Social, Farzi Cafe founders bat for ONDC as Swiggy, Zomato eat up 55% of order values

(L-R) Zerodha co-founder Nikhil Kamath and Social, Mocha founder Riyaaz Amlani

Top restaurateurs Riyaaz Amlani and Zorawar Kalra said that food aggregators like Zomato and Swiggy are eating up around 55 percent of their order values through charges for delivery, discounts, discovery, and that the government-backed Open Network for Digital Commerce (ONDC) is the way forward for restaurants to preserve their bottom lines.

Talking to Zerodha co-founder Nikhil Kamath on a podcast, they said that food delivery commissions beyond 12 percent aren't sustainable for restaurants, compared to the typical 24-28 percent charged by the aggregators at present.

“This is a triple D model. It's not just delivery cost, but also discovery cost which means that you are paying to be visible in a carousel, to be visible in one of those collections. You easily spend about 12 percent more on that. On top of that, your average discounting is at 14-15 percent. If you don't discount, customers don't come to you. That's the way it has been gamed… So, 55 percent of your margin is taken by aggregators,” said Amlani, who has founded food chains like Social, Mocha and Smokehouse Deli.

“We are working very closely with ONDC. We are going to build channels and competencies. We have nothing against aggregators. We appreciate that they have helped build demand which is not competing with the restaurant business. While they have done that, they have taken away any hope of margins. We are all running just to stay in the same place,” he added.

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The ONDC is an experiment — the first of its kind — to make e-commerce interoperable, giving sellers like restaurants and kirana stores 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.

However, retail purchases on the network rose almost 500 times from 1,281 in January to 608,307 in September. Apart from deals and discounts funded by ONDC, industry executives feel lower commissions on the network than e-commerce majors like Amazon, Flipkart, Zomato, and Swiggy have enabled sellers and network players to offer better prices to consumers.

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.

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“The platforms (food aggregators like Zomato, Swiggy) have definitely built this huge ecosystem and made deliveries very convenient. In the end, convenience will always win. It will be an uphill battle to build your own system… Discounting has become an addiction and that's never a good thing,” said Zorawar Kalra, the founder of Massive Restaurants, which owns brands such as Masala Library, Pa Pa Ya and Farzi Café.

“Whenever you build an entire system around discounts, eventually the consumer suffers. The funding of the discounts is happening at the cost of the discounts,” he added.