Can ONDC Really Replace Zomato and Swiggy?

Over the past week, the buzz about the Open Network for Digital Commerce (ONDC) has taken over social media platforms. Specifically, the comparatively lower food price on the platform’s buyer apps has received increased attention. 

The food sold by restaurants on these platforms is significantly lower in some cases compared to the same item sold by the restaurant on food aggregation platforms like Swiggy and Zomato. 

Apart from customers, restaurants are also starting to register on ONDC as they are not required to pay high commissions for orders.

Why Is ONDC A Major Breakthrough? 

ONDC was conceptualised to prevent large technology companies from gaining a dominant position in the e-commerce space. 

Platforms like Amazon have a tight grip over seller visibility, buyer experience, commissions, and logistics due to their dominant position in e-commerce. 

For instance, Amazon controls which seller gets visibility at the top of its catalogue, while the other smaller players hardly have much visibility in front of users. 

The cycle of low visibility and low buying would mean that smaller brands hardly get any exposure in front of customers. In addition, these platforms can exert pressure on sellers in terms of pricing, terms and conditions etc. 

Given that the e-commerce business often has winner-takes-all economics, only a few top platforms dominate the space making it difficult for competition to find space here. Sellers, therefore, are left with no options but to work as per the platform’s instructions. 

Further, new players interested in the e-commerce space find it difficult to become an integrated players like Amazon since they would require a high start-up capital to onboard sellers, organise logistics, and acquire buyers with discounts. 

ONDC helps to unbundle the entire supply chain, with buyer apps handling customer acquisition, seller apps focusing on seller acquisition, and logistics players looking after the last-mile delivery of goods. 

While ONDC is undoubtedly a disruptor in the e-commerce space, it is unlikely that it can replace food delivery and grocery platforms immediately. In some cases, these incumbent platforms might even find opportunities to collaborate with ONDC.

Swiggy and Zomato’s Discounting and Lower Delivery Cost Makes ONDC Costlier   

Unlike platforms like Swiggy and Zomato, which charge commissions upwards of 18 per cent per order, ONDC is expected to charge commissions in low to mid-single digits. The commission gets distributed between the buyer and seller app, while the logistics provider is paid separately by the customer. 

Several restaurants have reduced prices and increased quantities on ONDC since they are paying much lower commissions on the ONDC platform. Yet, when combined with discounts, ONDC often lags Swiggy and Zomato, making the incumbents a preferable choice for customers. The initial lower prices have accrued from discounts given by the buyer apps (like Pincode by PhonePe) and by the ONDC platform itself to acquire customers. It is the same strategy that UberEats, Swiggy and Zomato used during their initial days of competition. 

ONDC has given users a Rs 50 discount coupon but is now scaling back on discounts as the number of orders rises on the platform. Yet, after the discounts were scaled back, orders dropped slightly as well, indicating that a significant number of customers are quite price-sensitive. 

The delivery cost on ONDC is higher since it ties up with third-party players like Dunzo and others to deliver food and grocery from the seller to the buyer.

 Swiggy and Zomato’s delivery costs seem to be fairly lower, especially for loyalty programme subscribers who get free deliveries over a certain order value. 

In a price-conscious market like India, ONDC would have to provide goods at a lower value in order to take away a significant share from the incumbent platforms. 

Even on the grocery side, delivery fees are waived without limits if the order value is above a certain threshold. This is unlike ONDC’s grocery offering. 

Similarly, kiranas have found it quite difficult to sell through digital platforms since maintaining a correct database of items in stock and prices is difficult for a store with just one or two people. 

Secondly, the fragmentation of the supply chain, which is one of the strengths of the ONDC platform, is a double-edged sword. There is no centralised authority to look after all parts of the supply chain and ensure that quality is maintained. Each part of the supply chain operates independently, which means that blame can be shifted onto others on several occasions.

 In contrast, despite the multiple issues associated with a centralised dominant player, quality standards are ensured since the player alone is responsible for every part of the supply chain. 

Incumbents Could Cooperate with ONDC Instead of Competing With It

Given that the current incumbents have a large delivery fleet, they could coordinate with ONDC to act as a delivery partner for orders. 

In some areas, they are already working with ONDC to deliver products, implying that these companies are trying to find their place within the new environment.

It is clear that ONDC would take time to evolve and sort out its disadvantages compared to incumbent platforms. Nevertheless, the quick ramp-up of the platform and the quick assembly of buyer and seller apps by private players is a testament to the government’s efforts to reduce the influence of large players in the e-commerce space.