An investigation by the Competition Commission of India (CCI) reveals that food delivery companies Zomato and Swiggy may have breached competition laws through exclusivity contracts and pricing parity clauses that favor specific restaurants. These practices hinder market competition, negatively impacting smaller food outlets and raising concerns as both companies prepare for significant IPOs amidst ongoing regulatory scrutiny.
New Delhi: An investigation by the Competition Commission of India (CCI) has uncovered that food delivery giants Zomato and Swiggy, backed by SoftBank, may have violated competition laws through business practices that favor certain restaurants on their platforms. Exclusivity contracts and pricing parity clauses are among the tactics both companies allegedly used to control the market, hindering competition and impacting smaller food outlets, according to CCI documents reviewed recently.
CCI Findings: Anti-Competitive Contracts and Market Control
According to CCI’s investigation, Zomato entered into exclusivity contracts with specific restaurant partners, incentivizing them with lower commission rates. Swiggy reportedly promised increased business to selected restaurants if they listed exclusively on its platform. These practices, noted in non-public CCI documents, “prevent the market from becoming more competitive” by limiting access for other restaurant operators, a situation that poses challenges for the entire food delivery industry.
The investigation was prompted by a 2022 complaint from the National Restaurant Association of India (NRAI), which raised concerns about Zomato and Swiggy’s alleged anti-competitive practices and their impact on restaurants. As of March 2024, the findings were shared with Zomato, Swiggy, and the NRAI, but have not been publicly disclosed due to confidentiality rules.
Zomato and Swiggy: Threats of Price Parity and Ranking Penalties
In addition to exclusivity agreements, the CCI findings highlight that both companies pressured restaurant partners to maintain pricing parity. According to the investigation, Zomato imposed price and discount restrictions on restaurants and, in some cases, included penalty clauses if the restaurant failed to comply. Swiggy, in particular, reportedly warned certain restaurant partners that their rankings on the platform would be lowered if they did not adhere to the price parity requirements.
This alleged price parity enforcement effectively limits price competition across online platforms, diminishing consumer choice and potentially driving up prices. The CCI documents state that Swiggy had phased out its “Swiggy Exclusive” program in 2023, but it plans to launch a similar program, “Swiggy Grow,” aimed at non-metropolitan cities.
IPO Risks and Future Developments
With Swiggy preparing to close bids for its $1.4 billion IPO—India’s second largest in 2024—the CCI findings introduce potential risks to the company’s valuation. Swiggy’s IPO prospectus, which lists “any breach of the provisions of the Competition Act” as an internal risk, underscores the financial consequences of these ongoing regulatory issues. Following news of the investigation, Zomato’s shares dropped by 3% after an initial period of stability, indicating investor caution.
The final phase of the CCI case involves a decision from the CCI leadership on whether penalties or mandatory changes to Zomato’s and Swiggy’s business practices are required. This process, which could take weeks, may significantly impact the operational policies of both companies. If the CCI leadership determines penalties or policy changes, Zomato and Swiggy will have the option to contest these findings.
Expansion into Quick Commerce and Additional Antitrust Complaints
Zomato and Swiggy have rapidly diversified, moving into quick commerce, which involves ultra-fast delivery of grocery and essential items. Quick commerce has grown popular in India, as delivery times shrink to as little as 10 minutes. However, India’s largest retail distributor association has filed a new antitrust complaint against Zomato, Swiggy, and competitor Zepto, alleging predatory pricing in this sector. The CCI may consider this complaint as part of a broader examination of anti-competitive behavior across various markets.
Despite these challenges, Zomato’s market valuation has surged to approximately $27 billion since its 2021 IPO, with Swiggy aiming for an $11.3 billion valuation through its own IPO. While Macquarie Capital estimates Swiggy’s 2024-2025 food order values at $3.3 billion, about 25% lower than Zomato’s, both companies have established significant footholds in the Indian market.
CCI’s Call for Greater Market Fairness
The CCI’s recent findings underscore the need for greater fairness and competition in India’s food delivery market. The investigation points to how exclusivity contracts, pricing restrictions, and ranking penalties may collectively prevent smaller restaurants from competing effectively on major platforms. As Zomato and Swiggy await the CCI’s final verdict, the focus remains on ensuring a fair, competitive landscape for all players in India’s fast-growing food delivery and quick commerce sectors.
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