ONDC looks cheaper than Zomato and Swiggy: Decoding the discount war 

When Ankit Prakash, founder of Aritic, an automation platform, ordered a paneer burger-and-Pepsi combo from Indiana Burgers on Paytm, a seller app on the Open Network for Digital Commerce (ONDC), he found that it was priced about 45 percent cheaper than what Swiggy was charging for the same.

Like Prakash, other users began comparing prices across platforms, creating a lot of buzz on social media, which pushed up ONDC’s daily order volumes by 2.5X, from 10,000 to 25,000 orders in a span of a few days.

This led people to question whether ONDC would kill the duopoly of Swiggy and Zomato, the two companies that control over 90 percent of India's $5 billion food delivery market.

Backed by the government, the ONDC is an experiment — the first of its kind — to make e-commerce interoperable, giving companies more control over business decisions. It was launched in April last year, but had a slow start. In the first six months, it could only manage a couple of hundred transactions a day at best.

The idea of ONDC is simple, although its implementation looks complex. Essentially, the network breaks down the entire order-delivery operation into three parts: buyer-side apps that are consumer facing, seller-side apps that enlist merchants and business, and logistics providers, who make the last-mile delivery to the end consumer.

As ONDC's food, beverage, and grocery orders saw a 100X jump in the past few months, albeit from a low base, we thought it would be a good idea to check if prices were actually lower on the network compared to Zomato and Swiggy.

Discount dynamics

We found that  prices were broadly the same as — and sometimes cheaper than —the rates on Swiggy or Zomato, thanks to discount coupons. Like the delivery behemoths,  merchants / seller-side apps offer 20-40 percent discounts to begin with. On top of that, ONDC itself is dishing out discount coupons of Rs 50 per order to new users.

The biggest overhead for any hyperlocal commerce is logistics — i.e., getting the order from the store or restaurant to the consumer’s doorstep. Interestingly, the entire delivery amount for every order was being subsidised by ONDC and its network participants last week.

Take for example, a serving of momos and a plate of garlic bread ordered from Barista in Noida on May 5. The momos cost Rs 101 (28 percent lower than the list price of Rs 140), and the garlic bread was Rs 112 (28 percent cheaper than the list price of Rs 155).

Next, the ONDC50 coupon code waived off a flat Rs 50 on the order. Nothing was charged  for packaging or delivery, and even the convenience fee was marked down to zero.

It is important to note that delivery and packaging fees are charged on both Zomato and Swiggy. The delivery charges per order on these platforms are waived only if the user is subscribed to their loyalty programme, AND the distance to be covered is below a certain threshold, e.g., 7-8 kilometres. If you’re located beyond this distance, you will be charged delivery fees even if you’re subscribed to the loyalty programme.

Moreover, Swiggy has also started charging a platform fee to the tune of Rs 2 on every order in some cities — and it is not unfathomable that Zomato might be planning to follow suit as the two companies struggle to get to profitability.

All the above-mentioned subsidies were the norm on ONDC till last Saturday, when the volume of retail orders on the network touched a high of 25,000. As the discounting tap was slightly tightened on Sunday by levying a small delivery fee on consumers who had ordered multiple times, and adding a packaging fee, the retail order volume fell to 19,000, according to network participants.

People in the know said  that ONDC had imposed several limits, such as allowing a seller app to avail a maximum discount of around Rs 75 per transaction for the first 1,000 transactions in a day.

Several users in Bengaluru and Delhi-NCR reported that the discounts available on ONDC on the listed price of items of popular merchants like McDonald’s had dropped from double digit percentages to single digits. Also, users who placed frequent orders on the network last week weren’t getting the benefit of the flat Rs 50 discount any more.

Most importantly, the delivery fees and packaging charges are back. For a like-to-like comparison, an order from the same Barista outlet we talked about earlier now requires the user to pay a delivery fee of Rs 79 and a packaging charge of Rs 10.

Behind the scenes

Who is bankrolling these discounts — is the government essentially competing on discounts with platforms backed by venture dollars? Or are network participants, like seller-side apps, buyer-side apps, and restaurants doing that?

Network players say that the government is not financing the discounts and incentives. These are being funded directly or indirectly by banks who are shareholders of ONDC, e-commerce platforms and merchants on the network.

However, industry watchers are also asking what really is the difference between the network and venture funded e-commerce platforms that burn cash for adoption.

To begin with, multiple restaurants that Moneycontrol spoke to said that they were only partially paying for the discounts. In some instances, they didn't even know that their stores on the network were showing large discounts.

“We are not funding the discounts. The prices shown on the ONDC network is a result of the efforts made by all the players on the network (buyer app, ONDC, merchant, logistics partner), and varies from one order to another, sometimes even by time of day," explained the founder of a seller-side app which has onboarded a large number of restaurants on the network.

"For instance, a merchant’s take rate (commission) might vary from 5-20 percent. Our goal is to onboard as many merchants on the network as possible and let them give their best offers to a massive customer base across India's largest B2C apps," he explained.

In conversations with multiple ONDC stakeholders, Moneycontrol learnt that the network itself was funding a part of the discounts, but it looked as if the discounts were from participants like seller-side apps or logistics providers.

ONDC CEO T Koshy said, “As ONDC is a completely new idea, we provide limited support for a period of time to the network participants to jump start the network. We are helping network participants like seller and buyer apps with incentives up to a certain extent for activities like seller onboarding and transaction stimulation.

"Participants agree with our philosophy that we should nurture a sustainable network, building on cost economics resulting from specialisation and innovation, and driven by competition and fair practices. And not based on unhealthy price discounting and walled gardens,” Koshy added.

Earlier this year, around March, the ONDC started an incentive scheme for seller apps to help take the number of daily transactions from 200 to 5,000. That was after ONDC started an incentive scheme for seller-side apps to onboard more merchants in December. The scheme was later revised to include discounts for buyers as well.

According to the incentives programme rolled out earlier, ONDC will also set up monitoring systems, including audits, to check for the misutilisation of incentives.

The network will reimburse buyer applications up to Rs 50 per successful transaction for discounts/cashback offered to buyers. However, the minimum order value for eligible transactions, including shipping charges, should be Rs 100.

Further, the network will reimburse seller applications up to Rs 40 per successful delivery by an on-network logistics provider, which must be passed on to the buyer in the form of a discount on delivery charges.

What would steady state ops look like?

A senior executive at a seller-side app on the network said that the current price difference will not be sustained in the long run. He expects that the steady-state price difference between ONDC and other large e-commerce platforms could be maximum 10-12 percent. This happens to be the difference   in commissions charged to restaurants and grocery stores on ONDC currently, compared to the big platforms.

According to Mohit Rana, partner at Redseer, a consulting firm, “The food delivery market is only so much in size. How one will manage financials while catering to consumers who are used to deals and discounts is still not clear. We have to see how ONDC pans out,” Rana said.

“ONDC is not a vertical structure like Zomato or Swiggy where the platform was willing to subsidise some components in the value chain, like delivery, which could be offset by food prices and so on. Now we have 4-5 players and everyone needs to make money. So who will invest to make the unit economics better is another thing which remains unclear,” Rana added.

However, restaurants seem to be content for now.

“The current food delivery players are like digital landlords and control everything, from discovery to delivery. But with the ONDC, everything is unbundled. Now, whatever we save from lower commissions and other costs can be used in offering discounts at our discretion, let's say on Tuesdays at 3 pm when business is slow. The idea is to make discounts feel like a privilege — it’s in our hands, unlike earlier,” said Anurag Katriar, founder of Indigo Hospitality and trustee, NRAI.