An inquiry by India’s antitrust authority has revealed that prominent food delivery companies Zomato and Swiggy, backed by SoftBank, have violated competition regulations. Findings indicate that their practices favor a select group of restaurants on their platforms, according to internal documents.
Zomato reportedly established “exclusivity contracts” with partners in exchange for reduced commission fees, while Swiggy offered assurances of business expansion to chosen restaurants that agreed to list exclusively on its platform. These practices were highlighted in documents prepared by the Competition Commission of India (CCI).
The CCI’s investigation team concluded that the exclusivity agreements between Swiggy, Zomato, and their restaurant partners inhibit market competitiveness, a detail outlined in findings reviewed by Reuters on Friday.
The inquiry into Swiggy and Zomato’s operations was initiated in 2022 after the National Restaurant Association of India lodged a complaint regarding the platforms’ alleged anti-competitive behavior impacting food outlets.
The CCI documents remain confidential as per the commission’s regulations and were provided to Swiggy, Zomato, and the complainant restaurant group in March 2024. These findings had not been publicly disclosed prior to this report.
Zomato has not commented on the issue, and inquiries made to Swiggy and the CCI remain unanswered.
Following the disclosure, Zomato’s stock experienced a three percent decline after previously holding steady earlier in trading.
The potential implications of the CCI case are acknowledged in Swiggy’s IPO prospectus, where it is stated that any violations of the Competition Act could lead to significant financial penalties.
The CCI report revealed that Swiggy informed investigators that its “Swiggy Exclusive” program was discontinued in 2023. However, the company is reportedly preparing to introduce a similar initiative, dubbed “Swiggy Grow,” in smaller cities.
In recent years, both food delivery giants have significantly changed the landscape of food ordering in India, coinciding with a surge in smartphone usage and online ordering as countless restaurants joined their platforms.
As of Friday, Swiggy was concluding bids for its $1.4 billion IPO, marking India’s second-largest IPO this year. Both Swiggy and Zomato have also pressured restaurants to maintain consistent pricing, which the CCI indicated has curtailed competition by preventing eateries from offering lower prices on alternative online platforms.
Zomato has allegedly imposed pricing and discount constraints on its partner restaurants, with some contracts including penalties for non-compliance.
Similarly, some of Swiggy’s associated restaurants reported threats of diminished rankings if they failed to adhere to price parity requirements, as noted by the CCI’s investigation team.
The next stage of the CCI case includes a ruling from the agency’s leadership, which is currently assessing the investigation’s conclusions to determine whether to impose penalties or mandate changes in the business practices of Swiggy and Zomato.
This decision may take several weeks, and both companies can contest the findings with the CCI.
Zomato, which went public in 2021, has seen its stock value surge to approximately $27 billion driven by increasing demand. Meanwhile, Swiggy is valuing itself at $11.3 billion ahead of its IPO.
According to Macquarie Capital, Swiggy’s food order values are projected to reach $3.3 billion in 2024-25, about 25% lower than Zomato’s expectations.
Both companies are rapidly expanding into the quick commerce sector, offering grocery deliveries in as little as 10 minutes.
India’s largest retail distribution group has also urged the antitrust authority to investigate quick commerce firms Zomato, Swiggy, and competitor Zepto for alleged predatory pricing. This matter was reported by Reuters last month.
© Thomson Reuters 2024
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)
