Ride-Sharing giants disrupt India’s food delivery market

With new players like Rapido entering the arena, established platforms such as Zomato and Swiggy face fresh competition driven by lower margins and innovative operational strategies

New Delhi: Ride-sharing firms are now entering India’s online food delivery market, setting the stage for increased competition with established players like Zomato and Swiggy. These new entrants can operate on lower margins or even break-even in their early years, which could shake up the longstanding duopoly.

For example, Rapido just announced its entry into the food delivery space this month. A similar attempt by ONDC in 2023 didn’t manage to significantly dent the market power of the duopoly, but the current trend suggests that ride-sharing companies are preparing for a more aggressive foray into food delivery.

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The underlying economics of two-wheeler ride-sharing and food delivery share some similarities, yet the latter enjoys a considerably larger market and higher profit margins. Typically, a two-wheeler ride-sharing order is valued at around Rs 70, with a contribution margin of about Rs 3-4. By contrast, platforms like Zomato earn over Rs 100 per food delivery order, while delivery costs remain quite similar. This stark difference in revenue per order makes food delivery an attractive opportunity for ride-sharing companies, although they must still overcome challenges related to customer experience, operational execution, and scaling up their services.

Looking closer at the numbers, the average food order on delivery platforms is priced at approximately Rs 350 after discounts, generating revenues of over Rs 100 per order and a contribution margin of around Rs 35. On the cost side, delivering food from a restaurant to a customer typically costs between Rs 65-70. These expenses include rider fees, discounts, gateway charges, and customer care. Although the base cost structure is similar to that of ride-sharing, food delivery incurs slightly higher costs due to additional services like customer support. Nonetheless, this setup allows ride-sharing companies the flexibility to offer restaurants 4-5% lower costs or even free delivery to end consumers in the initial phase.

Zomato, which currently handles roughly 2.6 million orders per day, manages to sustain a 4.4% EBITDA margin thanks to its vast scale. It’s also important to note that food delivery prices are typically about 30-35% higher than regular dine-in prices. After discount adjustments, customers end up paying around 15-20% more than the original restaurant prices. On top of that, Zomato collects a take-rate of approximately 25% from restaurants and adds a delivery fee of 4-5% for customers, figures that are among the steepest when compared to global peers.

As ride-sharing companies leverage their operational expertise and lower cost models, the food delivery market is bracing for a shift. The coming years will be critical as industry players adjust their strategies in order to enhance customer experience, manage costs effectively, and scale their operations to new heights.