DNA Explainer: Are Swiggy and Zomato practicing unethical business models, 5 points

These days whenever we feel like not preparing food at home, we have the leverage to sit back at home and order food online through various food apps. In India, we usually order food from online food delivery platforms like Swiggy or Zomato. These apps while providing us with variety of restaurant options, also gives us lucrative offers which temps us to use these apps again and again.

But do you know while doing so, these food delivery platforms may be practising wrong business models. This is the reason why now they are set to face an investigation by the antitrust regulator. The Competition Commission of India (CCI) has ordered a probe into the operations and business models of food delivery majors, Swiggy and Zomato over platform neutrality concerns raised by the National Restaurant Association of India (NRAI).

The CCI, in its order dated April 4, 2022, stated that there exists a prima facie case with respect to some of the conduct of Zomato and Swiggy. Hence an investigation by the Director General will be conducted to determine whether the conduct of these platforms have resulted in contravention of the provisions of Section 3(1) 3(4) of the Competition Act.

Read | Competition Commission to investigate Zomato, Swiggy for alleged unfair business practices

The DG will have to carry out a detailed investigation and submit a report to the Competition Commission of India within 60 days from the date of receipt of the order. The step was taken after the CCI received a complaint from National Restaurant Association of India (NRAI) seeking a probe into the practices of online food delivery platforms like Zomato and Swiggy.

Allegations by NRAI

The restaurant association alleged that the commissions which are charged by these platforms from restaurant partners are unviable.

National Restaurant Association of India (NRAI) said the commissions are to the tune of 20 to 30%, which are extremely exorbitant.

NRAI also alleged that Zomato and Swiggy provide huge discounts to customers through schemes and incentives offered by them. 

These online food delivery platforms, Zomato and Swiggy together corner more than 95% of the food market. 

Earlier parties were funding such discounts themselves, now the discounts have been mandated to be funded by restaurant partners.

The discounts have been mandated by Zomato and Swiggy to maintain adequate listing on their delivery platform.

What it means in 5 points

1. 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.

2. CCI said because of the presence of commercial interest in the downstream market, which may come in the way of them acting as neutral platforms.

3. NRAI alleged that Zomato used consumer data to build cloud kitchens and offered facilities to certain brands for additional fees or rental commissions.

4. It also alleged that Swiggy also similarly benefited from a portion of sales from private labels and was thus incentivised to divert consumer traffic to them.

5. It said allegations of delayed payments and high commissions charged by platforms to restaurant partners prima facie do not seem to have an effect on competition.

The concern areas

Complainants had not been able to make out a case that bundling of restaurant listing and food delivery services had an appreciable adverse effect on competition.

An e-commerce market study in 2020, which analysed competition dynamics in the online food delivery space, highlighted concerns of the marketplace acting as a market participant.

The Competition Commission noted that the lack of transparency in the functioning and practices of online platforms could lead to distortion of competition.

The commission had recommended that online platforms improve transparency to reduce information asymmetry between sellers using platforms and the platforms.