The Competition Commission of India (CCI) has found that food delivery giants Zomato and Swiggy have breached competition laws. Interestingly, this probe was initiated on a complaint from the National Restaurant Association of India in 2022, finding that these two companies were indulging in practices that favored only selected restaurant partners, thereby hindering competition in the market.
Key Findings of Investigation
- Exclusivity Agreements: Zomato was found to have entered into "exclusivity contracts" with certain restaurants, which allowed them to benefit from lower commission rates. In contrast, Swiggy offered growth guarantees to restaurants that listed exclusively on its platform. These arrangements restrict new entrants into the market and disadvantage consumers by reducing choices.
- Pressure on Pricing: The investigation also uncovered that both companies pressured restaurants to maintain consistent pricing across various platforms. Zomato implemented pricing restrictions and penalties for non-compliance, while Swiggy warned partners of potential downgrades in their rankings if they offered lower prices elsewhere.
- Impact on Market Competitiveness: The CCI's findings indicated that these practices hindered market competitiveness and could lead to severe penalties for both companies. The confidential documents shared with Zomato, Swiggy, and the National Restaurant Association of India in March 2024 highlighted these issues but were not made public until now.
The findings come at a critical time for Swiggy, which is closing bids for its $1.4 billion IPO, potentially the second largest in India this year. In its IPO prospectus, it was noted that the probe was an "internal risk," and warned that it may lead to significant penalties in case of serious violations under the competition laws.
As a result, Swiggy is said to have shut down its "Swiggy Exclusive" program in 2023 and is introducing a new one called "Swiggy Grow," focusing on rural territories. Both companies have revolutionized the landscape of food delivery in India and are now entering a new frontier of "quick commerce," delivering grocery products under minutes—a sector also facing the heat for alleged predatory pricing.
Steps forward
The CCI will review the investigation results. A final decision, including any potential penalties or operational changes, should be expected soon. Under the Competition Act, the two companies, Zomato and Swiggy, have the right to appeal a final decision from the CCI.
This case affirms growing governmental regulatory oversight of India's rapidly changing digital landscape as it applies to aggressive growth strategies by such platforms as Zomato and Swiggy within the pressure of compliance.
This ruling would change the business models that Zomato and Swiggy generally have. The requirement for fair competition is not just about the choice to the consumer but also about providing innovation within the industry. This investigation's outcome may set the pace for how the digital platforms move forward in India.
With inputs from agencies
Image Source: Multiple agencies
© Copyright 2024. All Rights Reserved Powered by Vygr Media.
