Online network for digital commerce, commonly known as ONDC, has been a hot topic of discussion for quite a few days now! While initially the platform started making headlines for its dramatically affordable service and delivery charges, soon the digital commerce platform was seen as a potential alternative to the existing e-commerce giants such as Amazon, Flipkart, Myntra etc and Swiggy and Zomato in the food delivery space.
ONDC Faces User Base Decline: What's Behind the Sudden Drop in Order?
However, the platform has recently sparked a fresh wave of discussion due to a sudden decrease in its user base. Reportedly, retail orders on Open Network for Digital Commerce experienced a significant decline of over 50% to approximately 12,000 this past Sunday, in contrast to the previous weekend.
The reduction in user discounts on logistics had a substantial impact on this decline, resulting from the recent revision of incentives distributed by the network. These insights were shared by individuals familiar with the matter, based on industry estimates. But what led to this sudden downfall in the user base of this govt led digital commerce platform, which till last week was being looked at as a potential competitor of the established e-commerce players.
Key Highlights Of The Disturbance At ONDC!
- User base has experienced a sudden decline, with a significant drop in retail orders.
- The reduction in user discounts on logistics is a key factor behind the decline.
- Challenges faced by grocery-focused apps in managing the surge in orders have affected platform's user experience.
- Sellers say, inconsistency in coupons and discounts may lead to confusion among sellers and customers on the platform.
- ONDC's impact on Swiggy and Zomato's business is a topic of discussion, as participants may struggle without ONDC's incentives.
- The sellers on the platform feels that the sustainability of discounts offered by network participants remains a concern.
What Really Happened At ONDC?
According to industry sources, the decrease in retail orders can also be attributed to certain challenges encountered by grocery-focused seller-side applications. These apps were taken by surprise due to an abrupt surge in volume, for which they were not adequately prepared operationally.
Explaining the major reason behind this disturbance at online network for digital commerce, a Delhi-based seller on ONDC explained that certain grocery sellers and seller-side apps faced challenges in managing a sudden surge of orders during the day, primarily caused by a Rs 100 discount coupon offered by a prominent participant within the network. A few grocery stores found themselves lacking the necessary inventory to fulfill the increased demand, while the seller-side apps lacked automatic scaling on their cloud servers.
ONDC Needs Planning To Compete Against eCommerce Giants
Ritika who runs her online clothing startup store Roop Label Clothing feels that the inconsistency in coupons and discounts will only lead to unnecessary huddle among the sellers on the platforms and will continue to mislead the customers also.
“The established platforms like Amazon & Flipkart also offer huge discounts and also arranges regular events like Big Billion Days and Amazon Prime Sale but those are planned well in advance.”
“Despite the careful preparation, there are still instances where customers may not find everything to their complete satisfaction. However, it is crucial to coordinate this level of planning in collaboration with the sellers and the seller-side apps on online network for digital commerce," she elaborated.
TICE also tried taking inputs from ONDC on the matter but they have not responded to us yet.
Local Vendors On ONDC
One such seller, Ritish Arora, owner of Kitchen Ka Ghar, a cloud kitchen in South Delhi, shares his perspective on online network for digital commerce compared to other popular platforms like Zomato and Swiggy. Interestingly, he thinks that ONDC as a seller platform is not as user friendly as Zomato and Swiggy are.
He explained, "I have been selling my food through Swiggy and Zomato since the onset of the first wave of lockdown worldwide. However, I find this new platform to be somewhat intricate. While it claims to be a user-friendly platform, its complexities only become apparent once you try to access it.”
“Prior to launching Kitchen of Ghar during the pandemic, I was a regular corporate employee with a strong passion for the food industry. When COVID hit, I unfortunately lost my job and despite searching for three months, I couldn't find any opportunities. It was then that I decided to transform my love for food into a business. With limited resources and capital, opening a large restaurant wasn't feasible, so I opted for a cloud kitchen that required less space and fewer staff. Since I didn't have a physical restaurant, Swiggy and Zomato became my primary avenues, and they proved to be incredibly advantageous. Not only did they facilitate the smooth setup of my cloud kitchen, but they also played a crucial role in boosting my sales, as nearly 99% of online food consumers use either of these platforms,” explained Arora.
