National Restaurant Association of India (‘NRAI’) Vs Zomato Limited d (‘Zomato’) (Competition Commission of India)
Commission is of the view that there exists a prima facie case with respect to some of the conduct of Zomato and Swiggy, which requires an investigation by the Director General (‘DG’), to determine whether the conduct of the OPs have resulted in contravention of the provisions of Section 3(1) of the Act read with Section 3(4) thereof, as detailed in this order. The DG is, thus, directed to carry out a detailed investigation.
THE HON’BLE COMPETITION COMMISSION OF INDIA (CCI): held that, in the case of both Swiggy and Zomato, prima facie there existed a conflict-of-interest situation, warranting detailed scrutiny into its impact on the overall competition between the Restaurant Partners vis-à-vis the private brands/entities which the platforms may be incentivised to favour.
BRIEF FACTS:
1. An information had been filed under Section 19(1)(a) of the Competition Act, 2002 by National Restaurant Association of India (Informant/NRAI) against Zomato and Swiggy (OPs) alleging that the practices of Zomato and Swiggy were in violation of Section 3(4) read with Section 3(1) of the Act.
2. NRAI submitted that the Operational Platforms provide restaurant partners (RPs) a listing service and allow consumers to interact with them through their platforms.
3. Further, NRAI stated that it is only because of the network effects of the OPs that, despite their anti-competitive practices, RPs are still dependent on the platforms to earn revenues, which shows the absence of countervailing buyer power with the RPs.
4. Bundling of Food Delivery
It was alleged that the stated delivery services are not optional for the RPs who wish to avail listing service and they are forced to take the delivery service of the platform. Adding to the above, NRAI stated that the bundling of delivery services is an unfair imposition.
It is violative of Section 19(3) of the CCI Act.
SECTION 19(3) OF THE CCI ACT,2002 –
Inquiry into certain agreements and dominant position of enterprise.—
(3) The Commission shall, while determining whether an agreement has an appreciable adverse effect on competition under section 3, have due regard to all or any of the following factors, namely:—
(a) creation of barriers to new entrants in the market.
(b) driving existing competitors out of the market.
(c) foreclosure of competition by hindering entry into the market.
(d) accrual of benefits to consumers.
(e) improvements in production or distribution of goods or provision of services.
(f) promotion of technical, scientific, and economic development by means of production or distribution of goods or provision of services.
5. Data Masking
RPs receive no data or information about the end-consumers to whom the food is delivered, which is a practice of OPs.
Due to the above-stated, RPs are not aware of where the foods are being delivered, to whom and in how much time, which creates a lack of transparency.
6. Vertical Integration
NRAI has further alleged that OPs are engaging in a dual role on their platform where they list their own cloud kitchen brands exclusively on their platform, akin to private labels, thereby creating an inherent conflict of interest in the platform’s role as an intermediary on one hand and as a participant on the other hand.
7. One-Sided Contracts
It was alleged that Zomato and Swiggy enter into one-sided contracts with RPs owing to their superior bargaining power.
Further, NRAI has alleged that Zomato and Swiggy often compel the RPs to commit exclusively to be listed on their respective platform through incentives, lower commissions etc. to maintain their competitive edge in the market, at the exclusion of other new entrants. This creates/strengthens barriers for a new entrant into the market which would find itself deprived of essential and interdependent inputs like RPs and customers which would be locked-in to the incumbents’ platforms.
Infact, price parity terms have also been imposed on the RPs through their respective contracts.
NRAI has also alleged that the commissions which are charged by the OPs from RPs are unviable and are to the tune of 20% to 30%, which are extremely exorbitant for the RPs.
In view of the above allegations, NRAI sought an inquiry under the Act against the OPs.
