New Delhi, Nov 8 — India’s Competition Commission (CCI) has found Zomato and Swiggy, two of the nation’s largest food delivery platforms, in breach of competition laws. Both platforms allegedly favored select restaurant partners through exclusivity deals, raising questions about the competitive dynamics of India’s fast-evolving food delivery industry. The findings highlight significant challenges these companies may face as they navigate regulatory pressures amidst ambitious growth and IPO plans.
Credits: MediaNama
Background of the Antitrust Investigation
The CCI launched its investigation into Zomato and Swiggy in 2022, following a complaint from the National Restaurant Association of India (NRAI), which represents numerous independent eateries across the country. According to NRAI, the two delivery giants were engaging in practices that unfairly impacted the restaurant ecosystem by promoting certain partners at the expense of others. The alleged tactics include exclusive contracts, pricing mandates, and ranking manipulation, which collectively curb market competition and restrict consumer choice.
Exclusivity Contracts and Restaurant Favoritism
The CCI’s investigation revealed that Zomato had entered into “exclusivity contracts” with select restaurant partners. In exchange for exclusive listings, Zomato offered reduced commission rates, making it a win-win for favored restaurants. Swiggy, meanwhile, reportedly offered guarantees of business growth to restaurants willing to list exclusively on its platform. Such arrangements create a less competitive environment by locking in specific restaurants and creating barriers for new entrants or smaller eateries attempting to gain traction on these platforms.
While exclusivity arrangements may seem beneficial for individual restaurants, the broader implication is reduced competition and limited choices for consumers. As a result, independent restaurants may find it harder to attract customers, given that promotional algorithms tend to favor exclusive partners, potentially limiting the variety and competitive pricing on these platforms.
Credits: Reuters
Price Parity Clauses Raise Concerns
The CCI’s investigation further uncovered that both Swiggy and Zomato imposed price parity clauses on their restaurant partners, restricting them from offering lower prices on other platforms. This policy directly affects consumers, as restaurants can no longer provide competitive pricing elsewhere without facing potential repercussions. The CCI documents show that Zomato not only enforced these restrictions but also imposed penalties on non-compliant outlets, while Swiggy allegedly warned restaurants that failure to maintain price parity could impact their ranking on the app.
These tactics reinforce the platforms’ hold on their customers, but at a significant cost to market competition. For consumers, price parity clauses mean fewer savings opportunities and reduced flexibility in choosing where to order from. This tactic also pressures restaurants to conform to terms that may not be in their financial best interest, particularly in an industry where margins are already tight.
IPO Pressures: Swiggy’s Upcoming Listing Complicates Matters
The timing of these revelations couldn’t be more critical for Swiggy, which is closing bids for its $1.4 billion IPO, making it the second-largest listing in India this year. In Swiggy’s IPO prospectus, it acknowledges the CCI case as an internal risk, with potential financial repercussions if found guilty of violating competition laws. The prospectus states that “any breach of the provisions of the Competition Act may attract substantial monetary penalties.”
Zomato, on the other hand, has already seen its shares dip by 3% in response to the CCI findings. Listed in 2021, Zomato’s valuation has soared to about $27 billion, largely driven by a post-pandemic surge in online ordering. While Swiggy aims for an $11.3 billion valuation with its IPO, the outcome of the CCI case may impact investor sentiment, especially with recent controversies casting doubt on the industry’s practices.
What’s Next for Swiggy and Zomato?
The CCI’s report is currently under review by its leadership, with a final decision on penalties or mandated changes expected in the coming weeks. If the CCI rules against Swiggy and Zomato, the two platforms could face significant operational adjustments, impacting their business models and partner agreements. Furthermore, Swiggy’s “Swiggy Exclusive” program, which it phased out in 2023, may be replaced with a similar initiative called “Swiggy Grow,” targeting non-metro cities. This replacement may still draw scrutiny from regulators keen on curbing anti-competitive practices.
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