Swiggy-Zomato Killer In The Making? Can ONDC End The Foodtech Duopoly?

Swiggy-Zomato Killer In The Making? Can ONDC End The Foodtech Duopoly?


NRAI’s various attempts to thwart the increasing duopoly of Swiggy and Zomato have failed, however, restaurants see ONDC as a ray of hope

Industry players believe that the platform has the potential to kill the duopoly that Swiggy and Zomato have created in the segment over the years

Unlike Swiggy and Zomato, the data of the customers ordering food on ONDC will also be shared with merchants/restaurants, which will help them know their target market, customer behaviour and ordering patterns

Precisely one year ago, the National Restaurant Association of India (NRAI) was seen urging its member restaurants to stop onboarding food delivery platforms Swiggy and Zomato. The idea was to end the overarching influence of these food aggregators and, in turn, put an end to the price monopoly that the association claimed these platforms had created. 

In its endeavour, the association launched various drives, including Swiggy, Zomato logout campaigns, Order Direct, etc., but failed to fetch any desired outcome. 

In fact, the order volume of both Zomato and Swiggy, according to their annual reports, grew substantially in CY22 compared to CY21.

One year on, the restaurants under the banner of NRAI have reunited to find an alternative way to capture a juicy pie of India’s online food delivery space. However, this time, they have the backing of the Open Network For Digital Commerce (ONDC).

Founded on December 31, 2021, as a private non-profit company by the Department for Promotion of Industry and Internal Trade (DPIIT), the network launched its pilot phase in April 2022 across five cities — Bengaluru, Delhi NCR, Shillong, Bhopal and Coimbatore. ONDC has also started its beta pilot in Bengaluru and some Tier 2 cities. 

Many restaurant owners and industry players believe that the platform has the potential to kill the duopoly that Swiggy and Zomato have created in the segment over the years. 

How did online food delivery structure (swiggy, zomato) look like

As of now, NRAI is providing training and partnering with technology players to help restaurants join ONDC to end the dominance of Swiggy and Zomato in the space.

ONDC has also roped in various restaurant networking partners. Zomato-backed savings and discount platform Magicpin, for instance, has already partnered with 22,000 restaurants across Bengaluru and Delhi NCR, with plans to soon expand to other cities. Meanwhile, DotPe, another restaurant aggregator, too, is helping restaurants join the network (ONDC).

Interestingly, this is not the first time that the Swiggy-Zomato dominance in the $50 Bn food services market is being challenged. 

Earlier, global ecommerce behemoth Amazon and mobility unicorn Ola tried to bag a market share in the segment but failed due to the dominance of the two players.

Online Food delivery landscape in India

According to various reports, while Swiggy is the market leader in southern India, Zomato is the king in the north, of course, in the food delivery space.

However, this dominance could be short-lived with ONDC in the scene now. This is because the platform has been built to increase healthy competition in the market, provide a level-playing field to small merchants and end the dominance of a few players.      

So, How Can ONDC Resolve Issues Denting The Foodtech Space? 

Almost every player working in the F&B industry is slapped with heavy customer acquisition and retention costs, according to the analysts Inc42 spoke to for this story. 

Over the past few years, industry experts have observed that Zomato and Swiggy have taken advantage of this situation by significantly increasing the commissions they charge their partner restaurants. Previously, these commissions ranged from only 2-5%, but have now inflated to 18-24% of the average order value.

The underlying reasoning behind this lies in the fact that both Zomato and Swiggy have amassed a massive database of millions of users, which they choose not to share with their restaurant partners.

In simple terms, your favourite restaurant does not know that you are one of its recurring customers.  

This becomes a major pain point for restaurants because even though they are sitting in the market for years, they are hardly aware of who their end consumer is. 

Another pressing issue is the rating mechanism, which is a crucial metric for customer retention for these food aggregator platforms.

According to Pranav Rungta, the director of Mint Hospitality Ltd and the head of NRAI’s Mumbai chapter, “The ratings system of online aggregator platforms is flawed. Although the customers are the ones who give ratings, the algorithms on Swiggy and Zomato change the game, putting restaurants at a disadvantage.”

According to industry experts, ONDC could solve the aforementioned challenges to some extent. 

What are restaurants aiming for

For instance, CAC (customer acquisition cost) that is usually passed on to the restaurant by the aggregator, even after the same customer is repeatedly ordering, may not exist at all on a network like ONDC.

This is because ONDC has many buyer-side apps like Paytm, PhonePe, Meesho, Pincode, and Magicpin, among others, which already have millions of users, hence there will not be additional cash-burn to acquire customers. 

This, in turn, gives a natural advantage to the restaurants listed on ONDC since they are now accessible to millions of users using these apps too. 

To understand how online food delivery aggregators attract customers, a recent McKinsey report points out that platforms, besides spending on marketing, advertising and discounts, are also chasing faster deliveries and acquiring cloud kitchens, which are included in their CAC.

Unlike Swiggy and Zomato, the data of the customers ordering food on ONDC will also be shared with the merchants/restaurants, which will help them know their target market, customer behaviour and ordering patterns. 

NRAI’s Rungta said that the rating systems of restaurants would not be directed by platform algorithms but by customers, ensuring more transparency in the space.

