Delivery disruptors: Issues that are bothering food delivery business

By Ankur Biplav

While the role of e-commerce and online delivery apps in making our lives easier is widely known, the stakeholders concerned, especially in the food delivery business, have often been on the receiving end of these platforms. Be it the high commissions eating into the profit margins of restaurants, low wages and job insecurity faced by the delivery workforce or higher costs of food items that consumers end up paying, there are several issues dogging the space.

All that could partially change now, especially going by the launch of a slew of food delivery apps that are promising zero or low commissions for merchants and huge discounts and ease of ordering to consumers. The biggest entrant is the government-led Open Network for Digital Commerce (ONDC) that was initiated by the Department for Promotion of Industry and Internal Trade (DPIIT) of the Union ministry of commerce and industry as a public beta in September last year.

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As of April 24 this year, ONDC achieved the milestone of 5,000 daily orders in food and beverages and grocery category and on average 6,000 orders during weekends. It crossed the 10,000-order mark on April 30.

In what is considered a move that is poised to transform the dynamics of online food delivery, ONDC aims to establish a common digital platform that enables seamless integration of e-commerce platforms, including those of food delivery services.

While ONDC is set up as an independent Section 8 Company with a mandate to establish an open network for digital markets, it will act as a network orchestrator to enable multiple enterprises to onboard as buyer applications driving the demand and the seller applications taking care of the supply.

As per T Koshy, chief executive officer of ONDC, as of now, there are 46 network participants (NPs) live, of which 13 are buyer apps, 26 seller apps and seven logistics apps. “PayTM and MagicPin are early adopters of ONDC on the buyer side. Magic Pin also has a seller app. The participation by these entities has contributed to the rapid growth we have observed in the last six months in which the orders per day in the retail segment have grown from 50 to 20,000,” he adds.

Koshy says that ONDC was set up to democratise digital commerce and make e-commerce more accessible and inclusive. “This is an ambitious goal and a model like ONDC has never been done anywhere in the world. But today, India leads the way in leapfrogging through technology and innovation,” he adds.

While ONDC doesn’t position itself as a platform that would compete with the current market-leading food delivery apps, Koshy says it (ONDC) looks forward to working with them.

Healthy competition

Meanwhile, for Swiggy and Zomato, who have long dominated the Indian online food delivery market, the introduction of ONDC presents both opportunities and challenges. The implementation of ONDC is expected to enhance the visibility and accessibility of its services, potentially leading to an increase in customer acquisition. The unified platform could also attract new users who were previously hesitant to install multiple apps due to limited storage space or concerns about privacy.

Moreover, ONDC will enable Swiggy and Zomato to tap into a wider customer base as it provides a level playing field for smaller and local food delivery platforms. This inclusion of smaller players is likely to promote healthy competition, foster innovation and expand the range of culinary options available to consumers.

Besides ONDC, there are a few other similar platforms that have now entered the food delivery space. Apps like WAAYU and Thrive, which claim to charge zero or low commission, aim to provide food items that are cheaper by 30-45% compared to the current lot of food aggregators.

Launched recently, WAAYU aims to democratise the food delivery ecosystem with its zero-commission model. The app has been developed by Anirudha Kotgire and Mandar Lande from Destek HORECA, a technology company based in Pune, and backed by Bollywood actor Suniel Shetty.

According to Kotgire, their app is the only zero-commission platform in the industry. “Other food aggregators are charging between 20% and 30% as commission. With WAAYU, it is completely zero. This is a major difference,” says Kotgire, adding that customers have a price guarantee on this app as other food-delivering apps like Swiggy and Zomato have price inflation on their platforms. “With WAAYU, they (customers) will pay 30-45% less on food items. Alongside, the customers will also have greater credibility as they can get in touch with restaurants directly,” Kotgire adds.

WAAYU is currently available only in Mumbai and claims to have over 1,000 eateries listed on it. “We started with Mumbai and then we will expand to the suburbs. We are tying up with more and more restaurants. We are also planning on expanding to Kalyan, Dombivali and Thane, and after that in Pune,” Lande says.

