Ready-to-eat food in 10 minutes? Private labelling by Zomato and Swiggy could land food delivery giants in antitrust soup

This, however, was met with resistance from the restaurant owners, who viewed it as a disruption to their business model. The National Restaurant Association of India (NRAI) aims to approach the Competition Commission of India (CCI) to challenge these developments. The primary concern of the restaurant owners is that, through the 10-minute delivery route, the FDAs engage in private labelling. They redirect the customers to self-owned dark stores that can quickly prepare ready-to-eat food items from a limited menu to provide instant delivery. The FDAs are already on CCI’s radar for favouring select restaurant partners through exclusive contracts and abusing their dominance. This new development has the scope to further damage the edifice of free and fair competition.

Simply put, private labelling refers to a business strategy where the retailer sells products in their name while outsourcing them from third-party manufacturers. In this case, the food delivery giants would be directly procuring food and beverages from a third-party vendor and delivering them from quick commerce dark stores. Presently, the Consumer Protection (E-commerce) Rules of 2020 prohibit intermediaries from selling goods on their platform under their private label or through a company they have a stake in. Therefore, this practice is not allowed in India.

There are two potential implications of private labelling for restaurant owners. First, it puts them in direct, horizontal competition with the FDAs. Restaurant owners worry that food delivery giants, leveraging their vast resources and exclusive access to consumer data, preferences, and advanced analytics, have an unfair advantage in capturing the market. The NRAI argues that as long as the FDAs work with the restaurants, it is unfair for them to enter into direct competition with them. Second, it also triggers concerns about vertical restraints by the FDAs on restaurants. Using their access to data, the private labels could offer deep discounts, and FDAs could indulge in preferential listing, effectively denying market access to smaller players. This is violative of Section 4(2)(c) of the Competition Act, 2002. This also means that using their dominance in one market — online service of food delivery — they are probably seeking to enter another market, like ready-to-eat food. One can argue that in many instances, ready-to-eat food is a direct competition to the food service market where restaurants operate. This is again prohibited under Section 4(2)(e) of the Competition Act, 2002, as it distorts competition and ultimately harms consumer interests.

Arguably, standalone apps like Bistro and Snacc may not directly compete with the restaurants listed on FDAs. This allows them to be compliant with the E-commerce rules, 2020, by not launching their private labels on the same apps. Moreover, a case can be made that they operate in a distinct “relevant market” offering a limited selection of food items for rapid delivery, and thus, they can claim that this is a different business altogether.

It would, however, be naive to assume that consumers engage with these platforms in isolation. Since a lot of food items are bound to overlap, consumers would invariably compare the prices, delivery timing, and ratings across apps. Moreover, there is always a possibility that the consumer analytics from one app is shared with others without the consent of restaurant partners. This would contravene the principles of platform neutrality.

Platform neutrality requires that intermediaries treat their complements with impartiality and refrain from discriminating between them. It is crucial because these platforms wield control of all listing parameters and can effectively decide the position of how restaurants appear on the consumer’s app. Yet, the entire consumer data is masked, and the restaurant partners do not have access to any data. FDAs like Swiggy and Zomato, with close to 90 per cent market share in food delivery, are accused of exploiting their dominant bargaining power by entering into exclusive agreements for improved restaurant rankings and engaging in preferential treatment for their cloud kitchens. All of this is in gross violation of Section 4(2) of the Competition Act, 2002. Segueing into the quick commerce market, they may be able to utilise the entire consumer data, preferences and pricing strategies of their restaurant partners on their apps. This is an indirect way of distorting the level playing field on the platform by emerging as a competitor, albeit on a different app. Therefore, restaurant owners face an existential dilemma as they grapple with platforms that both dictate the rules and compete directly with them.

For a consumer, it might create an illusion of increased avenues of service. They might be craving a food product, and instantly, within minutes, it comes to their doorstep. Apart from this, possible seamless integration of services between traditional FDA apps and quick commerce apps, and the possibility of heavy discounts initially by the FDAs in the quick commerce segment, might make it more palatable to them. However, as seen in the food industry in the US and European Union, private labels may offer lower quality due to the use of less expensive ingredients. Similar concerns are also raised against Amazon’s strategy in India, where they are accused of making knock-offs of the popular products on their platform. “Project Solimo” was one such strategy where they allegedly utilised the information of sellers on Amazon and used the marketplace to sell their products.

In India, once consumers become accustomed to the convenience offered by these apps, it may prove challenging for them to move away. While the initial allure of convenience is compelling, users may eventually find themselves at the mercy of the FDAs. By systematically diminishing the competitive capacity of restaurants on these platforms or potentially imposing exorbitant delivery fees, there exists a risk that customers are unable to order their beloved Dal Makhani or Butter Chicken from their favourite restaurants.

In its Market Study of E-commerce in India, CCI recognises that private labelling and the consequent violation of platform neutrality will result in the loss of consumer welfare in the long run. Barriers to entry for smaller restaurant owners and stifling their ability to compete force the consumer to forego possible choices. The ever-expanding quick commerce market is here to stay. Thus, it becomes imperative for the regulator to conduct a fair and impartial investigation into the conduct of the food delivery giants to maximise the well-being of all stakeholders involved.

The writer is an advocate based in Haryana who graduated from National law School of India University, Bengaluru