Recognizing the escalating competition in the food and grocery delivery market with the emergence of the government-backed Open Network for Digital Commerce (ONDC), Zomato expressed its openness on Friday (May 19) to embrace any changes or innovations that would ultimately contribute to the growth of the restaurant industry.
“We continue to watch the ONDC progress closely and learn from it,” Akshant Goyal, CFO of Zomato, said in the shareholder letter released after the company reported its financial performance for the quarter and year ended March 2023.
During the earnings call, Goyal acknowledged the significant competition in the market and highlighted the extensive innovation occurring across various sectors.
“So, I think we continue to watch it and learn from it and see how we can run our business better to make sure that we continue to grow.”
Goyal also stated that despite the increasing competition, Zomato had no plans to modify its commission rates, as they were not hindering its growth. He emphasized that with the current low market penetration, there was ample opportunity for all players to expand.
Earlier this month, SnackFax highlighted the substantial price difference in food items available on ONDC compared to Zomato and Swiggy. While Zomato and Swiggy charge partner restaurants commissions ranging from 18% to 24%, ONDC offered significantly lower prices.
Read More: ONDC sparks price war, threatens Zomato and Swiggy dominance in food delivery space
Social media was abuzz with intense debate about whether ONDC had the potential to break the Zomato-Swiggy duopoly in the food delivery market, following the report.
Nevertheless, brokerages such as Kotak Institutional Equities, Jefferies, and Motilal Oswal have reassured that the emergence of the Open Network for Digital Commerce (ONDC) does not pose an immediate threat to the dominant players in the food delivery industry.
“…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,” said analysts at Motilal Oswal.
Read More: Brokerage firm Motilal Oswal dismisses immediate threat to Zomato from ONDC
Meanwhile, Kotak stated that it anticipated a minimal influence of ONDC on Zomato in the near term. However, the bank noted the complexity of accurately forecasting the long-term ramifications.
It is worth mentioning that the existing discounts on ONDC, which have generated significant attention, are anticipated to be accessible for only a limited period of time.
Meanwhile, ONDC is actively expanding its network of restaurants on the platform. In the most recent update, Domino’s, a renowned pizza chain, has revealed its plans to join the open commerce platform.
Read More: Domino’s Pizza takes strategic step, set to join government’s ONDC network
In the meantime, Zomato’s food delivery business experienced a subdued performance for the third consecutive quarter, with adjusted revenue declining from INR 1,565 crore in Q3 FY23 to INR 1,530 crore in Q4 FY23.
Zomato attributed the slowdown in the growth of its food delivery business to a combination of factors, including the shorter duration of the month of February and the temporary suspension of its services in 225 cities in January of this year.
Due to the growth in its other business segments and effective cost-cutting measures, Zomato witnessed a notable decrease in its net loss. Sequentially, the net loss declined by 46%, and on a year-on-year basis, it decreased by 48% to reach INR 187.6 crore in the quarter.