All these factors put together are expected to benefit restaurants; however, the most crucial of them all would be profits earned by eateries and the pricing of food items. 

A Win-Win For Eateries & Customers?

Right now, in most cases, Swiggy and Zomato control the entire funnel in the space — from pricing, logistics, discounts, payments, etc. 

This, as per NRAI and other industry bodies, has resulted in a captive ecosystem where restaurants have no say. 

Furthermore, ONDC’s food delivery foray also assumes significance at a point when the valuation of both food delivery giants, Swiggy and Zomato, have taken a hit. 

While Swiggy’s earliest backer Invesco has marked down its valuation by a significant 25% to $8 Bn, rival Zomato’s market capitalisation on stock exchanges is hovering around $5 Bn, down 50% from its highest market cap since its listing.

To counter this, Swiggy and Zomato have been optimising their costs and introducing changes to their pricing strategies — ranging from increasing delivery charges and commissions from restaurant partners to curbing deep discounts and free deliveries.

Recently, Swiggy started charging a platform fee of INR 2 per order, irrespective of the cart value. 

In addition to this, the two players have loyalty programmes, Zomato Gold and Swiggy One, which help customers avail free deliveries and discounts. 

Zomato Gold, which was relaunched by Zomato earlier this year, charges INR 149 from customers in exchange for free deliveries within a 10 km radius, VIP access during peak hours and cashbacks for three months.

Similarly, SwiggyOne offers a range of services, including free deliveries across Instamart and Genie platforms, for INR 299.

How will ONDC change the online food delivery game

To counter this, restaurants, too, are rethinking their pricing strategies and offering free deliveries to woo more customers. 

On an average order value, buyer and seller side apps will charge 2-3% commissions each, and restaurants will also have to give a commission to third-party logistics players. Cumulatively, it won’t be even half of the commissions that the restaurants are right now paying to Swiggy and Zomato, sources within ONDC and NRAI told Inc42.

Meanwhile, industry experts estimate the platform commissions and third-party logistics charges to be nearly 8% of the average order value on ONDC, which is still way less than 18-24% in commissions charged by Swiggy and Zomato. This will enable restaurants operating on ONDC to pass on the benefit to customers and retain them.

“The restaurants may even look at absorbing the delivery costs and pay third-party logistics players instead of passing on the whole delivery charges to their customers, which is the case with Swiggy and Zomato right now,” Pranav said.

To get a deeper understanding of the commissions in question and see if restaurants on the ONDC platform were offering free deliveries, we tried ordering food from both Zomato and ONDC via Paytm. To our surprise, a burger from the nearest McDonald’s cost us 158% cheaper via the ONDC route than Zomato.

Inc42 price analysis of various food purchases

Another price comparison between ONDC and Swiggy — key metrics, location and time being the same — revealed that Swiggy, even after discounts, was 95% more expensive on the pocket compared to ONDC. 

Interestingly, both Swiggy and Zomato are charging the delivery fee, which they claim goes to their delivery partner, whereas on ONDC most deliveries were free. 

Another interesting aspect is discounts. We know that initially, Swiggy and Zomato were offering deep discounts to acquire customers, but as they built their user base, the discounts offered slowed down drastically while the commissions charged from restaurants increased.

According to industry experts, this has forced many restaurants to increase the prices of their products.

Meanwhile, ONDC has emerged as an alternative where restaurants can offer better discounts than Swiggy and Zomato and absorb some delivery costs, thereby passing benefits to the end consumer and retaining them.

Hence, the network has now become a new ray of hope for many restaurants that want the ongoing duopoly in the space to get eliminated.

However, The ONDC Needs To Jump A Few Roadblocks 

Right now, an increasing number of ecommerce platforms, payment aggregators, and logistics companies, along with brick-and-mortar stores and restaurants, are joining the ONDC bandwagon. 

However, the model is operational only in select cities. The actual challenge will emerge when ONDC scales to cities and towns beyond metros. This is because the platform may find it difficult to onboard smaller players with little technical know-how. 

ONDC is expected to rope in aggregators and industry bodies for the same, but looking at the pace at which the network has been able to scale in the last one year, the same appears to be a time-consuming exercise.

Right now, the awareness of the government-aided ONDC is low, and the platform needs to up its game when it comes to onboarding more merchants.

Another challenge for the platform is to resolve the discoverability of food menus on the buyer-end apps, which the network seeks to address in the coming months. 

While PhonePe has launched an ONDC-specific buyer-side app, Pincode, for better user experience, Paytm, as per sources, is working on UI/UX designs to help customers navigate ONDC offerings. 

Coming back to the food delivery segment, another crucial factor will be logistics. Both Swiggy and Zomato have been quickly able to capture a large pie of the online food delivery market because of their in-house logistics capabilities and various acquisitions, which have helped them in increasing their operational efficiency. 

To expect restaurants to compete with them will be unreasonable. So, there would be a natural dependence on third-party logistics players like Dunzo, Shadowfax, Delhivery, and Loadshare to help with deliveries.

Given the scenario, how ONDC will enable these platforms and restaurants to work in tandem will be interesting to see.

Nevertheless, unlike Amazon and Ola, which failed to sustain in this market beyond a point because of high customer acquisition costs, and unsustainable discounts, ONDC may do better if it is able to onboard more players like Paytm and PhonePe.

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