Will ONDC's Emergence Spell the End for Zomato?
Introduction to ONDC
The Open Network for Digital Commerce (ONDC) is a new entrant in the Indian e-commerce and food delivery space. Launched in late 2021 under the aegis of the Department for Promotion of Industry and Internal Trade (DPIIT), ONDC has gained momentum, posing a significant challenge to the current duopoly of Zomato and SWIGGY in the Indian food delivery market.
How ONDC Works and Its Impact
ONDC operates differently from traditional food aggregators. It allows consumer-facing firms to use e-commerce platforms for listing, order management, and delivery technologies. This model is particularly compelling for restaurants, which will now only have to pay a commission of 8-10% to ONDC, compared to the 18-25% charged by companies like Swiggy and Zomato. As a result, customers are seeing significant savings, with meals on platforms like Paytm Magicpin, PhonePe, and others being 30-80% cheaper than on Swiggy and Zomato.
Brands Affected by the Price War
Major brands like McDonald's, Taco Bell, Behrouz Biryani, Wow Momo, and Pizza Hut are experiencing lower prices on ONDC compared to traditional aggregators. This price advantage has driven early discounts and immediate cost savings to customers, leading to ONDC surpassing 10,000 daily orders in a short period.
The Threat to Zomato and SWIGGY
The concentrated power within the online food aggregator ecosystem has traditionally favored platforms like Zomato and SWIGGY, who have built comprehensive customer-centric services over the years. However, the shift with ONDC democratizes this power, giving service providers more control. Lower commissions in ONDC make it a more attractive option for restaurants, potentially reducing transaction costs and increasing profit margins.
Short-term vs. Long-term Battle
The current price war initiated by ONDC is primarily aimed at acquiring customers through immediate cost savings. While this strategy is effective in the short term, re-creating the same level of customer experience offered by Zomato and SWIGGY will be a significant challenge. Customer-centric features such as dining discovery, effective delivery management, issue resolution, and real-time tracking have all been core components of SWIGGY's and Zomato's competitive advantage.
Zomato and SWIGGY may face short-term pressure as they adjust to the new market dynamics. However, for ONDC to become a significant threat, it needs to address the complexities of building a complete ecosystem from scratch within a short timeframe. As of now, ONDC is still in its nascent stage and is unlikely to disrupt the market significantly.
Challenges Ahead for Zomato’s Growth
Despite ONDC’s current gains, the ultimate success of this platform remains uncertain. The rapid and sustained growth of Zomato and SWIGGY over the years is a testament to the effectiveness of their strategies. Zomato, with its extensive customer base and strong brand recognition, is well-positioned to navigate these challenges. Also, SWIGGY's investment in technology and customer experience ensures that they can quickly adapt to new market conditions.
Initially, ONDC has not posed a significant threat due to its limited scope and lack of wide brand recognition. However, the looming threat of ONDC will undoubtedly place new challenges ahead of Zomato’s growth, pushing the company to innovate and stay competitive. Whether ONDC will ultimately kill Zomato remains a tough call, but it is clear that Zomato will face new challenges in the evolving landscape.