ONDC users in India are happy about the big discounts, while experts share their doubts.
The Open Network for Digital Commerce (ONDC) has been causing quite a stir in the food delivery ecosystem over the past week, so much so that analysts have highlighted it as one of the factors behind the recent slide in the share prices of the popular delivery app, Zomato.
An Indian government-backed non-profit digital commerce initiative, ONDC offers an open source network for all to exchange goods and services on the internet, and is independent of any specific platform.
While it has left many impressed by offering services at a more competitive price than market leaders such as Zomato and Swiggy — social media has been flooded with reports of food delivery being cheaper by over 50 per cent from major food chains (Wow Momo, Biryani Blues, Krispy Kreme, among others) through ONDC — industry experts feel that ONDC’s mode of operation, by offering heavy discounts, may not be sustainable.
ONDC has a lower volume of sellers and buyers as of now.
“It is trying to activate that ecosystem. If you remember, all these apps (such as Zomato and Swiggy) initially gave heavy discounts to draw customers. ONDC is going through a similar phase. But as the system scales up, they will not be able to give the same level of discounts,”
an expert of The Print said.
ONDC began operations last year and aims to “democratise” e-commerce and make it more accessible. The idea is to help customers buy products and services from participating digital commerce platforms through a single platform, across segments such as retail and food delivery.
Unlike e-commerce websites, it does not have its own delivery ecosystem, but has logistics service partners such as Dunzo, eKart, Grab, LoadShare, Shiprocket and Shadowfax. Sellers can choose to work with them for last-mile delivery to the end consumer.
In the food delivery sector, the network has connected restaurants directly with customers, doing away with third-party platforms.
As the experts point out, ONDC lacks a proper mechanism to deal with customer grievances, something the established platforms in the food delivery sector offer. They also claim that once ONDC builds these systems and starts offering the same level of service as its competitors, its operating cost will go up.
Brokerage firm Motilal Oswal stated in a research note that it believed the risk posed by ONDC will only become significant once it scales up in multiple categories (food, ecommerce, grocery), which would give it the scale to override the delivery scale of the existing players.
“The current 10,000 deliveries/day (40 per cent in Bangalore) across categories does not present enough scale to absorb the delivery rider cost for the platform. For comparison, Zomato currently delivers 1.8 million orders per day on a standalone basis. However, the industry-wide figure across multiple categories (relevant for ONDC) would be several times greater than this,”
It also pointed out that disaggregated platforms i.e. separate for sellers, buyers, and delivery are likely to lead to problems in returns and quality of service.
According to GlobalData analysts,while ONDC has received a large number of users since its launch in 2022, it has a long way to go before it can match the technological and service capabilities of companies like Amazon, Flipkart, Swiggy, Zomato, and others.
However, as ONDC operates an open market without charging any third-party service fees, both vendors and consumers can realise considerable cost savings on their transactions.
"As the platform’s user base acquires critical mass, it can serve as a benchmark for price discovery for both vendors and consumers, instead of allowing the leading online retailers and food aggregators to dictate prices,"
Francis Gabriel Godad, Consumer Business Development Manager, GlobalData India, stated.