association of India Kumar Rajagopalan told Inc42.

Citing an example, the RAI CEO said that a buyer would remember buying products from Amazon or Flipkart but not the seller.

“As a result, customer loyalty is lost in that process. We hope that ONDC will be a game changer on that front as consumers would tend to focus on the retailer rather than the platform,” he added.

He pointed out that besides the democratisation of commerce, if the order volumes scale, sellers/retailers could think of absorbing delivery costs and offering cash back.

“It is only a matter of time. Right now, we can say that sellers are working closely with tech service providers for onboarding and trying to understand how the network operates,” Rajagopalan said.

The RAI CEO added that there could be a probability of click and collect offerings in near future on ONDC since the experiential shopping is in demand.

Notwithstanding the enthusiasm, various sellers that we spoke to expressed concerns like a tedious onboarding process, which may discourage non-tech savvy retailers from joining ONDC.

Meanwhile, sources said that ONDC has set up a template of holding online briefing sessions every week for various onboarding steps. However, these sessions may not be accessible to everyone. The onboarding steps involve business briefing sessions, developing a minimum viable product for ONDC, signing network policy documents, compliance, and more, which can be challenging for merchants and sellers.

For the reader’s understanding, a minimum viable product is a product tested in the pre-production phase on ONDC before it goes live on a buyer’s app. 

Some sellers are also wary of ecommerce giants like Amazon and Flipkart onboarding ONDC, which again have the potential to put small retailers at a disadvantage and create an uneven playing field.

“Although ONDC has a governance policy, there is no control on the price parity, which has added to our apprehensions,” a seller told Inc42, requesting anonymity.

As of now, apart from Big Basket, ecommerce platforms like Amazon, Flipkart, Dunzo, Zepto, Swiggy Instamart, and Blinkit have steered away from onboarding ONDC as a buyer app but whenever they do, the interests of small sellers would be at stake, making way for regulatory intervention.

Is ONDC Compensating For A Jerky Buyer Experience? 

Industry experts opine that factors like the value for money or the quality of products and services, besides costs, is where the kirana neighbourhood stores can pip the online marketplaces in the grocery segments. 

In addition, the overall industry sentiment is that supermarkets/neighbourhood stores still process large order values in grocery/essential items compared to the average order value in ecommerce.

“Retail shopping is still driven by bulk family purchases compared to ecommerce platforms. Hence, a large base of the market still lies with physical retail. This is how brick-and-mortar retail shops enjoy high customer loyalty, thereby building the bedrock of retail shopping,” Khemani explains.

“While price is a major factor, value for money is crucial for determining consumer preference. With ONDC, we hope to reach out to wider markets via buyer apps on these foundations,” Rajagopalan said.

Buyer apps are consumer-facing apps from where one can place orders and connect with sellers. On the other hand, seller apps serve as platforms for merchants and service providers to list their offerings on the network. 

On the logistics and price front, ONDC partners are revisiting their plans, with the network having recently floated its incentive policy for sellers but keeping subsidies intact for buyers. 

The incentive programme that is being floated by ONDC provides a subsidy of INR 50 to a consumer on every transaction above INR 100. In addition, ONDC also subsidises consumers with up to INR 40 on every transaction, explaining cheaper or no cost deliveries.

The programme also entails awarding buyer applications after the first 1,000 orders with a payout of INR 50 per order for a minimum order value of INR 100 (including shipping charges). For the networking participants on buyer side (aggregators) who have at least 50,000 successful orders during the programme duration will be awarded a payout of INR 5 Lakh. 

Meanwhile, we (Inc42) ordered some grocery items from ONDC via Paytm, and Instamart, and this is what we found.

We ordered a 100 gm packet of instant coffee from an ONDC seller and Instamart. Although the ordered item cost us 28% cheaper on ONDC compared to Instamart, we had to wait for six hours for the item, which otherwise was showing a delivery time of 59 minutes on the buyer/Paytm app. 

After waiting for a few hours for the coffee, we called the seller. To our surprise, the seller hadn’t received any notification on the app. While the seller was able to accept the order after a few hours and deliver, the order placed via Paytm remained pending for a long time on the app. 

Moving on, when enquired, the delivery partner told us that he earned INR 16 on the delivery. We could not avail a second INR 50 discount on the ONDC that day.

 Has ONDC Forayed At The Right Time?

One of the emerging trends in the ecommerce industry is the increasing focus on quicker deliveries, with players like Amazon, Flipkart, Tata-backed Big Basket, and hyperlocal startups such as Dunzo, Zepto, Blinkit, and Swiggy Instamart entering the fray. 

According to Redseer research, India’s quick commerce market, focussed on groceries and essentials, is projected to grow 10X to 15X by 2025, reaching a market size of around $5.5 Bn. This growth is expected to outpace other markets, including China, in terms of quick commerce adoption.

However, since 2022, the quick commerce industry has faced challenges such as drying up of venture capital funds, startups prioritising profitability and unit economics, and market saturation.

The quick commerce business model, which aims to change consumer behaviour and provide convenience at an additional cost, has resonated with middle and high-income groups in metros and tier 1 cities but has struggled to expand beyond that. 

Additionally, the average order value from quick commerce platforms has stagnated, leading to difficulties in increasing order volumes, which in turn has affected the revenues of these companies.

Mumbai-based quick commerce platform Zepto incurred a loss of INR 390.3 Cr on a standalone basis in its first year of operations in the financial year 2021-22 (FY22). The Nexus Venture Partners-backed startup’s total revenue stood at INR 142.3 Cr in FY22. Zepto, which began operations in April 2021, had total expenses of INR 532.7 Cr in FY22.

Reliance-backed Dunzo’s consolidated loss rose 2X YoY to INR 464 Cr in FY22 on the back of a steep rise in expenses.

Blinkit, which was integrated with Zomato in August 2022, registered a 6% decline in its average order value (AOV) to INR 522 in Q4 FY23 from INR 553 in Q3 FY23. The quick commerce platform’s AOV stood at INR 568 in the quarter ending September 2022. While, its revenue surged nearly 21% to INR 363 Cr in Q4 FY23.

Amid rising losses and fluctuating order values of these players, sustaining the 5- to 15-minute delivery model has become a tedious task. This creates an opportunity for a third ecommerce player in the Indian market, leveraging government support, offering better margins to offline retailers, and providing incentives to buyers.

However, even with the right intentions, the success of an open protocol player would depend on market unbundling, building consumer trust beyond discounts, and improving technology to coexist alongside established players to dominate the majority share of the $8 Bn grocery market.