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NRAI asks CCI to look into anti-competitive practices by Zomato, Swiggy

The NRAI had previously raised major issues like deep discounts, high commission charges, and algorithmic ranking in their letters to several restaurant aggregators.   

The National Restaurant Association of India (NRAI) on July 1 asked the Competition Commission of India (CCI) to investigate “inherently anti-competitive practices” of online food-delivery platforms Zomato and Swiggy, the association said in a press release on Monday. The restaurant industry body represents over 5 lakh restaurants across the country.

“During the pandemic, the magnitude of anti-competitive practices of Zomato & Swiggy have increased manifold and despite numerous discussions with them, these deep funded marketplace platforms are not interested to alleviate the concerns of the restaurants,” the release stated.

This issue comes at a time when Zomato is looking to launch its much-awaited initial public offering (IPO). The IPO is expected to open for subscription as early as July 19, the Economic Times reported.

What are the issues highlighted by NRAI?

The issues that NRAI has asked CCI to probe include bundling of services, data masking, exorbitant commissions, deep discounting, price parity agreements, violation of platform neutrality, lack of transparency, vertical integration, and exclusivity of listed restaurants.

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“We have been in constant dialogue with the foodservice aggregators over last 15-18 months to resolve critical issues impacting the sector. However, despite all our efforts, we have unfortunately not been able to resolve them with the aggregators. The needle hasn’t moved much on these issues,” NRAI President Anurag Katriar said.

The restaurant industry body has been raising these issues since August 2019 when it started the #Logout campaign. Back then, NRAI sent letters to the four largest aggregators — Zomato, Swiggy, Foodpanda, and UberEATS — enlisting major issues faced by restaurants:

  • Customer data masking: Aggregators don’t share user data with the restaurants, which disconnects them from consumers; aggregators also use the data to divert traffic for their own commercial benefit. “The customer orders my food, but the data does not belong to me. That beats my logic,” Katriar said in an interview with CNBCTV18.
  • Deep Discounts: Discounts ranging from 30-70% “distorts the market and hinders profitable growth of the sector”; these discounts are mostly funded by the operators and sometimes under “coercion.”
  • High and uneven commission charges: Commission charges levied by aggregators are predatory and uneven. The association requested the aggregators to create a transparent system of charges based upon average order value (AOV), the volume of business, etc.
  • Arbitrary terms and conditions: The terms and conditions upon which the restaurants enlist themselves on aggregator platforms are not standardised and favor the aggregators, the association asked for a standardised framework and contracts for the restaurants.
  • Private Labels: Large delivery aggregators are using sales and user data to create their own brands, thus creating unfair competition with other restaurants.
  • Bundling of services: Restaurants are forced to use delivery services of aggregators even when they have their own delivery infrastructures; they suffer losses if the aggregator lacks delivery personnel in certain areas. This issue can get solved if the restaurants are allowed to use their own logistics services.
  • Arbitrary rules of engagement: The aggregators levy unreasonable rules and penalties on the restaurants while the company itself does not take any responsibility for covering financial losses made by the delivery personnel in case of wrong delivery, lack of delivery personnel, a technical glitch on their apps, etc.
  • Search algorithms: According to the association, the parameter used for ranking the restaurants on its platform is “not transparent or consistent”.

Can the proposed amendments to e-commerce rules offer reprieve?

The government on June 21 proposed amendments that give the existing Consumer Protection (E-Commerce) Rules, 2020 more teeth.

The proposed rules cover food delivery platforms like Zomato and Swiggy and contain provisions that might address many of the concerns raised by NRAI. The rules require platforms to treat all sellers equally, require platforms to explain the ranking process, prevent the promotion of certain groups of sellers, ban flash sales, curb private labels, and disallows platforms from using data to benefit their own products or a particular group of sellers.

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