Rapido's aggressive entry into food delivery market faces steep challenges ahead
Feeling cheeky and competitive, Rapido is plotting to take on dominating heavyweights, Zomato and Swiggy, in the food delivery realm. But analysts have a hangdog expression on their faces, warning skeptical smirks about the likelihood of this venture's success.
Rapido is betting big on its 3-million strong rider fleet and past experiences with ONDC and Swiggy to develop a separate food delivery platform. Their pitch to restaurants hinges on significantly lower commissions in comparison to Zomato and Swiggy. The chatter about potential disruption has been kicked off, but cautious brokerage firms and analysts issue a duck-and-cover warning: the challenges loom high.
The Frosty Bearness Research in a research note stated bluntly, "We do not see significant market share impact from Rapido's entrance." Citing past failed attempts by Amazon, Ola, and ONDC to conquer the same turf, their report highlights the struggle with poor restaurant selection, inconsistent customer experience, and managing fragmented supply chains in India.
With Zomato and Swiggy cornering the market and leaving little for newcomers, Rapido would need more than just fleet reallocation and lower commissions to make headway. Their success dance could hinge on scale, capital, and deeper innovation that transcends fleet reallocation.
The roadblock of customer experience and execution will be a hurdle for Rapido, argues the HSBC Research. "The economics of two-wheeler ride-sharing are similar to that of food delivery, but achieving scale, consistent quality, and optimal customer service remain significant challenges."
Burning a $5-million-a-month candle will have analysts questioning whether Rapido can subsidize food delivery operations in the short term. Adding to the worry, the steep delivery cost per order of Zomato and Swiggy, estimated at Rs 60, stands in stark contrast to Rapido's promise of a cap at Rs 50, raising doubts about how the company can recoup direct delivery costs.
Elara Capital's Karan Taurani voices concerns about the ambitious plan combining ride hailing and food delivery services, warning that any failure could result in a significant blow to consumer experience, hurting the business.
Investing between $35-40 million to achieve 5% of Zomato's Gross Merchandise Value seems a daunting task according to Kotak estimates. Although Rapido's entry could add pressure on incumbents to revise pricing models, experts agree that the path to real disruption will require more than just lower commissions and fleet reallocation.
Rapido's strategy to align online and offline food prices for customers may find traction in tier-2 cities where acquisition costs are lower. But challenges persist, such as lower average order values compared to larger cities and thinner profit margins.
To carve out a niche in this tough market, Rapido must address the challenges and implement innovative solutions. This includes mastering logistics, delivering a seamless customer experience, and leveraging technology to enhance delivery efficiency and customer experience. Building strong relationships with restaurants and offering attractive terms could also hold the key to success.
In the end, only time will tell whether Rapido can make a splash in the competitive Indian food delivery arena.
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Insights
- India's food delivery market: Fragmented and highly complex market with over 200,000 to 300,000 restaurants, making entry difficult for new players
- Customer Experience: Essential for success, as a seamless customer experience needs to be ensured, including timely deliveries, wide restaurant selection, and user-friendly interfaces
- Innovative Pricing Strategy: Rapido's lower commission rates could attract more restaurant partners, offering them a cost advantage compared to competitors
- Technology Investment: Mandatory for improving delivery efficiency, restaurant integration, and customer experience to differentiate from competitors
- Strategic Partnerships: Building strong relationships with restaurants by addressing their needs and offering better visibility and transparent terms could help Rapido gain an edge in the market
- Rapido's plotted strategy for the food delivery market demands a shift from their ride-hailing services, facing competition against giants Zomato and Swiggy.
- The cumulative challenges that Rapido may encounter involve managing fragmented supply chains, addressing poor restaurant selection, and ensuring a consistent customer experience, as warned by analysts.
- Investing in technology could be a vital factor for Rapido to enhance delivery efficiency, restaurant integration, and customer experience to compete effectively in the market.
- To secure a niche in the competitive environment, Rapido must leverage innovative solutions, such as mastering logistics, delivering a seamless customer experience, forming strategic partnerships, and aligning online and offline food prices for customers, particularly in tier-2 cities.
