In a setback for online food delivery platforms Zomato and Swiggy, the Competition Commission of India (CCI) on Monday ordered a probe into their business practices related to dealings with restaurant partners, neutrality, alleged unfair pricing, and other aspects. The order came on a complaint filed by the National Restaurant Association of India (NRAI). The director-general (D-G) of CCI will investigate the matter and submit a report in 60 days.
The CCI said “prima facie there exists a conflict of interest situation, warranting a detailed scrutiny into the impact on the overall competition between the restaurant partners vis-a-vis the private brands/entities which the platforms may be incentivised to favour”.
The investigation will basically determine whether the conduct of Zomato and Swiggy has resulted in contravention of the provisions of Section 3(1) and Section 3(4) of the Competition Act. Both sections of the Competition Act deals with regulating anti-competitive agreement between enterprises.
“It is also made clear that nothing stated in this order shall be tantamount to a final expression of opinion on the merits of the case, and the DG shall conduct the investigation without being swayed in any manner whatsoever by the observations made herein,” the order said.
The NRAI had originally approached the CCI in July 2021 seeking an investigation into alleged anti-competitive practices of the two food delivery platforms. In its submission to the CCI on July 1, 2021, the NRAI had raised multiple issues faced by the industry, including deep discounting and exorbitant commissions charged by Swiggy and Zomato. These included allegations like exorbitant commissions charged to restaurants on online orders, price parity agreements that force suppliers on the platform to provide lower rates or better terms on their own platforms, forcing the restaurant partners to give discounts to maintain an appropriate listing, violation of platform neutrality, and vertical integration and lack of transparency on the platform.
However, the CCI has dismissed some of the complaints raised by NRAI in its order on Monday after it heard the food delivery players. “The Commission has given a thoughtful consideration to the submissions made by Zomato and Swiggy on the allegations pertaining to delayed payment cycle, imposition of one-sided clauses in the agreement, charging of exorbitant commission etc and based on those submissions, the Commission is of the view that prima facie these do not seem to have an effect on competition in the facts and circumstances of the present case,” CCI added in its order.
Interestingly, CCI’s investigation into the food delivery segment comes at a time when the sector has benefited immensely from the pandemic with daily order volumes aggregating to around 2-2.5 million a month . Zomato went public in July 2021 with a $1.1-billion initial public offering (IPO). On the other hand, Swiggy has also reportedly hired bankers in preparation for a $1-billion IPO.
This isn’t the first instance of the restaurant industry raising competition issues against Zomato and Swiggy. Last year, the NRAI had spearheaded the ‘Order Direct’ campaign which has been encouraging users to order directly from the restaurant’s own direct order page rather than depending on Swiggy and Zomato.
The NRAI, along with the Federation of Hotel and Restaurant Association of India (FHRAI), had earlier initiated a massive ‘logout’ campaign against Zomato Gold subscription programme in late 2019 which encouraged restaurant brands to band together and log out of Zomato’s restaurant discovery platform.