Rapido broke the ride-hailing duopoly. Now it's coming for Zomato and Swiggy

Rachel Varghese (0:01)

Early last month, a high-powered delegation from Swiggy landed in Bangalore for an urgent meeting. The 15 people in the delegation included Rohit Kapoor, the CEO of Swiggy's Food Marketplace, along with product heads and city leads. They had all come to the city to meet the National Restaurant Association of India or the NRAI, which represents over 500,000 restaurants across the country. The NRAI's list of complaints were not new. It included commissions as high as 35-40 percent, after accounting for ads and discounts, discounts applied without the restaurant's consent, and account managers who disappeared the moment disputes came up. What was new though was the ultimatum. NRAI wanted very specific changes in operations. The association was asking for things like an OTP-based consent for every promotional discount, refunds for unauthorized deductions, and a capped commission structure in writing. And if Swiggy didn't deliver by the first of this month, restaurants would start dropping off the platform. The thing is, the NRAI had been asking for this meeting for over a year without much luck. So why was Swiggy finally here? What changed? Well, it's the fact that now, there is a new rival in town. You see, on 29 July, the NRAI had signed a Memorandum of Understanding with Only, the food delivery arm of Rapido. The restaurant body had been fed up with the take rates under the Swiggy-Zomato duopoly. Take rates are basically the percentage of the total orders that the platforms take as revenue for facilitating the transaction. So, the NRAI had spent the past year looking for an alternative to both platforms.

And Rapido, flush with a round of $240 million from Proces in May, said yes. You see, Swiggy has good reason to worry. Rapido already broke the ride-hailing duopoly, disrupting Uber and Ola. But unlike ride-hailing though, the food delivery business is actually profitable for both incumbents. In fact, Zomato's food delivery business posted an adjusted EBITDA of nearly 600 crore rupees in the June quarter and Swiggy's was roughly half as much.

On top of that, investors have also been harsh about Swiggy's quick-commerce troubles. Its stock is down almost by 30% since January while Eterna, Zomato's parent, is up by 12%.

So losing ground in the food delivery segment as well is not an option. Which is why Swiggy finally showed up to this meeting. The thing is, currently only is just live in Bangalore. But it has plans to expand to five more cities by the end of this year. Starting with Hyderabad this month. Its pitch is very different from the incumbent's. Among other things, the focus is on zero commission and smaller order sizes. For restaurants, it does sound like a good deal. Except restaurant owners themselves aren't quite convinced that a deal this good can last.

Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese, and every day of the week, my co-host, Nigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Monday, the 7th of September.

Empire, an iconic Bangalore chain known for its biryani and kababs, was one of the first restaurants to go live on only. This was in late February. Shakir Haque, the CEO of Empire and NRAI co-head, told my colleague Shriya Sani that its orders on the platform had grown by roughly 2000% since then. Even Wow Momo, which had been ramping up its only push over the last few weeks, was seeing 200% growth day on day. It was also expecting 60-70 lakh rupees in only revenue from Bangalore alone this August.

Like I mentioned earlier, only pitch is quite simple. Zero commission for restaurants with the delivery fee passed on to customers. Rapido got to this particular setup after multiple iterations. First, it tried to charge restaurants a flat pre-order fee. Then it tried a subscription model before finally settling on the current plan. Actually, even before this, Rapido also pushed restaurants to build a budget-friendly menu. Huck told us that the plan was to have items under Rs.150 so that it matched Rapido's bike-taxi customer base. Huck said that the restaurants pushed back because a whole new menu was too challenging. And so, Rapido dropped the idea and let restaurants list their existing menus. In exchange, restaurants agreed to drop their packaging fees. The math actually works out pretty well for some outlets. Huck explained that on Swiggy and Zomato, if restaurants sell a dish at 100 rupees, they spend about 30 rupees on commissions, ads and discounts, leaving them with just 70 rupees. After food costs, labour and overheads, that leaves them a contribution margin of just 2-3 rupees. But on Only, restaurants realised the full 100 rupees, which is a margin of 20-25 rupees on the same dish.