New Delhi: Ride-sharing companies entering India’s online food delivery space may pose an early challenge to incumbents like Zomato and Swiggy, as they are capable of operating at break-even or lower margins during the initial phase, according to a report by HSBC Global Investment Research released on Wednesday.

Rapido recently announced its foray into the food delivery segment, marking a significant development in the industry. While the government-backed Open Network for Digital Commerce (ONDC) posed a similar threat in 2023, it failed to significantly disrupt the current duopoly, the report noted.

HSBC analysts pointed out that the unit economics of two-wheeler ride-sharing are quite similar to food delivery, but the latter offers better profit margins and a larger addressable market. The average order value (AOV) for a ride-share is around ₹70, with a contribution margin of ₹3–4. In contrast, Zomato’s average food order brings in revenue of over ₹100, with delivery costs remaining comparable.

“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 note read.

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

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 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.

So, ride-sharing companies face similar or slightly higher costs vs 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.

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.