New food delivery startups mushroom, but pin hopes on ONDC for scale

The list of those who may have bitten off more than they could chew include Foodpanda and Tiny Owl. Even a large player like Amazon Food shut its food delivery operations in India while Uber Eats sold its business to Zomato and Scootsy to Swiggy.

The food delivery space in India has seen many brands with deep pockets come and perish, and they all had one thing in common: they were fighting in the same category with little to no differentiation in offerings when compared to the two primary players in the business, Swiggy and Zomato.

The list of those who may have bitten off more than they could chew include Foodpanda and Tiny Owl. Even a large player like Amazon Food shut its food delivery operations in India while Uber Eats sold its business to Zomato and Scootsy to Swiggy.

The industry is however seeing a fresh crop of players that are tweaking the food delivery business menu, including hitching a ride with the government-established private not-for-profit company Open Network for Digital Commerce or ONDC.

Waayu was launched by Anirudha Kotgire and Mandar Lande last month in Mumbai. Its offer of a zero-commission model for restaurants is the clinching proposition for now. It instead earns through a one-time enrolment fee of Rs 3,650 plus GST or goods and services tax and a monthly subscription fee of Rs 1,000 from each restaurant that signs up. Waayu currently claims to have 1,000 restaurants in Mumbai and Pune on board and is preparing to expand to other cities as it looks to take on Zomato and Swiggy.

Gauging by the inbound queries, Kotgire and Lande told Moneycontrol that they will add 3,000-5,000 restaurants per month, including the likes of McDonalds, KFC and several others as they look to expand in Tier 1 cities primarily, but did not offer a specific timeline.

Those plans have prompted several venture capitalists to look at investing in Waayu. According to the founders, the company is in the process of sharing pitch decks with WestBridge Capital, Alteria Capital, HSBC Securities and others.

A similar app, Thrive, a three-year-old platform, which has also raised money from the likes of Jubilant Foodworks and Coca-Cola, has two offerings — one where a restauranteur can set up a digital storefront, similar to what Temasek-backed DotPe does, and a second through which customers can order food from restaurants, the same as what Zomato and Swiggy do.

However, Thrive co-founder Dhruv Dewan made it clear that his company was too small to compete with the incumbent giants and that it was not looking to threaten the duopoly that Zomato and Swiggy have created in the $5-billion food delivery market.

"The idea is to be more transparent with customer data, not be cheaper or more expensive than other players in the market," Dewan said.

Differentiated revenue streams

Thrive is currently experimenting with various models at the moment and will eventually decide on what works best for it, in terms of monetisation. While Thrive charges a 3 percent commission for the direct ordering model, it charges between 10 percent and 14 percent for the delivery model. In comparison, Zomato and Swiggy charge about 23-25 percent.

Like Waayu, Thrive too is currently operating in Mumbai with 2,000 restaurants available to order from, and plans to scale to three or four cities later this year. “The plan is to not raise a large amount of capital and burn money on customer acquisition. We’ll rely on word-of-mouth marketing for the initial few months and will get to the acquisition later,” Dewan said.

Growth is on the table form Waayu too, but Kotgire and Lande are clear that the scale they’re hoping for in food delivery can only be reached by integrating with ONDC.

“There will be a lot of visibility in terms of consumers coming from the buyer app side on the ONDC platform once we get integrated as a seller app. The restaurants which get few orders at this point in time will see an increase in order volumes through the visibility that we are eyeing through ONDC,” Lande said. As the business scales, the company eventually plans to increase its subscription fees by around 25 percent

Thrive too is preparing to be a seller app on ONDC. “There is a lot of value for ONDC to add within the food delivery ecosystem, and hence we are also looking to collaborate with them soon and use the protocol. But the success of it will be like any other product and will depend on how policies and the traction around it scales for the next couple of years,” Dewan said.

The move marks a fundamental shift in how the food delivery business has traditionally worked in the country, with many restaurant associations now keenly watching if this model will gain acceptance.

"It's refreshing to see a new business model in the market where restaurants have full control over customers' needs, preferences and data—it helps us understand our business better and manage inventory. It's still early days but we'll see a lot of restaurants signing up on these new-age platforms," said Pranav Rungta, chapter head of Mumbai for the National Restaurants Association of India (NRAI).

He added that the order volumes on Waayu and Thrive are not needle-moving yet but they’re solving exactly what the industry asked for.

Evolve or perish

It’s an evolve-or-perish approach to food delivery, after restaurants have continued to complain that the current system is untenable for them, even as their customers are comfortable with how things stand. To put it simply, industry stakeholders say the new players have their work cut out for them because the user experience has been made extremely smooth by Swiggy and Zomato. For instance, Waayu and Thrive differ from the two big platforms because they have a fragmented delivery chain, where a third-party aggregator is assigned the task of delivery.

