Zomato Shares Slump as ONDC Challenges Food Delivery Dominance

Zomato, one of India's largest food delivery companies, has seen its shares fall over 5% as ONDC, the Open Network for Digital Commerce,

Zomato, one of India’s largest food delivery companies, has seen its shares fall over 5% as ONDC, the Open Network for Digital Commerce, has emerged as a potential competitor. The government-led platform allows restaurants to sell directly to customers without the need for a third-party intermediary, thereby reducing costs and lowering prices. The news has caused concern among investors, who worry that Zomato and other similar companies, including Swiggy, may lose market share as more restaurants turn to ONDC.

Screenshots of food items available on both platforms have surfaced on social media, highlighting the significant price difference between the two. For example, a plain Margherita pizza on Zomato costs Rs 195, whereas the same pizza is priced at Rs 156 on ONDC, a difference of nearly 20%. Similarly, a McChicken Burger is priced at Rs 280 on Zomato, compared to Rs 109 on ONDC. Although ONDC has been touted as a significant challenge to the dominance of private players such as Zomato and Swiggy, the platform has its own challenges.

For instance, some users have complained about receiving stale food and lengthy delivery times, which can be less than 90 minutes in some cases. Furthermore, it will take time for ONDC to gain a foothold in the highly competitive food delivery market, especially as concerns persist over the quality of its service. The market is now paying close attention to Zomato’s Q4 results, which still need to be released. While there are concerns over Zomato’s profitability in light of ONDC’s emergence, some experts remain optimistic about the company’s prospects. According to Karan Taurani of Elara Capital, ONDC is good news for food as a product that typically has a lower average order value than e-commerce and white goods, where there are trust issues.

However, Taurani notes that raising commission rates could be tough for Zomato over the medium term, which is a key driver of its profitability guidance. Concerns over Zomato and Swiggy’s market share decline will hold ground, provided ONDC’s user experience improves over time.

Meanwhile, some experts recommend a “buy on dips” strategy for investors looking to accumulate Zomato shares for medium to long-term horizons. Sumeet Bagadia, Executive Director at Choice Broking, suggests that the ideal buying zone for the stock would be close to its next support and advises investors to wait for further price falls. In conclusion, ONDC’s emergence as a potential competitor has caused some concern among investors in the food delivery sector, particularly for companies like Zomato and Swiggy. While ONDC may offer a lower-priced alternative, its user experience still needs to be improved. Experts should be consulted before investors make any investment decisions.

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