India’s food delivery landscape, dominated by Zomato and SoftBank-backed Swiggy, is under scrutiny as the Competition Commission of India (CCI) investigates their business practices for potential anti-competitive behavior. At the heart of the issue is whether the companies’ practices harm competition by favoring certain restaurants through exclusive agreements and restrictive pricing policies, limiting options for other restaurants and consumers. With Swiggy’s IPO on the horizon, the outcome of this investigation could have far-reaching implications for both companies and India’s broader food delivery industry.

CCI’s Findings on Exclusive Contracts and Price Parity

The investigation began in 2022 after a complaint from the National Restaurant Association of India (NRAI), which raised concerns about the impact of exclusivity agreements on smaller food outlets. The NRAI alleged that these exclusive partnerships created an uneven playing field, where certain restaurants were promoted more heavily than others, reducing visibility and potential sales for competitors. Documents prepared by the CCI’s investigation team and reviewed by Reuters indicate that these exclusive arrangements were crafted to guarantee benefits to favored restaurants, limiting fair competition on the platforms.

According to the CCI documents, Zomato engaged in exclusivity contracts with partner restaurants, offering lower commission rates in exchange for these exclusive agreements. Similarly, Swiggy’s “Swiggy Exclusive” program promised growth in business to restaurants that agreed to list only on its platform. These arrangements, according to CCI’s findings, discouraged competition by limiting the market’s ability to become more diverse and competitive, ultimately impacting consumer choice.

In response to the CCI investigation, Swiggy reported that the “Swiggy Exclusive” program was discontinued in 2023. However, the company reportedly plans to introduce a similar program named “Swiggy Grow” in smaller, non-metropolitan cities. Zomato and Swiggy, which together account for the vast majority of food delivery services in India, have not publicly commented on the CCI’s findings.

Price Parity Agreements and Their Implications

The investigation also sheds light on Swiggy and Zomato’s pricing policies. Both platforms allegedly require partner restaurants to maintain “price parity” by offering the same prices on their platforms as they do on other online services or their own websites. This practice prevents restaurants from undercutting prices on other platforms, thereby reducing competition.

The CCI documents further indicate that Zomato imposed penalties on restaurants that failed to maintain this parity, potentially pushing smaller establishments into a financially precarious position. Swiggy, for its part, allegedly threatened partner restaurants with reduced rankings if they offered different pricing on other platforms. These price parity requirements may, according to the CCI, artificially inflate costs for consumers by limiting a restaurant’s ability to provide competitive pricing.

Potential Impact on Swiggy’s IPO and Market Position

Swiggy’s anticipated $1.4 billion IPO, one of India’s largest of the year, is expected to bring additional scrutiny to the company’s practices. In Swiggy’s IPO prospectus, the ongoing CCI investigation is listed among its “internal risks.” Any adverse finding from the CCI could result in penalties or enforceable changes to Swiggy’s practices, potentially impacting its valuation. The IPO also follows a competitive year for Swiggy, which valued itself at $11.3 billion—significantly below Zomato’s current valuation of approximately $27 billion.

As part of a broader growth strategy, Swiggy and Zomato are actively diversifying into quick-commerce, expanding into ultra-fast grocery delivery as a complement to their food delivery services. This emerging market has already faced backlash from India’s retail distribution industry, with allegations of predatory pricing. These issues add another layer of regulatory challenges for Swiggy and Zomato as they look to grow beyond the food delivery sector.

Broader Regulatory Landscape and the Future of India’s Food Delivery Market

The CCI’s examination of Swiggy and Zomato mirrors similar investigations globally. Around the world, food delivery giants face regulatory pressure concerning transparency, fairness, and consumer choice. Many of these investigations focus on the relationships between delivery platforms and restaurants, with regulators asking whether platforms unfairly leverage their market power to limit competition and raise prices for consumers.

India’s rapid adoption of online food delivery services has attracted immense investor interest, but it also presents unique challenges in balancing growth with fair market practices. CCI’s findings are significant not only for Swiggy and Zomato but also for international food delivery players eyeing India’s market potential. As the food delivery sector matures, regulatory interventions may reshape how platforms operate, pushing them toward more transparent and equitable business practices.

What’s Next for Swiggy, Zomato, and Indian Consumers?

The next phase of the CCI’s case involves leadership review of the investigation findings, potentially leading to penalties or required changes to Swiggy’s and Zomato’s business practices. The companies retain the right to challenge the findings, prolonging the process. Nonetheless, the outcome will likely influence future competition policies in India’s e-commerce landscape.

For Indian consumers, increased regulatory oversight could mean more choice and competitive pricing in the long term, as platforms may be encouraged to relax exclusive contracts and allow for more flexible pricing models. If Swiggy and Zomato adapt their practices to meet regulatory expectations, consumers could benefit from a more transparent and diverse range of dining options.

In the meantime, the unfolding CCI investigation highlights India’s evolving approach to digital market regulation. With Indian consumers increasingly reliant on digital platforms for services ranging from food to groceries, regulators are expected to continue scrutinizing business practices across these sectors to promote competition and protect consumer rights. As digital services become more embedded in daily life, ensuring fair competition remains a priority for regulators, setting a precedent for similar industries as well.

In summary, while the CCI’s investigation into Swiggy and Zomato’s practices is likely to have immediate consequences for the two companies, its impact could extend well beyond the food delivery sector, influencing regulatory approaches across India’s digital marketplace. For now, consumers, investors, and competitors alike will watch closely as the investigation proceeds, potentially reshaping the dynamics of India’s food delivery landscape.

(Adapted from NDTV.com)

Categories: Economy & Finance, Regulations & Legal, Strategy