ONDC will be driven by competition and fair practices, not unhealthy discounting: CEO T Koshy

ONDC has been growing at a fast pace over the past few weeks as daily retail orders, which include the food & beverage and grocery segments, have jumped more than 100X from around 200 at the end of February.

Although large discounts propelled ONDC's (Open Network for Digital Commerce) daily retail orders to jump 2.5x to touch 25,000 over the weekend, ONDC chief T Koshy is of the view that discounting is just a short-term strategy to jump start transactions and the network has to succeed on its own merits in the long run.

"Participants do 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 building walled gardens,” Koshy told Moneycontrol.

"As ONDC is a completely new idea established very recently, we provide limited support for a period of time to the network participants to give a jump start to the network. In this line, we are helping network participants like seller and buyer apps with incentives up to a certain level for activities like seller onboarding and transaction stimulation,” he added.

With multiple seller apps continuously onboarding a variety of merchants and with ONDC and its participants rolling out incentives, the network saw the number of retail orders crossing a high of 25,000 in a day last weekend in addition to over 30,000 mobility transactions in a day.

ONDC has been growing at a fast pace over the past few weeks as daily retail orders, which include the food & beverage and grocery segments, have jumped more than 100X from around 200 at the end of February.

Meanwhile, industry watchers have pointed out that the growth has been fuelled by a large amount of discounts and influencer marketing campaigns that players like Zomato and Swiggy typically indulge in.

In several cases, buyers have been surprised to find that the bill payable on ONDC for a particular food item from some restaurants could be as much as 30-40 percent lower than Zomato and Swiggy.

A senior executive at a seller side app on the network said that this difference won’t be sustained in the long term. He expects that the steady state price difference between ONDC and other large e-commerce platforms could be a maximum of around 10-12 percent. This is also the difference between platform commissions charged to sellers like restaurants and grocery stores on ONDC currently and the big platforms.

However, Koshy said that with sellers listed on any seller apps being visible to buyers from any buyer-side apps, competition will encourage many cost-effective and efficient seller apps.

“Similarly, buyer apps with equal access to all sellers in the network, will focus on being representative of the buyers giving them more options... The leverage thus shifts from few platform providers in the centre to endpoints like sellers and buyers and their application providers. This will eventually bring efficiency and cost competitiveness to the total value chain " said ONDC chief T Koshy.

Last month, the network onboarded mobility aggregation platform Namma Yatri which is open source and does not take any commission from drivers. ONDC has said this open mobility foundation will allow customers to book rides from multiple apps, and will also become multi-modal down the line where various modes of transportation — such as cabs, metro and buses — will be integrated into the app.

ONDC went live in some pin codes of Bengaluru on September 30, and has since expanded to several cities — two of which including Bengaluru are in the beta stage, and 181 in the alpha stage.

Backed by the government, ONDC seeks to prevent the dominance of a few large platforms in e-commerce and food delivery sectors like Amazon, Flipkart, Swiggy and Zomato.

With the network, the government hopes to increase e-commerce penetration in the country to 25 percent in the next two years, reaching 900 million buyers and 1.2 million sellers through the network and reaching a gross merchandise value of $48 billion.

ONDC is banking on three key pillars to reduce the cost of doing business for everyone, including retailers: dynamic pricing, inventory management, and delivery cost optimisation.

In April 2022, the network piloted a soft launch in five cities – Bengaluru, Delhi NCR, Shillong, Bhopal and Coimbatore. Since then, ONDC has also started a Beta pilot in Bengaluru and in some Tier-II cities.

Top FMCG players like Unilever, ITC, Dabur and Nivea and banks like Kotak Mahindra and IDFC First are in various stages of integrating with the network.