In today’s Finshots, we talk about the disruption by the Open Network for Digital Commerce (ONDC) in food delivery.

The Story

Everyone’s sharing screenshots of their food orders these days. They’re saying it’s much cheaper to order food over ONDC than to use Swiggy or Zomato. Like getting veg steam momos from Wow! Momo at just ₹85 on ONDC versus spending an average of ₹170 on the reigning food delivery apps. And the prevailing sentiment is that it’s game over for Zomato and Swiggy.

Now instead of telling you a story about this as we usually do, we decided to do it in a Q&A format. And we’re going to try and simplify it to the best of our ability.

Is ONDC an app?

No. It’s just a network that anyone can piggyback on.

Think of it just like UPI. For instance, if a company wants to start UPI payments on its app, it doesn’t need to go to every bank in the country and individually tie up with them. It just needs to tap into the existing UPI network. And the banks and payment apps that are part of the network can easily connect with each other.

And it works the same way with ONDC as well. There will be a third-party app in between (which we’ll get to) that connects the restaurants (and other businesses) on one side and buyers like us on the other.

Is ONDC owned by the government?

Nope. It’s actually a private company that has raised over ₹180 crores from multiple investors — such as the State Bank of India, HDFC Bank, Kotak Mahindra Bank, BSE Investments, and NSDL.

But it’s registered as a non-profit and the government has evangelized it quite a bit.

Alright, so how does this food-ordering business work without an ONDC app?

Okay, so there’s something called a seller app. This is the entity that does the hard work of onboarding or aggregating all the restaurants in the area. Someone like Magicpin* or eSamudaay. With restaurants on board, these seller apps then join the ONDC network.

Then there is a group called the buyer app. Think of folks like Paytm or Meesho. They’re consumer-facing apps with millions of users already. When they join the ONDC network, they’ll be able to shake hands with the seller apps Magicpin or eSamudaay on the other side.

And all they have to do is create a new tab on their app called ‘Food’. Suddenly, all those restaurants that were aggregated by Magicpin or eSamudaay will be visible on Paytm and Meesho too.

So a customer simply needs to fire up one of these buyer apps which they probably have on their phone already. And place their food order.

As a final step, they have to choose how they want their food to be delivered. Some restaurants might build out their own delivery fleet. Or else, the customer can choose folks like Dunzo or Shadowfax that specialize in logistics. And then wait for the food to be delivered.

The beauty of this is that a restaurant will be visible across all buyer apps without having to tie up with each one individually.

So, how does everyone in this value chain make money?

The restaurants pay a commission, of course. But it’s much lower than what Zomato and Swiggy take. From the reports we’ve seen, the commission could be anywhere between 4–10%. And this is likely to be split among the seller app like Magicpin, the buyer app like Paytm, and ONDC.

And the customer then pays a delivery charge to an entity like Dunzo on the other side.

So everyone makes a bit of money.

And why is everything cheaper on the ONDC network when compared to Zomato and Swiggy?


Just like how Zomato and Swiggy burnt venture capital money to attract users with discounts, ONDC is dipping into the pockets of its investors too. There’s no free lunch!

So they’ve been doling out a ₹50 incentive to buyer apps such as Paytm. This gets passed on directly to the customer as a flat discount while ordering. And for companies like Shadowfax that are delivering the food from the restaurant to your doorstep, there’s an incentive of ₹75 as well.

A discount of ₹125 is quite significant if you think about it.

But, ONDC can’t really continue to burn cash, can they? Sure, they’re a not-for-profit, but they do have investors who’ve pumped in crores of rupees. So after seeing daily transactions jump from 1,000 to over 20,000 in just a few weeks, they’ve reevaluated their discounting strategy and included some T&C.

As per Economic Times, that ₹50 discount on Paytm is capped at 2,000 orders per day. If you’re placing order number 2,001 for the day, you’ll be out of luck. Also, the ₹75 incentive on delivery will be capped as soon as a particular restaurant makes up ₹3,750 worth of deliveries for the day. Beyond that, you’ll see a delivery fee pop up.

So the mega discount factor seems to be on the wane and prices could head higher.

The big question is — Will ONDC kill Zomato and Swiggy?

Well, the biggest draw for ONDC at the moment is the cheaper prices on offer. But we told you that the discounts are already being capped. And it didn’t take too long for that to happen. ONDC is still a private company that needs money to at least cover its running costs. And the government can’t say that food delivery is a ‘public good’ and subsidise it like UPI.

So the deep discounts that you see now will slowly vanish.

The other thing is the experience of food delivery.

While the sound of an open system to democratise food ordering sounds quite utopian, we’ve seen a few complaints about the ordering experience — wrong orders and delayed deliveries. And since this experience is fragmented with multiple entities, there isn’t a customer care person to tie it all in at the moment.

That’s where closed systems like Zomato and Swiggy could win because they control the end-to-end experience. Remember, just 5% of Zomato’s users contribute to 33% of orders on the platform. Will these power users really forego the experience of a closed system for a slight discount? Maybe not.

But in any case, we hope this has answered some of your burning questions. And we’ll just have to revisit this in 6 months to see how it has all played out.

Until then…

*Magicpin also functions as a buyer app and handles logistics too.

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