Zomato and Swiggy violated competition laws, favored select restaurants: Report
What's the story
The Competition Commission of India (CCI) has found that food delivery giants Zomato and Swiggy to have violated competition laws, as per Reuters. The investigation found that the companies' business practices favored certain restaurants listed on their platforms. According to confidential documents from the CCI, reviewed by Reuters, Zomato signed "exclusivity contracts" with partners for reduced commissions, while Swiggy promised business growth to certain players in exchange for exclusive listings on its platform.
Market impact
Exclusivity contracts hinder market competition
The CCI's investigation arm observed that these exclusivity arrangements between Swiggy, Zomato, and their respective restaurant partners "prevent the market from becoming more competitive." The antitrust investigation was launched in 2022 after the National Restaurant Association of India (NRAI) filed a complaint. The NRAI had expressed concerns over the alleged anti-competitive practices of these platforms and their effect on food outlets.
Information
Findings of CCI investigation were communicated in March
The CCI investigation findings were communicated to Swiggy, Zomato, and the NRAI in March 2024 but remain undisclosed due to confidentiality rules. Neither Zomato nor Swiggy has commented on the matter, Reuters reports. Following the report, Zomato shares fell 3.22% from earlier flat trade position.
Risk acknowledgment
Swiggy's IPO prospectus acknowledges potential antitrust penalties
Swiggy's IPO prospectus, which is currently inviting bids for its $1.4 billion initial public offering (IPO), lists the CCI case among the "internal risks." It notes that "any breach of the provisions of Competition Act, may attract substantial monetary penalties." Although it phased out its "Swiggy Exclusive" program in 2023, the CCI report noted that the company told investors that it intends to launch a similar program "Swiggy Grow" in non-metropolitan cities.
Pricing control
CCI documents reveal pricing and discount restrictions
The CCI documents also revealed that both Swiggy and Zomato have been pushing restaurants to maintain price parity. This practice has directly stifled market competition by preventing restaurants from offering lower prices on other online platforms. Zomato was found to have imposed pricing and discount restrictions on restaurant partners, with a "penal provision" in place for non-compliance.
Ranking pressure
Swiggy's ranking system under scrutiny
The CCI's investigation arm also observed that some of Swiggy's partner restaurants were "threatened that their rankings will be pushed down, if they do not maintain price parity." The final phase of the CCI case is a decision by the CCI leadership, which is still reviewing the investigation findings to decide on any penalty or order changes to Swiggy's and Zomato's business practices. The decision may take several weeks, and companies can still challenge the investigation findings with the CCI.