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

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

The two apps are alleged to have monopolised the market and imposed their own price terms on partner restaurants.

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

The CCI has given its director-general 60 days to investigate the allegations and submit a report.

“The commission is of the view that there exists a prima facie case with respect to some of the conduct of Zomato and Swiggy, which requires an investigation by the director-general to determine whether the conduct of the OPs (opposite parties) have resulted in contravention of the provisions of Section 3(1) of the Act read with Section 3(4) thereof,” the order by CCI said.

Section 3(1) of the Competition Act, 2002, says that no enterprise or persons shall enter into an agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes an appreciable adverse effect on competition (AAEC) within India.

For its part, Zomato, in a statement issued to the stock exchanges, said it would work closely with the CCI to assist in the investigation “and explain to the regulator why all of our practices are in compliance with competition laws and do not have any adverse effect on competition in India”. 

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

Bundl Technologies Private Ltd, the parent company of Swiggy, refused to comment on the order.

ThePrint dives deep into the CCI order to understand the problems restaurants allegedly face when they sign up with Zomato and Swiggy.

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The complaint

On 1 July 2021, NRAI filed information with the CCI, highlighting the concerns and issues related to the functioning of food aggregator platforms, which must ideally operate as a neutral marketplace.

A perusal of the CCI’s 32-page order shows that the NRAI — an organisation founded in 1982 and representing over 500,000 restaurants valued at Rs 4.23 lakh crore — has made the following allegations against Zomato and Swiggy. 

Unfair bundling: The NRAI claims that by bundling delivery services with food listing — the service that allows you to see a restaurant’s menu and order online —  Zomato and Swiggy make establishments rely completely on the two dominant players, and restrict newer competing delivery services from entering the market. 

Hiding data: The NRAI alleges that Zomato and Swiggy hide customer data from the restaurant, preventing any direct contact between the restaurant and the customer. This, the body says, prevents restaurants from knowing not just their customers, but also how long the delivery takes, despite being accountable for any delay. 

“In addition, NRAI has alleged that the privacy policies of the food delivery apps show that consent is taken from customers to share information with the restaurants, however, practically, such data is never shared and is instead used to their advantage, especially for the creation of their private labels,” the order quotes the restaurants as alleging.

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

This conflict of interest — with the aggregators being both the intermediary as well as a participant on the platform — means that competition is skewed unfairly in their favour, the NRAI claims, and adds that aggregators could unfairly push their own kitchens to the exclusion of others. 

Exclusive contracts: The third allegation against Zomato and Swiggy is that restaurants are compelled to enter into exclusive contracts with them, by way of a lower listing commission. This could sometimes be as low as zero, thus giving the aggregators an unfair advantage, the NRAI alleges.

A restaurant that does come on board gets to pay the aggregators a lower commission per order, and also gets a minimum order guarantee in terms of value and volume, the NRAI states. 

However, a restaurant that refuses to agree to an exclusive contract must pay higher charges — a listing commission that could be as high as 15 per cent and a commission per order that could go to as much as 30 per cent, the body says.  

Price parity: The association claims that the aggregators also impose terms of price parity, which prevents them from charging lower prices, or providing better discounts on their website or offline shops. 

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

“As a consequence of non-compliance, the said term/condition specifies that, in case a complaint is made by a customer in this regard, Swiggy shall be liable to verify the same and reserves its right to unilaterally cancel the agreement with such erring restaurant partner,” the NRAI said.  

Also read: 10-minute Zomato delivery is a great idea, provided you don’t have many expectations

What CCI order says

The CCI found that although several of the allegations are insufficiently substantiated, there was merit in three out of the five major allegations made by the NRAI, and ordered an investigation into them. 

First, the CCI found that there was substance in the allegation that the dual role played by the aggregators as an intermediary and a market participant could come in the way of acting as neutral platforms.

“This gives it an incentive to leverage its control over the platform in favour of the restaurants located in its Access Kitchens to the disadvantage of other restaurants on the platform,” the CCI said in the order. “This requires a detailed examination.”

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

“Thus, the aforesaid conducts require a holistic examination to ascertain whether these intermediaries prevent competition on merits, creating an ecosystem causing or likely to cause an appreciable adverse effect on competition,” the order stated.

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

Also read: Time to recognise Zomato delivery executives as ‘employees’, not just celebrate its IPO

(Edited by Uttara Ramaswamy)

Source: The Print

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