Zomato, Swiggy face probe for alleged unfair business practices
The Competition Commission of India said that the commercial interest of these platforms in brands they own could hurt their neutrality.
The Competition Commission of India on Monday ordered an investigation into food delivery platforms Zomato and Swiggy for their alleged unfair business practices, reported The Indian Express.
The antiregulatory body said that the alleged preferential treatment given to brands in which these platforms have an equity or revenue interest could create barriers for the restaurant to compete on fair terms, reported PTI. It said this could hurt hurt the neutrality of the food platforms.
“Prima facie there exists a conflict of interest situation, warranting a detailed scrutiny into its impact on the overall competition between the restaurant partners vis-a-vis the private brands or entities which the platforms may be incentivised to favour,” the regulator said.
The Competition Commission of India has directed its investigative arm to submit an inquiry report within 60 days.
The direction came on a complaint filed by the National Restaurant Association of India in July, reported The News Minute.
In its complaint, the business association had alleged that Zomato used consumer data to build its own cloud kitchens. A cloud kitchen is a virtual kitchen that uses a commercial setup for preparing food for delivery or takeout only.
The complaint also alleged that Swiggy too made profit through sales from its private labels and was incentivised to divert consumer traffic to its brands.
The National Restaurant Association of India also alleged that the commission charged by the platforms from restaurants “are to the tune of 20% to 30%, which are extremely exorbitant”.
The complaint said that Zomato was charging approximately 27.8% of the order value from restaurants listed on its platform. For cloud kitchens, the commission rate is 37%, it said.
In its order, the Competition Commission of India said that Zomato was hindering competition in two ways.
“Firstly, availing the platform’s delivery services drives up the cost of doing business, which is passed on to the end consumers; and secondly, even non-price factors such as the quality of delivery are adversely affected, as certain RPs [restaurant partners] who can avail trained delivery fleet are not allowed to make deliveries,” said the order.
It said that the price parity clauses in the delivery platforms agreements showed that the restaurants were not allowed to maintain lower prices or give high discounts even when they were dealing with other aggregators. The regulator said that it was done so that the food delivery platforms could themselves maintain minimum prices and maximum discounts.
“Such price parity clause may discourage the platforms from competing on the commission basis as RPs [restaurants partners] need to maintain similar prices on all platforms and provide similar prices to the customers, regardless of the commission rates paid to the platform,” it added.