ONDC is winning the discount war against Zomato, Swiggy

Wait… Zomato and Swiggy Are Facing Competition?

Here is an interesting anecdote to begin with. A real buyer had ordered a burger and a soft drink on platform Aritic and paid for it via Paytm app. Surprisingly, this seller app on the Open Network for Digital Commerce (ONDC) platform came much cheaper than the price he was paying on Swiggy or Zomato. In fact, the ONDC price was nearly 45% cheaper compared to the charges levied by the likes of Swiggy and Zomato. 

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What exactly is ONDC?

The concept is pretty simple, albeit the implementation might seem complex as volumes build up. The network aims to simplify B2C channels by breaking down the entire order-delivery operation into 3 parts: buyer-side apps for consumers, seller-side apps for merchants and logistics providers. Having received heavy backing by the government, ONDC is a unique experiment to make e-commerce interoperable and give companies a firm grip over business decisions. You can call ONDC the UPI of e-commerce.

The response to ONDC had been dull initially with just a couple of hundred transactions a day at best for the first six months. However, in recent times, food, beverages, and grocery orders have witnessed a hundred-fold jump, albeit from a low base. So, what has ONDC changed?

Understanding ONDC’s discount dynamics

Prices on ONDC are, broadly speaking, cheaper than the rates on Swiggy and Zomato by virtue of its discount coupons. To begin with, merchants offer 20-40% discounts atop the Rs50 discount per order which ONDC itself is bequeathing to new users. Furthermore, on the logistics front, the full delivery amount for each order has been subsidised by ONDC and its network participants. This is in stark contrast to the logistics operations of Swiggy and Zomato, who levy delivery charges based on a customer’s loyalty points as well as the proximity of the restaurant.

Things came to a peak on ONDC in early May 2023, when the volume of retail orders on ONDC network touched 25,000 orders. Not surprisingly, discounting mechanism was slightly curtailed by adding a small delivery charge on consumers who had ordered multiple times. In addition, packaging fees were also implemented, which subsequently led to retail orders falling to 19,000. In short, if you show low cost ideas to the Indian consumer, they are just going to make the best of it.

How is ONDC lavishing such big discounts?

According to network players, it is not the government that is financing these discounts and incentives. Instead, it is the banks who are shareholders of ONDC and the e-commerce platforms and merchants on the network offering these discounts. Surprisingly, many restaurants onboard ONDC revealed that they were paying little-to-no money for the discounts, with some even unaware of the discount provision at all. In short, the prices on the ONDC network are a result of efforts by all players on the network, including the buyer, ONDC, merchant and logistics partner.

How will ONDC pan out post the transition period?

Industry insiders admit that the current price differential with Swiggy and Zomato cannot be sustained. The long term price difference between ONDC and other e-commerce platforms can be 10-12% at best owing to lower commissions charged by the food aggregators. ONDC is not a single vertical business as it aims to provide a wide array of services on the platform. At the end of the day, everyone in the network must make money. However, the restaurant businesses seem to be content for now.

Content Source: Money Control