The Secret Behind ONDC’s Low Prices Revealed: Government to the Rescue (for now!)
The recent launch of the Open Network for Digital Commerce (ONDC) has sparked a frenzy in the food delivery market, with many wondering how the prices on ONDC are significantly lower than those on Swiggy and Zomato. However, the truth behind ONDC’s low prices has remained a secret until now.
To shed some light on the issue, let’s take a recent example. A customer placed an order from Wendy’s using ONDC on the Paytm app, and the restaurant’s bill came to Rs 119. With GST, the total amount came to Rs 124.96. However, the customer was only charged Rs 51.1 by Paytm. The question is, how did this happen?
There are two main reasons why ONDC prices are so low. Firstly, Shadowfax, the delivery partner, provided free delivery, which obviously wasn’t free for Shadowfax, so who paid for it? Secondly, the customer received a discount of Rs 50 on the order, which wasn’t provided by Wendy’s or Paytm, so who gave the discount?
The answer is the government. It has launched a temporary two-way scheme to promote the use of ONDC. Under this scheme, customers receive a Rs 50 incentive on orders of Rs 100 or more. This incentive is processed by buyer-side platforms like Paytm and PhonePe’s Pincode, and the government reimburses them. Restaurants are also given up to Rs 40 to cover the delivery fee for orders of Rs 100 or more.
In this scenario, the customer paid Rs 51.1 after applying the Rs 50 coupon, bringing the effective price to Rs 101.1. Subtracting that from Wendy’s bill value of Rs 119 (excluding GST), that comes down to Rs 17.9. Although that’s not good enough for Wendy’s to pay Shadowfax for the delivery, with the government’s assurance of Rs 40 per delivery, it’s sorted!
But what happens when the government stops paying Rs 50 + Rs 40? Without the scheme, restaurants will begin charging customers for delivery, and the Rs 50 discount coupons will disappear.
Although ONDC can emerge as a worthy third player in the market (specifically talking about food delivery), it cannot kill the two big players, Swiggy and Zomato. In a hypothetical scenario, what if the government keeps the scheme on forever? Is it feasible?
Zomato (excluding Hyperpure and Blinkit) did a gross order value of Rs 6.68k crore in Q3FY23 with an average order value of around Rs 400. This means 16.7 crore orders per quarter or 18.5 lakh orders per day. Let’s assume that ONDC will do just as many orders, driven by subsidized prices (discounts and delivery fees). On applying a Rs 50 discount and a Rs 40 delivery fee subvention on them, that’s Rs 6k crore of annual cash burn.
While this may not be a big number for the government, it’s not a small number either. The question remains whether the government should keep the ONDC scheme running indefinitely.
In conclusion, while the ONDC scheme is currently providing customers with lower prices, the government’s financial support is essential to make it sustainable in the long run. Whether the government can continue to afford the cost remains to be seen.
