Investing.com -- Bernstein examined the entry of new players into India's food delivery sector, including Rapido and Flipkart, questioning whether these efforts will expand the market or reduce profit margins across the industry.

Food delivery appears attractive for disruption as Zomato and Swiggy have maintained a stable duopoly for several years. The business currently shows 18-20% year-over-year growth and adjusted EBITDA margins around 5%, the highest globally. Both companies invested $4-5 billion before their IPOs, with their combined food delivery operations now valued at approximately $20 billion. This suggests a Tobin's Q ratio of 4-5 times, which may appeal to potential entrants.

The market still serves a limited portion of India's population. Annual transacting customers across both platforms total 85-95 million, while monthly active users stand at 27.2 million for Zomato and 19.2 million for Swiggy. Food delivery represents 15% of India's food services market.

The average order value for food delivery remains around 400 rupees, compared to 150 rupees for the broader food services market. News reports indicate Rapido is testing a no-commission or low-commission model targeting this lower price segment. Flipkart reportedly plans to use a commission structure of 10-11%.

The top 20 cities account for 30-40% of India's organized food service market, with most quick-service restaurant chains concentrating their expansion in the top 50 cities.

Bernstein stated the key question is whether new entrants can achieve sustainable unit economics by changing a significant part of the cost structure used by current operators. Delivery costs run 60-65 rupees per order, including last-mile delivery and rider recruitment expenses.