Both platforms have tied up with logistics players such as Dunzo, Shadowfax and Grab, and the cost of delivery is passed on to customers. Waayu unbundles the tech stack, allowing the restaurant to deliver the order themselves if they choose to do so, giving eateries data on customers and their preferences.

It’s not that attempts have not been made previously to increase the autonomy of restaurants. In 2019, restaurant associations led a ‘Logout’ movement, logging out of apps such as Swiggy and Zomato. In 2021, there was a renewed movement called ‘Order Direct’, to order directly from the restaurant rather than depending on apps.

Naman Pugalia, the founder of Peppo, which has an end-to-end solution order management system for restaurants and cloud kitchens among its offerings, and who was also part of the Order Direct movement, told Moneycontrol that there were five gaps which led to the Order Direct movement—data ownership, cannibalisation of this data by the main players, high commissions, a tightly-bundled tech stack, and rigidity around policies.

These are all problems that Thrive and Waayu aim to solve too, but also come with their own challenges. Pugalia argues that the duopoly has perfected last-mile delivery—excelling in logistics rather than just food. They’ve also spent a significant amount of money in acquiring new customers, and have also enabled discovery. Lastly, the new apps are trying to claw share in a market where dining out is growing at the expense of food delivery, experts said.

What could work in their favour is price. From a customer perspective, apps like Waayu and Thrive end up being cheaper because restaurants do not have to inflate the prices of the food items they list.

“Eateries have to only inflate prices on Zomato and Swiggy because of high commissions, but apps like Waayu have a zero percent commission model, so we can list a pizza on Waayu for Rs 300, the same price that is charged for our dine-in customers,” said NRAI’s Rungta.

The price was around 20 percent cheaper than what Zomato or Swiggy would charge for the same pizza from the same restaurant, he says. Moreover, Zomato has a price parity clause in its agreement with restaurants which prohibits them from listing the same food items at different prices on the restaurants’ own direct channels.

“Swiggy used to have a price parity clause but it does not have that anymore. In a court of law, this clause is unenforceable. We restaurants are free to price our items at whatever prices we like, wherever we want. We are not bound by any MRP guidelines,” Rungta added.

Will ONDC be a saviour?

The jury is still out on whether these players will be able to make a mark through ONDC, given order volumes on the platform are a small percentage when compared to the orders on Swiggy and Zomato. At last count, ONDC was averaging a total of around 9,000 retail orders per day, or about 270,000 orders a month, largely on the back of the incentives that were being offered. With the incentive structure being changed and the discounts being reduced from June 1, these order numbers too are expected to take a beating. In comparison, Swiggy does over 1.5 million orders a month.

"It is very evident that without ONDC, new food delivery startups will find it difficult to scale to a sustainable level on a standalone basis. It is difficult for new food delivery players to enter the market, especially after ONDC, because remember, if they do not integrate with ONDC, the network becomes a competitor of sorts for them because giants like Paytm and PhonePe's Pincode are getting on the ONDC ecosystem,” says Mohit Rana, partner at Redseer.

Importantly, it has taken Swiggy and Zomato over 10 years to reach this scale and they're only talking about profitability now. The online food market is one that tends to reward scale, analysts highlighted.

Data also suggests that growth in the monthly transacting users (MTUs) base has been slowing. Zomato's latest financials showed that average MTUs had fallen to 16.6 million in Q4FY23, from 17.4 million in Q3FY23, which was already a decline from 17.5 million in Q2FY23. In fact, both Swiggy and Zomato have acknowledged a slowdown in the food delivery market globally, which is another hurdle for new-age players.

Pugalia at Peppo argues that the point of e-commerce was to deepen e-commerce rather than to help popularise a new platform or challenger. “That lends itself to bring in certain efficiency, but not necessarily help someone disrupt the current market structure,” he said. In fact, he added that if the incumbents were to join ONDC, they may find certain benefits that may accrue to them, rather than to the newer players that are joining.

But will ONDC prove the white knight? Over the last few months, an increasing number of analysts have said that the initial food delivery volumes on ONDC are unsustainable and that the open network, in its current shape, isn't a threat to any player's business. After Jefferies and Motilal Oswal Financial Services Ltd said ONDC was not going to end the duopoly of Zomato and Swiggy, analysts at JM Financial too said that ONDC cannot change things.

“There has been a hue and cry of late... Many believe that restaurants on the (open) network will be able to offer better prices to customers. Hence, ONDC can disrupt the online food delivery market as it has the potential to emerge as a formidable third player… We, however, strongly disagree with many of these assertions. ONDC in its current shape and form is nowhere close to shaking up the online food-tech industry,” analysts at JM Financial had said in a note earlier.