India’s food delivery market has been booming in recent times, but the two major players might’ve broken the law to achieve their market dominance.
Swiggy and Zomato breached competition laws with “exclusivity contracts”, a investigation by the Competition Commission of India has found. Zomato breached these laws by entering into exclusivity contracts with restaurants in return for lower commissions, while Swiggy guaranteed business growth to certain players if they listed exclusively on its platform. These findings are part of CCI probe documents which are not yet public and were accessed by Reuters.
Both Swiggy and Zomato had entered into “exclusivity contracts” with some restaurant chains, which made their food available only on their platforms. To incentivize restaurants to enter into these contracts, Zomato charged lower commissions from these restaurants, while Swiggy guaranteed them business growth. But these exclusivity contracts misuse these platforms’ large market position to the detrimant of newer players — if a new food ordering app were to start its business in India, it would find that many restaurants were already “exclusive” to Swiggy or Zomato, and would thus find it hard to compete. As such, exclusivity contracts can enable large players to distort market forces, and prevent the entry of competitors into the market.
CCI too ruled on the same lines, and found that these contracts “prevent the market from becoming more competitive”. The investigation into Swiggy and Zomato had begun in in 2022 after a complaint by National Restaurant Association of India about the impact on food outlets due to anti-competitive practices of the platforms. In March 2024, CCCI had shared its findings with Swiggy, Zomato and the complainant restaurant groups. CCI will now pronounce its decision in the case, and either impose penalties on Zomato and Swiggy or ask them to make changes to their policies. Swiggy and Zomato will also have a chance to appeal the verdict.
But exclusivity contracts aren’t the only way in which India’s two food delivery apps seem to be exploiting their market position. Over the years, the two companies made hundreds of crores of losses, but by pricing their products below their effective cost price, have driven out all other players from the market. India’s food ordering market was once competitive with players like Tiny Owl, Uber Eats and Foodpanda, but these companies have either been acquired by Swiggy and Zomato or been forced to shut down their operations.
With India’s food ordering market now essentially a duopoly, Swiggy and Zomato seem to be acting in concert to drive up prices. Both companies had introduced a “platform fee” at the same time. The platform fee had been Rs. 2 to start off with, but over the last few months, Swiggy and Zomato have acted in lockstep to raise this platform fee to Rs. 3, Rs. 5, Rs. 7 and finally to Rs. 10. The price rises have more or less happened simultaneously, which could indicate that Zomato and Swiggy are coordinting while raising prices. This, of course, prevents customers from having a choice to order from a platform with lower ordering fees.
Interestingly, practices like these were harshly criticized a month ago by Indian Commerce Minister Piyush Goyal. He had said that Amazon was making losses in India for decades with the aim of eliminating competition and then ultimately raising prices when it had pricing power. “When Amazon says we are going to invest a billion dollars in India and we all celebrate, we forget the underlying story that that billion dollars is not coming in for any great service or any great investment to support the Indian economy,” Goyal had said. “They made a billion dollars loss in their balance sheet that year. They have to fill in that loss. If you make 6,000 crore loss in one year, does that not smell of predatory pricing to any of you? Should this not be a matter of concern for all of us?” Goyal had continued.
It appears that Zomato and Swiggy have followed the same playbook. Both companies made losses for years and made sure that there were no other players left in the food ordering space in India. They appear to have further prevented the entry of new players by incentivizing restaurants to enter into exclusivity contracts with them, and also are simultaneously raising prices in unison. And with CCI now finding that these companies did indeed break antitrust laws, it could be the beginning of even more scrutiny into their operations.