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Speaking about their plans to enrol WAAYU on ONDC, Lande says, “We have started the operations in Mumbai. Once we enrol ourselves on ONDC after we start expanding in new cities, it (WAAYU) will be visible on ONDC.”

WAAYU will be releasing the customers’ data to restaurants as both the co-founders are of the view that “customers belong to the restaurants”. “We should be giving them access to the customer’s data so that restaurants can come up with offers. They can do analytics and work accordingly to improve their business and market,” Lande says.

While Swiggy and Zomato are involved in all the transactions happening on their platforms, as per the co-founders of WAAYU, they won’t be getting into transactions and transaction money. “Our revenue model is coming from software as a service,” Kotgire says.

Relief for restaurants

Several restaurants have complained about the high commissions charged by leading food aggregators. Sreemanta Patil, senior executive and the head of Oudh 1590’s Noida branch, says that the major reason why they were enlisted on apps like Swiggy and Zomato was because it allowed their reach to premium customers. “On regular days, we deliver around 45 orders through Swiggy and Zomato but on weekends it even reaches 100. The discounts which Swiggy or Zomato give on its platform from paying through their apps is taken care of by the restaurants,” says Patil.

While WAAYU and Thrive offer flexibility in choosing different delivery partners to the restaurants, the cost of the delivery is shared between the customer and the restaurant. “Restaurants can choose to deliver food with platforms like Dunzo or Grab. In case the orders are from the vicinity, they (restaurants) can do their own delivery,” Kotgire says.

There are restaurants which have their own delivery fleet. Debaditya Chaudhury, managing director of restaurant chains Chowman, Oudh 1590 and Chapter 2, says very few people know that their delivery fleet was conceptualised and incorporated in 2010 when aggregators like Swiggy or Zomato had not even entered the market. “In fact, Swiggy made its debut in 2014. And we were making a huge sale with our exclusive feet. However, in the next few years, Swiggy and Zomato made a duopoly in the online delivery scenario where both of these became household names. And it was important for us to reach every door. We did that by stepping on these aggregators,” he explains.

Chaudhury adds that the emergence of ONDC might completely change the game. “Acting as a medium between the business and consumers, businessmen like us will be much relieved from the high commissions that were being charged so far,” Chaudhury says, adding that it would also be convenient for restaurants and consumers to deal with any food complaint and delivery issue since the direct link will manifest a quicker response that was otherwise going through a big loop of intermediary chain.

“Another facet that can be really beneficial, if not all, but for restaurants like us who are running a self-owned fleet, is that we, too, will be able to make good use of our fleet to service customers over the ONDC platform,” Chaudhury adds.

Growth challenges

Ankur Bisen, senior partner and head – consumer, food and retail of consulting firm Technopak Advisors, believes that current market leaders Swiggy and Zomato have demonstrated their growth challenges. “They are the market leaders and have created the category besides being in the business for five years. But even today, the bulk of their orders come from four cities, and they are not making money,” Bisen says.

The quarterly results of both the food delivery giants show the same. On May 19, Gurugram-headquartered Zomato announced its financial results, which showed a net loss of Rs 188.2 crore for the March quarter (Q4FY23), albeit lower than the Rs 346.6 crore losses it had previously stated.

Annually, the firm reported a combined net loss of Rs 971.3 crore for the year ended March 2023 (FY23), even though it’s a significant decrease from the losses of Rs 1,208.7 crore reported in FY22.

A day earlier, on May 18, rival food tech major Swiggy declared that its food-delivery business turned profitable in the March quarter of FY23, after factoring in all corporate costs, excluding employee stock option (ESOP) costs. Incidentally, this is for the first time in nine years since its inception that Swiggy has turned profitable—becoming one of the very few food delivery platforms worldwide to achieve the milestone.

In a blogpost, Sriharsha Majety, the co-founder and CEO of the Bengaluru-based food delivery giant, also said that the company’s investment peak was now behind it. He also talked about making “disproportionate” investments in its grocery delivery business Instamart, which competes with Zomato-owned Blinkit and startup Zepto.

According to Bisen, this is not the first time that companies have tried the zero-commission model. Calling the model a restaurant-boarding tactical tool, he adds: “The zero-commission lure is for a limited period for the restaurants to come on board.”

