The Competition Commission of India (CCI) has determined that leading food delivery platforms Zomato and Swiggy have violated competition laws, as reported by Reuters. This investigation, initiated in 2022 following a complaint from the National Restaurant Association of India (NRAI), revealed practices that allegedly favored select restaurant partners, thereby undermining fair competition within the market.
Key Findings of the Investigation
The CCI’s probe highlighted several critical issues, primarily focusing on exclusivity agreements and restrictive pricing policies. Zomato reportedly engaged in “exclusivity contracts” with certain restaurants, allowing them to benefit from lower commission rates. In contrast, Swiggy provided growth guarantees to restaurants that committed to listing exclusively on its platform. These arrangements are seen as creating barriers for new entrants and stifling competition, ultimately impacting consumer choice.
Pricing Pressure and Market Dynamics
Both platforms were also found to exert pressure on restaurants to maintain uniform pricing across different platforms. Zomato enforced strict pricing and discount restrictions, including penalties for non-compliance, while Swiggy allegedly warned partners that their rankings would be adversely affected if they offered lower prices on competing platforms. Such practices have raised concerns about their impact on market competitiveness and the overall health of the food delivery ecosystem.
Impact on Market Value and IPO Prospects
The CCI’s findings were confidential but were shared with Zomato, Swiggy, and the NRAI in March 2024. Following the news of the investigation, Zomato’s stock experienced a 3% drop, indicating immediate market repercussions. Swiggy is facing additional scrutiny as it approaches its $1.4 billion IPO, which is set to be the second-largest in India this year. The CCI investigation has been cited as a potential “internal risk” in its IPO prospectus, highlighting concerns about compliance with competition laws.
Strategic Responses from Zomato and Swiggy
In light of the investigation’s findings, Swiggy ended its “Swiggy Exclusive” program in 2023 and plans to launch “Swiggy Grow,” aimed at expanding its services into non-metropolitan areas. Both companies have significantly transformed India’s food delivery landscape but are now also venturing into “quick commerce,” promising grocery deliveries within 10 minutes—a sector currently under separate scrutiny for alleged predatory pricing practices.
Regulatory Scrutiny in India’s Digital Market
The CCI’s investigation underscores the increasing regulatory scrutiny faced by digital platforms in India as they navigate aggressive growth strategies amid rising compliance demands. The final decision regarding potential penalties or required changes to business practices is expected soon, with both Zomato and Swiggy likely to challenge any adverse rulings.
This case not only highlights the complexities of competition law in India’s rapidly evolving digital market but also raises broader questions about how major players like Zomato and Swiggy balance innovation with regulatory compliance in an increasingly competitive landscape.
