ONDC arrives with a price war taking on food-delivery majors Zomato, Swiggy

Open Network for Digital Commerce (ONDC), which allows restaurants to sell food directly to consumers through buyer apps, could turn out to be the biggest disruptor in food delivery if it sustains aggressive pricing and profitability, industry executives said.

“What is happening is a paradigm shift; it is about empowering merchants to choose their strategies on discounts and other parameters,” said T Koshy, chief executive of ONDC. “It is also about empowering consumers to make their own choices,” he told ET.

Prices on brands such as McDonald’s, Taco Bell, Behrouz Biryani, Wow Momo, Pizza Hut and Cafe Coffee Day are at 30-80% discounts on ONDC ordering platforms including Paytm, Magicpin and PhonePe compared to what consumers have to pay for the same items at Swiggy and Zomato.

“The ONDC platform is definitely a journey towards profitability. But what’s happening now is a short-term discount war,” said Sagar Daryani, vice president at industry body National Restaurants Association of India (NRAI), which represents over 500,000 restaurant brands.

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ONDC is not charging delivery fees from consumers as of now, and less than half the commissions from restaurants as compared to what the established aggregators charge, executives said.

“All this differential pricing is due to the heavy discounts being funded by the ONDC system, or other players and platforms powered via ONDC,” Daryani, also co-founder at Wow! Momo Foods, said.

NRAI said it has advised single and multi-chain restaurant partners to start exploring the ONDC platform as an alternative channel for better commercials, but cautioned that they should consider long-term sustainability. Restaurant companies ET spoke with said they are keen on experimenting with the platform as an additional channel to deliver to consumers.

“We are expeditiously working with ONDC and other stakeholders of the ecosystem to be available for our customers, and continue to serve customers with irresistible value,” said Rajeev Ranjan, managing director of McDonald’s India North and East.

Launched in late 2021 under the Department for Promotion of Industry and Internal Trade (DPIIT), ONDC enables consumer-facing enterprises to access technologies and solutions used by ecommerce platforms, including listing, order management and delivery.

After beta testing in Bengaluru across 16 pin codes, the ONDC platform has gone live in multiple cities where consumers can order food and groceries.

Deliveries are being done through third-party last mile service providers such as Shadowfax, Dunzo and Loadshare for a fee paid by the restaurants, depending on which platforms apps such as Paytm and Magicpin have tieups with.

While commissions charged by Swiggy and Zomato from restaurants range from 18% to 25%, commissions on the ONDC platform would be less than half, at 8-10%, an executive representing NRAI said. He said the savings on commissions can be passed on to consumers by way of direct discounts.

Onboarding buyer-side apps like Paytm, Magicpin, Meesho and PhonePe have enabled ONDC to save on customer acquisition costs since these apps already have lakhs of active users.

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Zomato-backed Magicpin said in a statement last week that it is servicing over 10,000 orders daily on ONDC, up from 1,000 orders two weeks ago.

Swiggy and Zomato declined to comment on ET’s queries.

Both have an extensive captive share of online food delivery fleet and well-established discoverability on food menus on the buyer-end apps.

India’s food service market is forecasted to touch $79.65 billion by 2028, growing at 11.19% a year from $41.1 billion in 2022, a report by consulting firm Francorp said.

According to NRAI’s Daryani, for ONDC to make a long-term, real difference for restaurants, it would be crucial to enable expansion to new users, sustain profitability, and rationalise commissions.

The emergence of ONDC comes at a time when Swiggy and Zomato are dealing with piling losses.

While Swiggy recently shut down its premium grocery delivery service Handpicked, it has also started charging a flat Rs 2 per order as platform fee.

Executives said access to data on the ONDC platform could be another draw for restaurant companies, a core area of conflict between restaurant companies and aggregators, with the former alleging that Swiggy and Zomato mask data.

The matter is currently up for review before the Competition Commission of India (CCI).