On being asked whether online network for digital commerce is impacting the business of Zomato and Swiggy, Ritish Arora from Kitchen Of Ghar said, “As far as ONDC is concerned, I am quite skeptical of this platform as of now because I don’t really see my regular customers buying from it. Though we have registered our cloud kitchen on the platform, the number of orders stands nowhere in comparison to Zomato and Swiggy.”
If you also want to give a try to ONDC, you can check out here how to register on ONDC?
Discounts On ONDC Are Unsustainable: Jeffries
According to a report by Jefferies analysts, participants on the Open Network for Digital Commerce network may struggle to maintain higher discounts or lower delivery fees in the absence of incentives provided by ONDC.
The ongoing incentives on ONDC presently include direct discounts of Rs 50 per order for customers, but with limitations of three orders per user daily and a cap of 2,000 orders per day per buyer app.
As per the report, the sustainability of higher discounts or lower delivery charges on the platform-enabled platforms, in comparison to Swiggy or Zomato, heavily relies on the continuation of ONDC-funded incentives.
The analysts further emphasize that the current delivery subsidy of Rs 75, limited to Rs 2.25 lakh per seller app per day, resulting in Rs 125 per order, is not viable in the long run. Although the incentive program was initially scheduled until March 2023, it was extended until May 2023, with some indications that online network for digital commerce will continue to offer discounted orders until the end of the year.
ONDC’s Impact On Zomato & Swiggy
When it comes to the Online Network for Digital Commerce, there is a question looming - will ONDC impact Swiggy & Zomato’s Business?
According to Jefferies, there is no perceived threat to the duopoly of Zomato and Swiggy, despite the fact that food prices on online network for digital commerce through seller apps like Paytm and Magicpin are approximately 21 percent cheaper compared to Zomato and Swiggy. The difference in listing prices and discounts contributed to a reduction of around four percent in prices, while near-zero delivery fees accounted for a significant 15 percent decrease. The remaining reduction can be attributed to packing charges.
The report underscores that the platform allows seller and buyer apps to offer lower commissions to restaurants compared to Swiggy or Zomato, as most of the delivery costs are funded by ONDC. This enables restaurants to provide more competitive pricing on ONDC-enabled platforms.
Will ONDC Sustain In The Big eCommerce Pool?
Since March, the transaction volume on the platform has experienced rapid growth. In the first week of May, the retail segment witnessed a peak daily volume of over 25,000 orders, accompanied by 34,000 daily rides in the mobility sector. The introduction of incentives by online network for digital commerce and discounting schemes from network participants such as Paytm, PhonePe, Magicpin, and select sellers have played a significant role in facilitating this growth.
The flexibility offered to sellers and participants has led many to launch their own discount-driven marketing campaigns, which is a notable feature of the network model. However, recent issues during the past weekend highlight the need for close coordination among the various players within the network, especially during the initial stages, to avoid potential breakdowns.
The government-backed interoperable commerce network has emerged as a potential threat to the duopoly of Swiggy and Zomato in the Indian food delivery market. online network for digital commerce currently charges significantly lower commissions to restaurants, ranging from 8-9 percent compared to the 20-30 percent commissions charged by the duo. This reduction in commissions is expected to result in more affordable prices for consumers, as restaurants, grocery shops, and electronics brands on the network pass on the benefits.
While the initial listing prices of food items on online network for digital commerce appeared noticeably lower than those on Zomato and Swiggy earlier this month, analysts from various brokerage firms and industry experts caution that these lower prices may be primarily driven by large discounts offered by network participants, including seller-side apps, buyer-side apps, and online network for digital commerce itself. The sustainability of such discounts in the long run remains a topic of concern.