Rapido Food Delivery: Ride-sharing platforms’ entry in food delivery market sparks buzz among competitors

Ride-hailing giant Rapido is all set to enter India’s food delivery landscape. This announcement has created a buzz across the industry, with many wondering how Rapido’s entry will impact the dominance of established players like Zomato and Swiggy. This service is expected to start in Bengaluru. Two listed companies – Zomato and Swiggy are already in this business. Rapido is planning to charge restaurants a lower commission for food delivery. This could shake up the market and create big changes, potentially affecting existing players like Zomato and Swiggy. 

Rapido’s entry into food delivery market

The entry of ride-sharing companies into the online food delivery market in India poses an early challenge to existing players like Zomato and Swiggy, as in the 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.

Economics of food delivery attracts ride-sharing players: Higher revenue, similar costs

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 HSBC Global Investment Research note reads. This makes FD an attractive venture for ride-sharing companies. However, maintaining customer experience, the ability to execute, and achieving scale remain key challenges.

Margins in food delivery: Closer look at numbers

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 a contribution margin of Rs 35 per order. The 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 increase a little for FD, including discounts and customer support costs,” the note read.

Lower margins, cheaper costs

So, ride-sharing companies face similar or slightly higher costs than FD companies. However, in the early years, the ride-sharing companies could 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.

Average food delivery prices

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.

Inputs from IANS