Restaurants have alleged that food aggregators are “cannibalising” dining because of deep discounting, and that aggregators’ search algorithms are biased towards their own cloud kitchens and private labels. These allegations were in the findings of the Competition Commission of India’s e-commerce market survey (see below), which was made public on August 30. The study looked into food, retail (goods), and hotel sectors.

The market study found that 28% of (respondent) restaurants’ revenue came via online platforms, 78% of the restaurants have an online presence, with about 69% going online between 2016-18. In the food sector, CCI found that restaurants had enlisted themselves on at least three different food aggregators. According to Sayanti Chakrabarti, joint director in the CCI’s economics division, the survey will have “a bearing on competition, level playing fields in the market or on the ability of markets to compete on merit”.

CCI had formally announced its e-commerce market study in June, a development we made public in May. Apart from the questionnaire sent to stakeholders, focus group discussions were conducted with each stakeholder group, and was followed by meetings between CCI and surveyors which included online and offline retailers, manufacturers, online marketplace platforms, hotels, restaurants and payments systems over the last three months. Written submissions made by the industry to the government and CCI have also been included in the survey, said Chakarbarti. CCI declined to comment on the exact number of participants in the survey.

These are the main findings from the food sector in the CCI’s survey:

Deep discounting is “cannibalising” dining: restaurants

Restaurants flagged two key issues around deep discounting: The whole idea and structure of deep discounts, and who bears the burden of such discounts.

On the idea of deep discounting: Restaurants, said that the entire concept of deep discounting is “artificially influencing consumer behavior”, and because they cannot match that kind of pricing for their dining, it’s cannibalising it.

Who should pay for deep discounts? Restaurants said that gradually, the burden of funding discounts is getting shifted on to them. Problematically, they said that, they feel compelled to participate in this discounts and deals, since their visibility gets impacted by this.

Platforms said that restaurants participate in these deals at their own discretion.

Platforms’ search algorithm is biased and non-transparent: restaurants

Algorithms opaque, controlled by platforms: Restaurants shared with CCI that they find the algorithm of food marketplaces to be opaque; not much is shared by the platforms regarding how the algorithm works and what factors go into it.

Restaurants also said that a platform is in control of the search algorithm, which determines search ranking, and is a critical determinant of consumer traffic that one can attract. So the platforms that have the incentive and ability to push their own brands to the disadvantage of independent restaurants.

A key factor which restaurants believe is feeding into the algorithm: user review and ratings that certain restaurants find to be non-transparent and unreliable.

Platforms, meanwhile, submitted that search rankings are dependent on proximity and user reviews.

Platforms favour their cloud kitchens said restaurants; while platforms said cloud kitchens bridge demand-supply gap

Cloud kitchens upends level-playing field: Restaurants said that certain marketplaces have their own private labels or cloud kitchen brands listed on them, and it creates an incentive for them to favour their own brands. This dual role played by the platform essentially changes the very nature of playing field for restaurants; now that they have to compete with the platform itself.

By virtue of being the intermediary, platforms have access to competitively sensitive data of restaurants which can potentially influence competition. And this, according to some restaurants, is being used by the platform to launch and grow their own cloud kitchens.

Platforms bridge gaps in a cost-efficient way: Platforms said that they were uniquely positioned to bridge the supply-demand gap in certain food segments and geographies, courtesy unmet customer demand, and cloud kitchens bridge those gaps in the most cost-efficient way. “On the cloud kittens issue we have been told that cloud kitchens are a way to bridge supply demand gap. On one hand, they [platforms] help other restaurants scale up and on the other hand, more choice is given to the consumers,” Chakrabarti said.

Platforms said they share customer data with restaurants; restaurants said otherwise

Certain platforms said that customer data is being shared with restaurants, whereas, restaurants alleged that platforms don’t share critical customer data (like mobile numbers) with them.

Platforms don’t follow contract obligations: restaurants

Chakrabarti said that contract agreements between a restaurant and platform are supposed to “be a symbiotic relationship, but we see certain concerns here as well”. Concerns raised by the participating restaurants are arbitrary commission structures and compulsion from platforms on restaurants to use their delivery fleet.

  • Commissions: Respondent restaurants said that platforms have been unilaterally and arbitrarily increasing the commission rates. Because of the unequal bargaining powers, individually, restaurants can’t negotiate with the platforms. Platforms said commissions are fixed through a mutual negotiation process.
  • Delivery: Restaurants said that they are compelled to use the platform hired feet exclusively. However, a combination of their own feet and the platform’s fleet will be more efficient. Platforms said that the use of the platform’s fleet when the order is being served through the platform would be more efficient, while there is no such restriction on restaurants using their own feet.

Interspersed ads are a problem, say restaurants

Ads are interspersed with organic listings, which further impacts the visibility of organically listed restaurants, restaurants said. Platforms argued that ads are marked as ads,  so they remain visually distinguishable from organic results.

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Any feedback on these interim findings could be submitted to the CCI till September 30 by writing to: ecodivision@cci.gov.in