Internet Software & Services: Rapido’s food delivery foray: No immediate impact from Kotak Institutional Equities
Rapido’s food delivery foray: No immediate impact
Media articles (ET, NDTV Profit) have reported on Rapido’s entry into the food delivery business and sharply lower commission rates (Rs25-50/order) than the ~Rs90/order charged by incumbents. While lower commission rates will attract restaurants to the platform, we believe Rapido will need a strategy to attract customers to its platform. This may entail significant customer acquisition costs in the form of discounts and investments in technology. Incumbents are deeply entrenched within the restaurant and customer ecosystem and we see a limited threat to the same for now.
Low commissions can work in high-volume, rapid delivery model
Media articles have reported on Rapido’s imminent food delivery launch and its fixed commission structure offered to restaurants. While good on paper, unless Rapido finds some other monetization avenues (advertisement and lead gen revenue, high customer delivery fees), it will find it tough to even recoup delivery costs. We believe Zomato and Swiggy incur ~Rs60/order of the average delivery costs. Assuming Rapido charges a flat fee of Rs25 on every order up to AOV of Rs400 and Rs50 on every order above AOV of Rs400, we are not sure of how the company can recoup direct delivery costs. We understand that Rapido has an existing fleet of riders available, but given the time-sensitivity of food delivery, it is unlikely the ride-hailing business can significantly optimize the delivery costs for the food delivery business.
Supply is only one side of the equation; customer acquisition is key
Zomato and Swiggy have spent substantial capital in the past on customer acquisition. For instance, in FY2020, Zomato spent ~Rs37/order on discounts and other variable costs. According to our calculations, Rapido may need to invest US$30-40 mn to achieve even 5% of Zomato’s FY2025 GMV. This investment will be key, as ultimately the platform needs to have a set of customers on board that can provide relevant orders to restaurant partners. According to media reports (ET), Rapido seems to be raising ~US$15 mn; we reckon it would need to raise more funds to acquire scale in FD.
Ride-sharing customers may not readily shift to food delivery platforms
Single aggregator apps have met with limited success in India. Swiggy has traditionally been a single app, but has now launched separate apps for Instamart, Snacc and Dineout. We believe Rapido will need to invest from scratch to push its FD services to both existing and new customers.
Potential for further take rate improvement by incumbents is limited
For Zomato, we model a flat restaurant take rate of 21.0-21.1% over FY2026-30, with some modest increase in the customer take rate. For Swiggy, we model a flat take rate of 22.2-22.3% over FY2026-30, with some modest increase in customer take rate. At the moment, we do not see risks to these take rates from Rapido/other competitors. We note similar risks to take rates were discussed in the context of ONDC, but open architecture and customer acquisition were constraints in that model as well.
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