Restaurant business

Are Zomato & Swiggy helping the restaurant business or hurting it? Why CCI ordered a probe

New Delhi: On Monday, India’s antitrust regulator, the Competition Commission of India (ICC), ordered an investigation into allegations of unfair trading practices against food delivery aggregators Zomato and Swiggy.

The two applications would have monopolized the market and imposed their own pricing conditions on partner restaurants.

Zomato and Swiggy together hold 90-95% market share in India’s food delivery industry. According to the National Restaurant Association of India (NRAI), which filed a complaint with the ICC, Zomato is the dominant player in the northern Indian markets and Swiggy in the south.

The CCI gave its chief executive 60 days to investigate the allegations and submit a report.

“The commission is of the view that there is a prima facie case with respect to some of the conduct of Zomato and Swiggy, which necessitates an investigation by the chief executive to determine whether the conduct of the POs (opposing parties) resulted in breach of the provisions of Section 3(1) of the Act, read together with Section 3(4) thereof,” the ICC order said.

Section 3(1) of the Competition Act 2002 provides that no firm or person shall enter into any agreement relating to the production, supply, distribution, storage, acquisition or control of goods or the supply of services, which causes a material adverse effect on competition (AAEC) in India.

For its part, Zomato, in a press release given to the stock exchanges, indicated that it would work closely with the ICC to help it in the investigation “and explain to the regulator why all our practices comply with competition laws and have no reason to exist”. adverse effect on competition in India”.

“We intend to promptly comply with all recommendations given to us by the Hon’ble Commission,” the company’s statement read.

Bundl Technologies Private Ltd, Swiggy’s parent company, declined to comment on the order.

ThePrint dives deep into the CCI order to understand the issues restaurants would face when signing up with Zomato and Swiggy.

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The complaint

On July 1, 2021, the NRAI filed information with the ICC, outlining concerns and issues with the operation of food aggregator platforms, which should ideally operate as a neutral marketplace.

A reading of the 32-page ICC order shows that the NRAI – an organization founded in 1982 and representing more than 500,000 restaurants valued at Rs 4.23 lakh crore – made the following allegations against Zomato and Swiggy.

Unfair grouping: The NRAI says that by bundling delivery services with Food List – the service that lets you view a restaurant’s menu and order online – Zomato and Swiggy are forcing establishments to rely entirely on two dominant players and prevent new competing delivery services from entering the market.

Data masking: The NRAI alleges that Zomato and Swiggy are hiding restaurant customer data, preventing direct contact between the restaurant and the customer. According to the body, this prevents restaurants from not only knowing their customers, but also the delivery time, although they are responsible for any delays.

“Furthermore, NRAI alleged that food delivery apps’ privacy policies show that consent is taken from customers to share information with restaurants, yetpractically, this data is never shared and is rather used to their advantage, in particular for the creation of their private labels”, affirm the restaurateurs.

“Private Labels” here refers to cloud kitchen or access kitchen services. These are shared kitchens that aggregators create for delivery only.

This conflict of interest – with aggregators being both the middleman and a participant on the platform – means competition is unfairly skewed in their favor, claims the NRAI, and adds that aggregators could be unfairly pushing their own kitchens to the exclusion of others. .

Exclusive contracts: The third allegation against Zomato and Swiggy is that restaurants are forced to enter into exclusive contracts with them, through a lower referral fee. This could sometimes be as low as zero, giving aggregators an unfair advantage, according to the NRAI.

A restaurant that joins pays aggregators a lower commission per order and also gets a minimum order guarantee in terms of value and volume, says the NRAI.

However, a restaurant that refuses to accept an exclusivity contract must pay higher fees – a listing commission of up to 15% and a commission per order of up to 30%, according to the body.

Tariff parity: The association says aggregators also impose price parity terms, which prevent them from charging lower prices or offering better discounts on their website or offline stores.

Price parity, in the simplest terms, is equal price for all restaurants.

“As a result of non-compliance, said term/condition specifies that in the event of a complaint from a customer in this regard, Swiggy will be obliged to verify the same and reserves the right to unilaterally cancel the agreement with this erroneous restaurant partner,” the NRAI said.

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What the ICC order says

The ICC found that although several of the allegations were insufficiently substantiated, three of the top five allegations made by the NRAI were founded and ordered an investigation into them.

First, the ICC found that the allegation that the dual role played by aggregators as an intermediary and a market player could constitute an obstacle to the action of neutral platforms was well founded.

“This incentivizes it to leverage its control over the platform in favor of restaurants located in its access kitchens at the expense of other restaurants on the platform,” the CCI said in the order. “This requires a detailed examination.”

Second, youThe commission said the practice of zero commission in exchange for an exclusive contract required investigation.

“Thus, the foregoing behaviors require a holistic examination to determine whether these intermediaries prevent competition on the merits, creating an ecosystem causing or likely to cause a material adverse effect on competition,” the order states.

Finally, the Commission found that the practice of aggregators of charging variable commission rates and imposing their own price parity conditions could discourage healthy competition and prevent other delivery services from entering the market.

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(Edited by Uttara Ramaswamy)