Business model

Dhruv Dewan, co-founder of Thrive, which also claims to charge low commissions from merchants, says that their platform is mainly built for restaurants to take charge of their online ordering platform. “In our direct business, we provide restaurants with low and fair commissions of 3% and payment gateway charges of up to 2%. We also give them full access to their customer data, and a holistic marketing suite to aid retention,” Dewan says, adding that with their consumer app, which they launched recently, Thrive wants to aid restaurants with the acquisition and retention of consumers.

Like WAAYU, Thrive is also currently available only in Mumbai. “Thrive’s consumer app is live in Mumbai as of now and we’re looking to grow our platform on a market-by-market basis,” Dewan adds, emphasising the fact that they will be expanding to cities across India in a gradual manner.

Dewan adds that the primary aim to start Thrive was to solve two pertinent problems of the restaurants—high-commission charges and lack of access to the customer data. “Our main aim is to unbundle different aspects of food delivery (payment gateways, logistics, etc) and turn them into a positive sum game for every stakeholder involved. We operate transparently and will continue to do so with our consumer application as well. Should there be a need for change when it comes to cost efficiency, those will be made,” he adds.

When quizzed about other apps which are coming up now and offer zero commission, Dewan says it is only about 15% of the online food delivery market which has been tapped into currently and this leaves a large market segment open for new players. “Safe to say, there’s enough space for every newcomer here, and their penetration in the market will also vary according to the persona of restaurants and the consumers they target,” Dewan says.

He recalls the time of the coronavirus (Covid-19) pandemic when he said their revenues had completely gone nil. “We had to go back to the drawing board to figure out how we were going to bounce back from this,” Dewan says.

Bisen believes that with the entry of new players, the market would become more competitive. “But it does not mean that the incumbent will actually be in a position to do something about the market structure,” he adds.

Discussing on ONDC’s business model, Bisen says ONDC might not be making money now, but he believes that it is more about democratising access to restaurants. “So, let us say, if this pitch does not make money for two-three years, it’s fine. Probably something else will get loaded up eventually, but in a sense, it will create a viable alternative to the exploitations,” Bisen says.

Breaking the duopoly

Angshuman Bhattacharya, partner and national leader, consumer product and retail sector, EY India, also believes that the new entrants would create a distribution of players in an otherwise two-player market. “The food delivery story in India has just begun and has provided alternate channel support to the food service industry. More players would make it more competitive and, to some extent, adversely impact the path to profitability for existing players,” Bhattacharya says.

However, he emphasises the challenges these platforms have to face and says building food delivery platforms require customer acquisition and network buildout costs, which take time and investment. “It would be tough to sustain the continued funding for new players, especially if they operate at lower or zero commissions,” Bhattacharya says.

Bisen talks about the alleged exploitation charges seen with Swiggy and Zomato in terms of minimum wages and job security. “Typically, such things happen in a mature environment where you have had a head run of private players making a lot of money over a long time,” he explains.

Entities like Swiggy and Zomato have made a very successful business model, but only time will tell as to how the new players perform. “If a third entrant comes in, it’s an uncharted territory. We don’t know what will happen. I can only offer conjecture of the point set at all,” Bisen says, stressing that in the long run, the zero-commission model without any other monetisation will work. “But having said that, the entire ONDC is premised on democratised architecture where monetisation does not happen,” Bisen adds.

Meanwhile, several users who used ONDC to get their food delivered expressed their joy on receiving food items at a much cheaper price as compared to current market-leading food delivery platforms.

Ravi Sutanjani, a Twitter user, called ONDC the ‘UPI Moment for India’s E-Commerce’. He wrote on his Twitter handle, “ONDC seem Biggest Threat for Swiggy/Zomato. Price of McDonald’s Burger. Swiggy/Zomato – Rs 282.5. ONDC – Rs 109.4. Over 60% Savings for Users (sic).”

Another Twitter user Sahil Sharma, while sharing two screenshots of the order page of Swiggy and Paytm food, wrote: “The difference between ONDC & Zomato is night & day. At this moment it’s irrational to use Swiggy or Zomato (I’m using Paytm food as the buyer side ONDC app) (sic).”

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