ONDC an immediate threat to Zomato? motilal oswal says

“We do not see direct ordering as a major concern for the industry. However, we see ONDC as a potential threat to Zomato if it meaningfully grows across categories, making it a walled garden. At present, we do not have sufficient evidence to change our base case for Zomato,” Motilal Oswal said in a report.

The brokerage firm underlined that the risk posed by ONDC will become significant only if it grows into multiple categories (food, e-commerce, grocery), which will give it the scale to override the distribution scale of existing players.

“The current 10,000 deliveries per day across categories (40 per cent in Bangalore) do not exist at sufficient scale for the platform to absorb delivery rider costs. For comparison, Zomato currently delivers 1.8m orders per day on a standalone basis However, Motilal Oswal said, in many categories (relevant to ONDC) the industry-wide figure would be several times higher.

Motilal informed that delivery on the ONDC app is free only for the first order. Motilal Oswal said, in the case of discounted/free delivery, this cost would have to be borne by the restaurant (possibly to enhance competitive advantage against existing monopolies) and is not sustainable. Also, after the first free delivery, in some cases, the delivery charges are higher than Zomato/Swiggy.

The brokerage firm said the difference in pricing is unlikely to be enough to override the wide selection of food options (early mover advantage) and a well-oiled delivery machine of incumbents.

Nevertheless, Motilal believes that it could become a significant risk if ONDC continues to grow over time, as it would enable greater distribution efficiency to make the system sustainable.

The brokerage firm underlined that the food delivery business is still at a nascent stage in India with a long runway for growth.

“With a dominant market share and strong growth in the food delivery business and Hyperpure, we expect Zomato to report a strong CAGR of 29 per cent in FY23-25. In FY25 as well,” Motilal said.

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ONDC is a government supported platform which acts as a network of interconnected e-marketplaces. With ONDC, sellers can sell their products directly to customers.

The Department for Promotion of Industry and Internal Trade (DPIIT) launched ONDC in 2021 with the aim of promoting the Digital India programme.

ONDC is being seen as a major threat to food-delivery platforms like Swiggy and Zomato as it connects restaurants directly with customers. In simple terms, ONDC lets restaurants sell food directly to consumers without the need for a third party (like Zomato and Swiggy).

Read More: Is ONDC Zomato cheaper than Swiggy? here is the difference in price

The ONDC network has been around since September 2022, but has only recently started gaining popularity. As per reports, the network has crossed the 10,000 daily orders mark. Netizens are comparing the food delivery prices offered by ONDC, Swiggy and Zomato and have found ONDC to be cheaper.

Several buyer apps such as Paytm, Meesho, etc have joined the platform along with several seller apps, including BoAt and Delhivery.

ONDC is not a separate app that you can download from Play Store. Instead, ONDC works like UPI, which means it can be integrated into existing apps like – Paytm, PhonePe and Meesho, etc. ONDC has over 29,000 sellers selling over 36 lakh products.

ONDC can be used through Paytm app. Go to Paytm app and type ‘ONDC’ on the search bar. You can now order food from the restaurant. It should be noted that not all restaurants are selling food through this network as it is relatively new.

Disclaimer: The views and recommendations expressed in this article are those of the brokerage firm. These do not represent the views of Mint. We advise investors to do due diligence with certified experts before making any investment decision.