The Competition Commission of India (CCI) has ordered an investigation into alleged unfair business practices of food delivery platforms Zomato and Swiggy. The order comes months after the National Restaurant Association of India’s (NRAI) raised concerns over the platforms’ dealing with restaurant partners. It also had alleged that the companies also offered their facilities to some brands for additional fees or rental commissions.
A day after the CCI order, Zomato on Tuesday said in a regulatory filing that it will explain to the competition watchdog that it is in compliance with relevant laws and said it intends to “promptly comply with any recommendations given to us by the Hon’ble Commission”.
“We will continue to work closely with the Hon’ble Commission to assist them with their 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,” Zomato said in a regulatory filing.
What is the Issue?
The National Restaurant Association of India (NRAI) had urged the CCI to investigate the companies for breaching platform neutrality by providing priority to exclusive contractors. It has also alleged that Zomato had used consumer data to build cloud kitchens.
It alleged that the companies also offered their facilities to some brands for additional fees or rental commissions. It said Swiggy was benefited from part of sales from private labels and was thus incentivised to divert consumer traffic to them.
What the CCI Order Says
The competition watchdog in its order on Monday said, “The Commission is of the view that prima facie a conflict of interest situation has arisen in the present case, both with regard to Swiggy as well as Zomato, because of the presence of commercial interest in the downstream market, which may come in the way of them acting as neutral platforms.”
It also said it warrants “a detailed scrutiny into its impact on the overall competition between the RPs vis-à-vis the private brands/entities which the platforms may be incentivised to favour”. The regulator’s investigation arm, director general, will submit its report within 60 days on the issue.
The regulator said preferential treatment accorded to the restaurant partners (RPs), in which these platforms have an equity or revenue interest, can create barriers for the existing RPs to compete on fair terms. “Such preferential treatment can be through various ways given the platform’s control over different aspects that influence competition on them, including control over deliveries, search ranking etc. which can only be examined appropriately in an investigation,” it said.
The price parity clauses mentioned in the agreements of Zomato and Swiggy appear to indicate wide restrictions where the RPs are not allowed to maintain lower prices or higher discounts on any of their own supply channel or on any other aggregator, so that the minimum price or maximum discounts can be maintained by the platform, the regulator said.
“Such price parity clause may discourage the platforms from competing on the commission basis as RPs need to maintain similar prices on all platforms and provide similar prices to the customers, regardless of the commission rates paid to the platform.
“Given that Zomato and Swiggy are the two biggest platforms present in the food delivery segment, their respective agreements with RPs of this nature are likely to have an AAEC (Appreciable Adverse Effect on Competition) on the market by way of creating entry barriers for new platforms, without accruing any benefits to the consumers,” the CCI said in its 32-page order.
What is Appreciable Adverse Effect on Competition?
According to Section 19(3) of the Competition Act, 2002, the CCI will take into account all or any of the following factors in determining whether an agreement has an appreciable adverse effect on competition or not.
The factors are — New entrants in the market are confronted with barriers; excluding existing competitors from the market; the elimination of competition by hindering entry to the market; the accrual of consumer benefits; production, distribution, or service improvements; and promotion of technical, scientific, and economic development using production or distribution of goods or provision of services.
Read all the Latest Business News and Breaking News here
Comments
0 comment