Swiggy and Zomato are facing stiff competition from the Indian government’s ONDC (Open Network for Digital Commerce), which allows restaurants to sell food directly to customers without relying on third-party platforms. This feature is proving to be highly beneficial for restaurants and is rapidly gaining popularity in the digital commerce landscape.
Screenshots comparing food prices on Zomato and ONDC have gone viral on social media. A plain Margherita pizza is available for INR 195 on Zomato, while it costs only INR 156 on ONDC, making it around 20 percent more affordable. Non-vegetarians will have to pay INR 280 for a McChicken Burger on Zomato, whereas the same burger costs only INR 109 on ONDC.
Read More: ONDC sparks price war, threatens Zomato and Swiggy dominance in food delivery space
According to analysts, Zomato’s shares have fallen by over 5 percent in response to the emergence of ONDC as a potential competitor to Zomato and Swiggy’s market share.
Zomato’s stock price on the NSE was recorded at INR 62.50 at 11 am, indicating a 3.7 percent decrease from the previous day’s closing price. Additionally, there was significant trading activity, with 46 million shares being traded.
Open Network for Digital Commerce (ONDC), which is supported by the government, aims to prevent the monopoly of a handful of large platforms such as Amazon, Flipkart, Swiggy, and Zomato in the e-commerce and food delivery sectors.
The government aims to increase the e-commerce penetration rate to 25 percent within the next two years, by leveraging the ONDC network. The network is expected to connect 900 million buyers and 1.2 million sellers, and generate a gross merchandise value of $48 billion.
Read More: ONDC set to transform India’s digital consumption with potential five-fold increase by 2030
According to Karan Taurani from Elara Capital, Zomato’s ability to raise commission rates in the medium term might be hindered as more restaurants switch to ONDC. This is a key driver for Zomato’s profitability, and hence, could pose a challenge for them.
“ONDC augurs well for food as a product which has lower average order value versus e-commerce and white goods, where there are trust issues,” Taurani said.
While ONDC has the backing of the government, it may face an uphill battle in winning over customers. Reports have surfaced of customers experiencing issues such as stale food and extended delivery times, with some deliveries taking over 90 minutes.
Taurani has also mentioned that the possibility of Zomato or Swiggy losing market share to ONDC is still valid, as long as ONDC can improve its user experience over time.
“Currently, it is very poor”, he said.
Digant Haria from GreenEdge Wealth is of the opinion that the market is big enough to support multiple players, indicating that there is room for both existing players such as Zomato and Swiggy and newcomers like ONDC to coexist in the industry.
“It is too early to say whether ONDC is a threat as it is in the nascent stages of adoption,” he said.
Zomato and Swiggy have an advantage in terms of making restaurants more discoverable to potential customers. Small eateries can pay a commission to these food delivery platforms to improve their ranking and increase visibility to people in nearby areas.
“ONDC does not do this. So, only well-established players like Domino’s with its own strong delivery network can think of moving to ONDC. Small restaurants do not have the luxury,” Haria said.
As Zomato and Swiggy strive to achieve profitability, their competition with ONDC is expected to be a prolonged one. In the meantime, investors are keenly awaiting Zomato’s Q4 financial results, which are yet to be announced.
