Eternal, Swiggy: How Rapido's food delivery entry may impact incumbents

Rapido's entry into the food delivery space, cross-utilising its 40 lakh rider network to best-use idle slots, at virtually zero incremental capex, is seen as threat to earnings and target prices of online food delivery platforms such as Swiggy Ltd and Eternal (erstwhile Zomato). Elara Securities in a fresh note said any sustained execution and scale may help Rapido challenge stable take-rates and profitability of the incumbents. 

"Online food delivery by Zomato and Swiggy is a decade-old story, and now offers stable take rate, with 5 per cent adjusted EBITDA targeted in the  near-term. Barring try-out volumes, Rapido’s sharp scale-up could risk stable operational environment," Karan Taurani of Elara Securities said in a note. 

As per its sensitivity analysis of Eternal, a drop of 200 basis points in revenue growth and 10 per cent valuation multiple in the food delivery segment may drag its consolidated target price by 6 per cent to Rs 282 from Rs 300 at present, Elara Securities said. 

Rapido has announced its commission rate structure to foray into online food delivery. The structure is competitive against Zomato and Swiggy’s, as the entrant would charge a commission rate of 8-15 per cent  from restaurant partners based on average order value (AOV). This is against 21-22 per cent blended for Swiggy and Zomato. 

Reportedly, Rapido may have fixed a fee of Rs 25 on orders below Rs 400 and Rs 50 on orders above Rs 400. The services will be pilot from Bengaluru. 

Rapido’s foray is different from that of ONDC and OLA, wherein  last-mile connectivity was an issue. Rapido boasts a 40 lakh rider network with 30-35 lakh rides daily, partly supporting logistics. This is against Eternal's rider base of 4.4 lakh and Swiggy's 5.3 lakh. 

Elara said Rapido's idle slots may be leveraged by reassignment to meal-time drops, saying there is virtually zero incremental capex, driving higher rider earnings. 

Besides, Rapido's existing expertise in  delivering food for ONDC and cross-selling across ride users would cut CAC than standalone food apps. 

"These may improve Rapido’s execution in food delivery. A captain’s app may consolidate rides, parcels and food orders in one job list, cross-utilizing fleet. Algorithms will assign tasks that maximize earnings/minimum distance," it said.

Elara said the absence of a dedicated fleet may however compromise the delivery  experience, especially with rising less than 30-minute delivery proposition. 

"So far, new entrants  (ONDC and direct ordering platforms) have failed to scale-up meaningfully, due to no last-mile control and reliance on 3P logistics. Upon sustained execution and scale, Rapido could  challenge stable take-rates and profitability of the incumbents," Elara said.