ONDC to take on Swiggy and Zomato in price war

If Zomato and Swiggy have been dominating the India food delivery business for some time now, there is competition coming from an unlikely quarter. It is not coming from another food delivery app but from India’s home grown ONDC platform. Most of you must have heard of the ONDC platform and what it does. Let us first get a quick background on ONDC, before understanding how it proposes to disrupt the way Swiggy and Zomato operate in the Indian market.

What is ONDC all about?

The Open Network for Digital Commerce (ONDC) is an agnostic platform based on open protocol. The ONDC will enable local commerce across segments, such as mobility, grocery, food order and delivery, hotel booking and travel. This is a platform and you can understand like the UPI of ecommerce. UPI (unified payment interface) is indifferent to the bank and is only worried about providing an agnostic platform for all to participate. That is exactly what ONDC is. The idea of ONDC is to create new opportunities, curb digital monopolies and support the interests of MSMEs and small traders so they do not get squeezed out by these ecommerce giants. A handicraft seller can directly sell on the ONDC or a restaurant can directly sell on ONDC, rather than going to Swiggy or to Zomato.

In short, as we stated earlier, you can understand ONDC as the UPI of ecommerce. It will eventually democratise electronic commerce, moving it from a platform-centric model to an open-network. Under ONDC, the restaurants or merchants do not have share their customer data with Swiggy or Flipkart or Amazon or Zomato. They can retain their customer data and build credit history and reach consumers. Effectively, the ONDC will provide a level playing field to all merchants when competing with the likes of Amazon, Flipkart, Swiggy or Zomato. In the recent past, many mom and pop stores have been crying foul at the unfair trade practices and steep discounts adopted by these e-tailers.

Digital visibility through ONDC

Effectively, ONDC will enable sellers and buyers to be digitally visible and transact through an open network. Over time, the bet is that even the likes of Flipkart, Amazon, Swiggy and Zomato will sign up to this platform and scores of them have already done the same. More importantly, even small merchants can achieve scale; and this is likely to transform all businesses from retail goods to food to mobility. If you look at the food delivery business in India today, Swiggy and Zomato enjoy a virtual duopoly. One reason small business owners have been unhappy with the likes of Zomato and Swiggy is the huge middleman commissions charged by them, which can range from 25% to 30%.

By creating an open network, the ONDC will virtually cut out the clout that the middlemen enjoy because of their bargaining power. The ONDC platform will empower the customer to directly interface with the customer without depending on an intermediary like Swiggy or Zomato. ONDC has been started off on a test basis in Bengaluru and the early stories are very encouraging. One can expect that, like UPI revolutionized payments, ONDC could revolutionize ecommerce. It would benefit both businesses and customers at the same time and from the perspective of small businesses, these data points continue to reside with them.

How ONDC plans to disrupt the Zomato and Swiggy model?

Today, the model followed by Swiggy and Zomato is that they charge heavy intermediation fees in the range of 25% to 30% from the vendor. This squeezes the vendor to raise the prices and in the process they lose out on customers. Also, their business model becomes too dependent on the likes of Swiggy and Zomato and ONDC will avoid that risk. Here it must be remembered that ONDC is not an app or service but it is just a platform designed and developed by the Government. It will only be a service that will connect or digitalise businesses with customers. ONDC already has partners like Paytm, Meesho, Craftsvilla, and Spice Money, and these acts as online storefronts. Users can order food or any other product from a business listed on the ONDC platform.

Here small businesses have several advantages in using the ONDC platform over Swiggy or Zomato. For instance, when you order food or a product from the ONDC platform via an app like Paytm, the platform will only take a very small commission. This order is then passed on to the service provider to fulfil the service. In addition, the Paytm platform under ONDC will also share all user details with the business, which is not the case with Zomato or Swiggy right now. For most small businesses, the big challenge is to growth and scale up without adding too much of costs. So, if you are on the ONDC platform, you save a lot on costs and that can be passed on to the customers. To begin with, brands and businesses need to set up their service on ONDC. However, we will get a full picture only when the shift happens on a much larger national scale.

Fulfilment could be the difference on the ONDC platform

As much as ONDC looks simple and elegant, it has one major shortcoming with respect to the likes of Zomato and Swiggy. For instance, when a customer orders food at your restaurant via Swiggy or Zomato, then only order routing is done by the ONDC platform. Fulfilment and delivery are something the restaurant has to handle. In such cases, the restaurant going on ONDC must have their own runners and delivery boys for this task.

Apart from the need to have their own feet-on-street staff, there are other shortcomings in ONDC too. For example. ONDC does not provide you the benefit of comparative analysis of different food joints to take a quick decision. Also, the ONDC will not provide you details like time of delivery, expected wait time etc. All these could work in favour of Swiggy and Zomato. Early indications are that costs are lower in ONDC, but we will see the full impact only when ONDC is launched in all cities of India.