The Indian government-made Open Network for Digital Commerce (ONDC), which lets restaurants sell food directly to consumers without the need for a third party seems to be giving tough competition to the private rivals, Swiggy and Zomato.
Screenshots comparing food items on Zomato and ONDC have taken social media by storm. A plain Margherita pizza costs Rs 195 on Zomato and Rs 156 on ONDC, about 20 percent cheaper. The non-veg lovers will have to shell out Rs 280 for a McChicken Burger on Zomato but only Rs 109 on ONDC.
With ONDC becoming a possible threat to Zomato and Swiggy's market share, Zomato's shares have tumbled over 5 percent in trade, said analysts.
At 11 am, Zomato was quoting at Rs 62.50 on the NSE, lower by 3.7 percent from the previous close, amid heavy volumes of 46 million shares.
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What is ONDC?
ONDC or Open Network for Digital Commerce (ONDC) is backed by the government and 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.
Also Read: ONDC food and grocery orders double in a week to shoot past 10,000 a day
Threat to Zomato, Swiggy?
As restaurants move to ONDC, Karan Taurani of Elara Capital believes raising commission rates could be tough for Zomato over the medium term, which is a key driver for their profitability guidance.
"ONDC augurs well for food as a product which has lower average order value versus e-commerce and white goods, where there are trust issues," Taurani said.
However, it will be a long road for ONDC to win over customers. Some users who ordered food through ONDC complained about stale food and longer delivery time, over 90 minutes in some cases.
Taurani also stated that concerns over Zomato or Swiggy's market share decline will hold ground, provided ONDC's user experience improves over a period of time. "Currently, it is very poor", he said.
Meanwhile, Digant Haria of GreenEdge Wealth believes the market is large enough for multiple players to survive. "It is too early to say whether ONDC is a threat as it is in the nascent stages of adoption," he said.
Also Read: ONDC will be driven by competition and fair practices, not unhealthy discounting: CEO T Koshy
Zomato and Swiggy also hold an edge when it comes to making restaurants discoverable. Small eateries can pay a commission to the food delivery platforms to rank higher and make themselves more visible to people in nearby areas.
"ONDC does not do this. So, only well-established players like Domino's with its own strong delivery network can think of moving to ONDC. Small restaurants do not have the luxury," Haria said.
Amid finding a path to profitability, Zomato and Swiggy's battle with ONDC will certainly be a long-drawn one. For now, investors are eyeing on Zomato's Q4 numbers, which are yet to be announced.
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