Food Delivery Revolution: Changing Dynamics Driving Rapid Growth

Published by Sharekhan Education | July 19, 2023

By Amit Pathak | Sharekhan Education

In today’s fast-paced world, ordering food online has become a convenient and popular choice for many people. The food delivery business has transformed the way we satisfy our hunger cravings, offering a vast selection of cuisines at our fingertips. India, with its massive population and increasing internet penetration, is witnessing a significant evolution in its food delivery industry. In this blog, we will explore the exciting developments in this sector and delve into the emergence of key players like Zomato, all while envisioning the potential future with the advent of the Open Network for Digital Commerce (ONDC).

About the Food Industry :

At its core, a food delivery business bridges hungry customers and a diverse range of restaurants. With the help of online platforms, customers can conveniently browse menus, place orders, and have their desired meals delivered to their preferred locations. The revenue for these businesses primarily stems from online food delivery transactions, advertisements by restaurant partners, and subscriptions by members. In recent times, these platforms have expanded their offerings beyond just meals, venturing into the delivery of groceries as well.

Despite the immense potential, India’s food delivery industry is still in its early stages compared to other countries. According to Redseer estimates, only 9% of Indians currently order food online. This is significantly lower than the figures of 36% in China and 50% in the United States. However, the future looks promising. With the projected increase in internet penetration and the estimated 1 billion internet users in India by CY25E, the sector is poised for rapid growth. Factors such as urbanization, intensifying internet connectivity, and rising consumption patterns are expected to drive this growth. In fact, a recent brokerage report suggests that India’s food delivery market could achieve a remarkable 19% compound annual growth rate (CAGR) from FY23 to FY25, fueled by a surge in the number of transacting users and an increase in order frequency.

Growth Prospects :

The industry has witnessed consolidation, with a few dominant players emerging as market leaders. Companies like Zomato and Swiggy have solidified their positions by acquiring smaller competitors and expanding their services across the country. The landscape could change significantly with the introduction of the Open Network for Digital Commerce (ONDC). This open ecosystem aims to provide restaurants access to technologies utilized by e-commerce platforms, including listing, order management, and delivery. Restaurants pay third-party last-mile providers like Dunzo, Loadshare, and Shadowfax for deliveries under ONDC. ONDC has already partnered with popular buyer-side apps like Magicpin, Paytm, Meesho, and PhonePe to leverage their existing user base and reduce customer acquisition costs. ONDC imposes lower delivery fees on consumers and commissions on restaurants, undercutting established players’ typical charges. The future trajectory of ONDC will be intriguing to observe as it strives to scale up in the coming years.

About Zomato :

Let’s shift our focus to Zomato, one of the leading food delivery aggregators in India. Alongside its core business, Zomato operates Hyper pure, a business-to-business (B2B) platform that supplies kitchen essentials to restaurants. Additionally, Zomato owns Blinkit, a quick-commerce marketplace facilitating convenient online shopping for household products with swift delivery. Consensus estimates project Zomato to achieve a remarkable 25%+ revenue CAGR from FY23 to FY25. Zomato’s management expects the company to turn profitable no later than the second quarter of FY24, with a breakeven anticipated in FY25. This optimistic outlook is driven by an expansion in contribution margin and the company’s ability to capitalize on strong operating leverage.

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