New Delhi: Ride-sharing companies entering India’s online food delivery space may give strong competition to big players like Zomato and Swiggy, especially in the beginning, as they can afford to run at very low profits or even at no profit, a new HSBC report said on Wednesday.
Recently, Rapido announced its entry into food delivery. In 2023, ONDC (Open Network for Digital Commerce) had raised similar concerns but failed to seriously impact Zomato and Swiggy’s market hold.
According to the report, the business model for two-wheeler ride-sharing is quite similar to food delivery. However, the food delivery market is larger and more profitable.
For example, in ride-sharing, the average ride costs about ₹70, and companies earn only ₹3 to 4 per ride. In contrast, Zomato earns over ₹100 in revenue per food order, even though the delivery cost is about the same as a ride.
This makes food delivery an attractive business for ride-sharing firms. But success depends on maintaining good customer service, strong delivery systems, and scaling up quickly. These companies may end up serving low-profit customers at first.
The report noted that Zomato’s average order value (AOV) after discounts is about ₹350. From each order, it earns over ₹100 in revenue and keeps around ₹35 as profit before interest, taxes, and other costs.
Delivery costs, including rider payment, discounts, online payment charges, and customer service, range between ₹65 to 70 per order.
Similarly, ride-sharing companies also have variable costs of around ₹65 per ride. While their costs may increase slightly when moving into food delivery, they can still operate with low or no profits in the beginning.
This could help them offer 4 to 5% lower costs for restaurants or even free delivery for customers.
Currently, Zomato delivers around 2.6 million orders daily and earns a 4.4% profit margin (EBITDA). The report also highlighted that food delivery prices are already 30 to 35% higher than dine-in rates. Even after discounts, customers end up paying 15 to 20% more than if they ate at the restaurant.
Zomato charges restaurants a commission of about 25% and also charges customers 4 to 5% for delivery. This is among the highest in the world, the report said.