ONDC jumps on quick commerce bandwagon with new pilot project

The first phase of the project will be facilitated by business-to-business e-commerce startup ElasticRun, Ola and PhonePe’s buyer app Pincode, which will use their network of dark stores and delivery fleets to facilitate quick deliveries.

In the past year, quick commerce has emerged as the new consumer favourite, with a greater number of people in the top cities demanding order deliveries within minutes. Investors have fueled large capital infusions in the top players in this space such as Aadit Palicha-led Zepto, IPO-bound Swiggy’s Instamart division, and Zomato-owned Blinkit.

While ONDC’s service may not be as quick as Zepto and Blinkit in deliveries, managing director T Koshy told Mint the move is part of a larger plan to integrate the services of various companies in one place to reach consumers in a timeframe that’s widely preferred today.

ONDC is not looking to compete with private players but to encourage them to join the network, Koshy said when asked about its ability to catch up with well-funded and larger-scale players.

“When we started with food delivery in the beginning, the aim was to familiarise users with the network and encourage them to use the services. The idea now is to expand use-cases to offer users what they want, which is a large assortment of products as well as shortened delivery timelines," Koshy said.

ONDC started in November 2022 and still has a long way to go in the highly competitive grocery and e-commerce spaces, where its market share is negligible. Its food orders now account for 2% of India’s overall foodtech business, according to Karan Taurani, an analyst at Elara Capital, who said the quick commerce entry is a step in the right direction.

Also Read | ONDC's e-commerce puzzle: Food thrives but apparel and electronics lag

“Execution is key. Handling of products and maintaining lead times need to be in focus. This project is an experimentation for now and we’ll have to see how it shapes up," Taurani added.

The latest ONDC initiative is being tested and is expected to go live in some areas of the top metro cities including Mumbai and New Delhi in the next three to four weeks. New sellers and logistics companies are expected to join over the next few months.

However, analysts said it would be a challenge for ONDC to match the customer experience offered by quick commerce companies.

“The reason quick commerce platforms are doing well today is because each of them has full control over all the moving parts - right from the ordering interface to warehousing and delivery. ONDC’s play will have multiple players which will make it challenging to maintain superior customer experience," said Satish Meena, an advisor at Datum Intelligence.

Widening the network

ONDC says its aim is to standardise marketplaces, promote local suppliers, and streamline logistics. It wants to position itself as the 'UPI of e-commerce,' emphasising its role as a network rather than a platform.

“Imagine a single network where all the companies can come together and do business. Consumers will get a range of options while companies will gain access to a much larger consumer base," Koshy said.

As the network expands and more players join, scale can be achieved, Koshy said. ONDC is in active talks with logistics and e-commerce companies to expand the serviceability, he added.

ONDC logged 26.2 million transactions in the three months ended June and had 20 logistics providers, according to its Q1 FY25 quarterly update handbook.

Comparable data for Amazon India and Flipkart are not disclosed by the companies. However, Zomato’s gross order value in food delivery was ₹9,264 crore in the June quarter, while that of Blinkit, its quick commerce arm, was ₹4,923 crore.

ElasticRun helps Indian businesses to access the underserved rural markets. Founder and chief executive officer Sandeep Deshmukh said it will use its network of more than 850 dark stores spanning metro and non-metro cities to act as hubs for stocking groceries and items such as apparel and mattresses. It will also utilise its gig worker fleet to deliver orders.

“We’re gradually building capacity and wherewithal to serve a bigger customer base. We have already made some technology investments to blend seamlessly into the ONDC protocol," Deshmukh told Mint.

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Dark stores are mini warehouses meant for the storage of goods to be delivered to customers located within a short radius. These stores have expanded beyond groceries to include goods such as footwear, accessories, home appliances, and consumer electronics.

Ola declined to comment, while PhonePe did not respond to Mint’s queries.

Zepto, which was formed in 2020, has raised more than $1 billion in the past six months, touching a valuation of $5 billion in the latest round. Food delivery platform Swiggy intends to expand its grocery delivery vertical by pumping in a sizable portion of its upcoming IPO proceeds, Mint reported last month.

ONDC offers food delivery through Ola, PhonePe’s Pincode, and Magicpin, and grocery delivery through hyperlocal logistics companies including Delhivery, Shadowfax, and Ecom Express.

Mint reported in May that while ONDC boasted a more than fivefold growth in orders in the first few months of 2024, it still grapples with significant hurdles, especially in scaling up non-food categories, underscoring the complexities of democratising e-commerce in India.

Rescuing kiranas

The advent of quick commerce platforms such as Zepto and Blinkit is said to have threatened the existence of our neighbourhood modern and general trade stores, taking away market share and causing a significant drop in business.

Koshy said the new project could be a ray of hope for small kirana shops as well as supermarket chains, equipping them with resources that can otherwise be difficult to maintain.

“It’s not easy for a small utility shop to maintain its own delivery fleet. Joining ONDC can connect with customers with the help of hyperlocal logistics services. Costs will be minimal too," Koshy said.

Also Read | ONDC partners with Google, Meta to reach small businesses

It may not be wise to overestimate the potential of ONDC as the saviour of general and modern trade. According to Datum Intelligence's Meena, the limited range of products in mom-and-pop stores as well as the distance limitations of regional supermarkets will continue to be a hindrance.

"Customers don't care about where the order comes from, they are only concerned about the delivery experience and variety," he added.

ONDC will also need to solve for accountability, a key metric to attract and retain customers, Meena noted.

Loyal quick commerce users are predominantly affluent shoppers who don’t necessarily care about discounts, which means that a greater number of consumer brands will have to join the network to be able to offer a diverse range of products as well as a sturdy grievance redressal system to bring people back to the platform, according to Meena.