What is ONDC? How will it impact Swiggy and Zomato?

The Indian online food delivery market has witnessed unprecedented growth over the last few years, with Swiggy and Zomato emerging as the key players. However, the Open Network for Digital Commerce (ONDC) is set to disrupt this duopoly by democratizing the digital commerce space. Let's delve into what ONDC is, how it functions, its pricing advantage, potential impacts on Swiggy and Zomato, and the broader implications for the industry.

ONDC is a government-backed initiative aiming to create an inclusive digital commerce platform. Unlike conventional e-commerce platforms, ONDC is a network that connects sellers directly with buyers through third-party apps, akin to how UPI revolutionized digital payments.

ONDC's primary goal is to level the playing field for small and large vendors alike, enabling them to reach a wider audience without the need for significant investment in digital infrastructure.

To order food on ONDC, users can access partner apps like Paytm, MyStore, or Magicpin, select from various food and grocery categories, place their orders, and pay online. This integration offers consumers a unified platform to access multiple stores and restaurants.

ONDC's model comprises three main participants: seller apps that onboard local businesses, buyer apps with existing customer bases, and end customers who benefit from a wider range of shopping options.

Unlike Swiggy and Zomato, which charge 25-30% commission, ONDC's commission rates are significantly lower, at 2-4% per order. This reduction in commission directly benefits consumers by lowering food prices.

ONDC has attracted customers with initial discounts, making food orders more economical. However, these discounts are part of a short-term strategy and may change as ONDC evolves.

For sellers, whether small local businesses or established brands, the primary challenge in the digital age is visibility and reach. ONDC addresses this challenge head-on by providing sellers access to a broader market without substantial investment in technology or marketing. By listing on ONDC, sellers can tap into the customer base of every buyer app integrated with the network. This democratization of digital commerce allows even the smallest sellers to compete on a level playing field with larger counterparts, potentially leading to increased sales, greater brand recognition, and the opportunity to expand their customer base beyond local boundaries.

Buyer apps, such as digital wallets and e-commerce platforms, are in a constant battle to retain users and increase engagement. By integrating with ONDC, these apps can significantly enrich their service offerings, providing users access to a wider range of products and services from various sellers. This enhances the user experience and increases the app's utility, making it a one-stop shop for a user's various needs. Consequently, buyer apps can see improved user retention, increased transaction volumes, and a stronger competitive position in the market.

At the heart of ONDC's value proposition is the benefit it offers to customers. By aggregating offerings from many sellers, ONDC ensures that customers can access a wider range of products and services than ever before. This increased choice allows customers to compare prices, features, and seller ratings across different platforms, ensuring they get the best possible deal. Moreover, the competitive dynamics fostered by ONDC will likely drive prices down as sellers vie for consumers' attention. Thus, customers can enjoy more options and better prices, making shopping a more satisfying and economical experience.

Delivery services are crucial in the ONDC ecosystem, bridging the last-mile gap between sellers and customers. Platforms like Dunzo stand to gain significantly from the increased order volumes generated by ONDC. As more sellers and buyer apps integrate with ONDC, the demand for delivery services is expected to surge, providing companies like Dunzo with a larger market. This increase in order volumes can lead to better utilization of delivery personnel, economies of scale, and, ultimately, higher revenues. Furthermore, delivery companies can leverage their ONDC partnerships to expand their service offerings, enter new markets, and diversify their revenue streams.

A primary concern for many businesses considering ONDC is the lack of clear information on integrating their operations with the platform. The absence of expertise navigating the ONDC ecosystem remains a significant barrier for potential buyers, sellers, and logistics providers. This uncertainty stems from ONDC's relatively new introduction and innovative digital commerce approach, which deviates from traditional e-commerce platforms. As ONDC seeks to create a unified network facilitating transactions across diverse sectors, providing clear guidelines, support, and educational resources will ensure smooth onboarding for all participants.

ONDC's decentralized model presents a unique challenge in determining who is responsible for delivery and customer service. Unlike traditional e-commerce models, where the platform often manages these aspects, ONDC allows either the seller or third-party services like Dunzo to undertake delivery responsibilities. While this flexibility offers sellers more control and potentially reduces costs, it raises concerns about the consistency of service quality and the customer experience. Establishing standards and mechanisms for accountability and dispute resolution within the ONDC network will be crucial in maintaining high levels of customer satisfaction.

As ONDC aims for nationwide adoption, ensuring scalability while maintaining low prices poses a significant challenge. The platform's model of charging lower commission rates compared to established e-commerce and food delivery platforms is attractive to sellers and consumers. However, balancing operational efficiency with competitive pricing will be vital in sustaining this advantage as the network expands. ONDC must leverage technology and innovative logistics solutions to manage costs effectively and continue providing value to its users. Additionally, the network must adapt to growing transaction volumes without compromising service quality or user experience.

The introduction of ONDC is set to catalyze innovation and foster competitive pricing strategies among existing market players. This development, while beneficial for consumers through potentially improved service quality and lower prices, could disrupt current market dynamics. Established e-commerce and food delivery platforms may need to reassess their business models, commission structures, and customer engagement strategies in response to ONDC's growing presence. The long-term impact of ONDC on the market will depend on its ability to effectively address the challenges outlined above, thereby proving its value proposition to sellers and consumers.

ONDC represents a paradigm shift in India's online food delivery sector, promising a more inclusive, efficient, and cost-effective platform. While its long-term impact on established players like Swiggy and Zomato remains to be seen, ONDC's innovative model offers a glimpse into the future of digital commerce in India. Watching how the platform shapes market dynamics and consumer preferences will be fascinating as it evolves.

The success of ONDC could herald a new era of digital commerce characterized by greater competition, enhanced consumer choice, and a more equitable marketplace for sellers of all sizes.