NewKerala.com

Key Points

Ride-sharing platforms like Rapido are entering India’s food delivery market, leveraging their existing logistics to undercut Zomato and Swiggy on pricing. HSBC notes food delivery offers 3x higher margins than ride-sharing despite similar delivery costs. While new entrants may struggle with scale, they could pressure incumbents by absorbing losses longer. The report highlights Zomato’s 25% restaurant commission as among the highest globally, leaving room for disruption.

Key Points: Rapido Entry Sparks Food Delivery Jitters for Zomato Swiggy

  • Rapido enters food delivery with cost advantages over Zomato
  • Ride-sharing firms can operate at break-even initially
  • Zomato charges 25% take-rate from restaurants
  • Food delivery margins exceed ride-sharing by 3x
3 min read

Ride-sharing platforms' entry in food delivery poses early jitters to Zomato, Swiggy

Ride-sharing firms like Rapido challenge Zomato and Swiggy with lower margins in food delivery, per HSBC report analyzing cost economics.

"2W ride-sharing AOV is Rs 70 vs Zomato’s Rs 100-plus FD revenue per order – HSBC Global Research"

New Delhi, June 11

The entry of ride-sharing companies into the online food delivery market in India pose early challenge to existing players like Zomato and Swiggy as in initial years, such companies can operate on much lower margins or at break-even, a report showed on Wednesday.

Rapido has announced its entry this month. ONDC was a similar risk in 2023 but it was not able to make a major dent in the duopoly structure of the food delivery industry, according to a note by HSBC Global Investment Research.

Average two-wheeler (2W) ride-sharing cost economics are not much different from food delivery (FD), while profit margins and industry size are much larger for food delivery compared to ride sharing.

“2W ride-sharing average order value (AOV) is around Rs 70, with contribution margin (CM) of around Rs 3-4. In comparison, revenue per FD order for Zomato is Rs 100-plus, while delivery costs are not much different,” the note read.

This makes FD an attractive venture for ride-sharing companies. However, maintaining customer experience, ability to execute and achieving scale remain as key challenges.

New entrants may acquire industry tail, which is not very profitable.

Average order value for FD is around Rs 350 (post discounts for Zomato), leading to revenues of Rs 100-plus and contribution margin of Rs 35 per order.

Average food order delivery costs from restaurant to home is Rs 65-70 which includes rider costs, discounts, gateway charges and other expenses like customer care.

“In comparison, 2W ride-sharing AOV is around Rs 70, and total variable costs are around Rs 65 as well. We assume this cost will increases a little for FD including discounts and customer support costs,” the note read.

So, ride-sharing companies face similar or slightly higher costs vs FD companies. However, in the early years, the ride-sharing companies can operate on much lower margins or at break-even.

Hence, costs could be either 4-5 per cent cheaper for the restaurant or result in free delivery for the customers.

Zomato delivers around 2.6 million food orders per day, and at that scale, it earns 4.4 per cent EBITDA margins. Of note, average food delivery prices are already around 30-35 per cent higher than dine-in prices.

This means that, even post discounts (on NOV), restaurants are charging around 15-20 per cent higher prices to the customers.

“On those prices, Zomato is charging around 25 per cent take-rate from restaurants and is further charging 4-5 per cent delivery charges as well to customers. This is nearly the highest fee compared to global peers,” the report said.

- IANS

Share this article:

Reader Comments

Here are 5 diverse Indian user comments reflecting different perspectives on the article:
R
Rahul K.
More competition is always good for consumers! 💯 Zomato/Swiggy have been charging crazy commissions from restaurants. Maybe these new players will force them to reduce fees. Though I wonder if delivery quality will suffer with lower margins...
P
Priya M.
As someone who orders food 3-4 times a week, I'm worried about too many apps cluttering the market. Remember how confusing ONDC was? I just want reliable delivery with good customer support. Hope these new companies invest in that aspect too.
A
Arjun S.
Interesting analysis! The economics make sense - ride-sharing companies already have the delivery network. But food delivery needs different skills. Zomato's 25% take rate does seem excessive though. Maybe this will bring some balance to the market.
S
Sunita R.
My brother runs a small restaurant in Bangalore. These platforms take away nearly 30% of his earnings. If new companies can offer better rates, it would be great for small businesses like ours. But will they survive long-term with low margins?
V
Vikram J.
The real issue is restaurants increasing prices by 30% for delivery orders. At this rate, it's becoming cheaper to just go out and eat! Competition is good, but hope it doesn't lead to a race to the bottom where everyone loses - customers, restaurants and platforms.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Leave a Comment

Minimum 50 characters 0/50