Chennai, April 29 In a slew of probes into e-commerce delivery platforms, the Indian antitrust regulator, Competition Commission of India (CCI) has ordered an investigation into online food aggregators; viz:- Zomato and Swiggy. CCI’s order came in light of a complaint filed by the National Restaurant Association of India (NRAI). It alleged the platforms of anti-competitive practices like bundling of services, deep discounting, price parity agreements, data masking, and exorbitant commissions. 

Merit in allegations

The commission ordered that the food aggregators shall be investigated for alleged contravention of Section 3 (1) and 3 (4) of the Competition Act, 2002 concerning anti-competitive agreements. It noted prima facie merit in allegations warranting further scrutiny into certain business practices violating platform neutrality. 

Section 3 describes any arrangement or deal that might cause an appreciable adverse effect on competition—by way of direct or indirect purchase or sale of rates, restriction on manufacture, supply, and technological growth, or rigs the results—as anti-competitive agreements. These horizontal or vertical arrangements could be tie-in agreements, exclusive distribution and supply agreements, refusal to deal, or resale price maintenance agreements. 

In the instant matter, NRAI proposed restaurants with delivery services in hyperlocal areas as the relevant market for the aggregators. On the other hand, the aggregators presented a broader relevant market of listing and logistic delivery companies. The CCI dodging the conventional relevant market delineation opined that Zomato and Swiggy are prominent online intermediaries for food ordering and delivery. 

Entry barriers for players

Further, Zomato’s market share is about 50% of the gross order volume, and that of Swiggy’s is 43% in the pan-India market. This is a result of flywheel networking with ever-increasing restaurant partners and discounts for consumers. As a result, the intermediaries have created significant entry barriers for other players in the relevant market, according to NRAI. 

NRAI has alleged that the intermediaries enforce vertical restraints on restaurant partners by way of vertical agreements. It contended that these agreements bundle food ordering and delivery services. This leaves the restaurant partner with no option of alternate delivery service, thereby foreclosing competition in the downstream market for hyperlocal deliveries. However, the intermediaries rightly argue adverse impact on delivery service if last-mile delivery is left to the restaurants. 

Withholding information

Secondly, NRAI averred that the intermediaries are withholding end-consumer information from restaurant partners. Moreover, they (the intermediaries) use the accumulated data to create their private labels and manage co-working cloud kitchen spaces. The co-working kitchen spaces are acquired by way of minimum business guarantee contracts and preferential agreements, which boost their sales, thereby promoting intermediaries’ own brands. Such an opaque arrangement induces an inherent conflict of interest for the intermediary when it gets involved as a participant too. 

The intermediaries rightly contended that protecting the privacy of their consumers is necessary. Further, the intermediaries submitted that they neither have ownership in any restaurants listed on the platforms nor have they ranked restaurants. The CCI observed a prima facie conflict of interest situation in this instance, given the presence of commercial interest in the downstream market. It remarked that such a situation, if present, raises doubts about the intermediaries’ neutrality. 

Thirdly, the CCI opined that it shall further look into whether exclusive listing clubbed with minimum guarantee obligation is accentuating platform neutrality or not. This would determine if the intermediaries have created any entry barriers in the market and abused their dominant position. 

‘Exorbitant commision’

Fourth, the CCI noted wide restrictions imposed on restaurants in the name of price parity. The intermediaries preclude the restaurant partners from maintaining lower prices or giving higher discounts on their own supply chain or on any other platform. NRAI also alleged that the 20%-30% commission charged by the intermediaries is exorbitant and arbitrary. However, CCI noted that it does not affect competition in the present case, prima facie. 

NRAI also alleged that the online food aggregators engage in deep discounting which, if not complied with, could lead to an improper listing. The intermediaries refuting the allegation submitted that the restaurants have the freedom to decide their discounts on the platform, provision of which is not a pre-requisite for a favourable listing. 

In the past half-decade, there has been a heavy reliance on food delivery apps by both the end consumers and the restaurants. Pandemic-induced lockdowns have led to food ordering slowly becoming a necessity. Features like search and compare make them lucrative. Topped with discounts, these aggregators attract massive traffic.

The probe ordered by the CCI in the present matter is expected to reveal Pandora’s box of tricky revenue models. Such precedent could form a basis for future regulation that shall be in the interest of the business. 

(The authors are legal professionals)

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