New food delivery entrants could widen consumer choice, lower costs as competition intensifies: Bernstein
Mumbai, August 6
The entry of new players into India's food delivery market could translate into lower prices, greater choice and wider access for consumers, as increased competition pushes platforms to explore new business models and expand beyond the country's major cities, according to a report by global brokerage Bernstein.
The report said recent moves by new entrants, including Rapido and Flipkart, have the potential to broaden the addressable market for food delivery by targeting lower-value orders and consumers outside the top metropolitan centres.
"Food delivery still caters to a small subset of India," the report noted, adding that food delivery accounts for just over 15 per cent of the country's food services market despite the strong growth witnessed in recent years. It highlighted that annual transacting customers across Zomato and Swiggy remain around 85-95 million, suggesting significant headroom for market expansion.
According to Bernstein, one of the biggest consumer benefits from new entrants could come through lower average order values (AOV) and improved penetration in smaller cities. The report said the "incremental market at the lower AOV-end seems to be the explicit focus for the no/low commission model being piloted by Rapido," while Flipkart is also expected to pursue a lower commission structure.
The brokerage said digitally enabling lower-value food deliveries outside India's top 20 cities could help organise a much larger segment of the food services market, improving access for consumers who have so far remained underserved.
However, Bernstein cautioned that any meaningful reduction in prices for consumers would depend on whether new platforms can sustainably reduce delivery and operating costs.
"To summarize, from this INR 132/order of cost structure, we think obvious opportunities to significantly change the business model are limited," the report said. Nevertheless, it estimated that potential savings in delivery expenses, indirect costs and profitability expectations could "release INR 20-30/order to be distributed between the restaurant and the customer."
The report added that while such savings may eventually benefit consumers through lower prices, existing market leaders Zomato and Swiggy are also likely to replicate any structurally successful innovations introduced by challengers.
In the near term, Bernstein expects competition to intensify as new platforms use aggressive incentives to attract customers. It said consumers are likely to benefit from promotional offers and discounts funded by new entrants, although these may not be sustainable over the long run.
— ANI
Reader Comments
Only 15% of the food services market is captured by food delivery? That's surprising but actually makes sense when you think about all the local tiffin services, street food, and smaller restaurants in our neighborhoods. There's definitely room for more players. Also, Rapido already has the two-wheeler network for deliveries, so it's a smart move for them to enter this space.
As someone who works in logistics, I'm skeptical about the cost reduction claims. The Rs 132/order cost structure is already pretty lean. How will new players sustainably offer lower commissions without burning cash? We've seen this movie before with the cab aggregator wars - massive discounts initially, then prices go up once they capture the market. Please be careful, consumers!
I live in a tier-3 city in Karnataka and ordering from Swiggy feels like a luxury. Minimum order values are high, delivery charges are steep, and options are limited. If Flipkart uses its logistics network to serve smaller cities affordably, it could be a game-changer. Also, great to see Bernstein highlighting the need to serve the "small subset" - our food culture is so diverse, there's so much untapped potential!
The real question is what happens to restaurant owners. Zomato and Swiggy already take 25-30% commission which eats into margins. If new players offer lower commissions to restaurants and pass savings to customers, that's a triple win - customer pays less, restaurant earns more, and delivery partners hopefully get better pay. Let's watch this space. 🇮🇳
J Jennifer L < We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.