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Zomato and Swiggy indulging in Anti-Competitive Practices alleges NRAI

Zomato and Swiggy indulging in Anti-Competitive Practices alleges NRAI

Relevance:

  • GS 3 || Economy || Industries || Industrial Sickness

Why in the news?

The National Restaurants Association of India (NRAI) has approached the competition regulator alleging that, Food aggregators Swiggy and Zomato have “violated” laws by charging “exorbitant commissions” from restaurants and “masking” customer data from them.

Present context:

  • Restaurant lobby and advocacy group National Restaurant Association of India (NRAI) has written to the competition commission of India (CCI) seeking an investigation into alleged anti-competitive practices of food delivery unicorns Zomato and Swiggy.
  • The move is the latest in an escalating conflict between restaurants and food delivery platforms with the NRAI alleging that “onerous terms” imposed by Swiggy and Zomato have led to many restaurants having to wind up their businesses during the pandemic.

NRAI has highlighted the following practices:

  • Bundling of services, data masking and exorbitant commission charged.
  • Price parity agreements that force suppliers on the platform to provide lower rates or better terms on their own platforms.
  • Deep discounting: forcing the restaurant partners to give discounts to maintain appropriate listing.
  • Exclusivity of listed restaurants.
  • Violation of platform neutrality, vertical integration and lack of transparency on the platform.
  • Restaurants have previously alleged that Swiggy and Zomato do not share critical customer information with restaurants, but mine the data to promote their own cloud kitchens.
  • The NRAI also alleged that restaurants are forced to offer deep discounts to maintain an “appropriate” listing on the online platforms.
  • In a market study commissioned earlier by the CCI, restaurants alleged the commissions paid by them affected their search rankings,and sought greater transparency in the listing policies of online food.

What CCI says?

  • While the CCI has not passed any orders regarding the allegations by the NRAI thus far, it has made observations in a market study that may indicate its views on these matters.
  • The CCI noted that the lack of transparency of online platforms functioning and practices could lead to distortion of competition, and had recommended that online platforms improve transparency to reduce information asymmetry between sellers using platforms and the platforms.
  • The CCI also recommended that online platforms set a basic framework for the negotiation of contracts, and set up ways to govern both their discount policies and conflict resolution between the platform and sellers.
  • The CCI highlighted that the issue of the imbalance in bargaining power between restaurants and platforms was at the core of a number of issues, including the commissions charged by platforms and deep discounting of products.

Impact of Covid-19 on restaurant business:

  • Like any other sector, hotels and restaurant business also face hard hit due to covid-19 pandemic lockdown.
  • All online business where shut, and online delivery system was too on pause.
  • More than 3 month lockdown in year 2020 and partial lockdown after than caused economic damage to almost all the restaurants and hotels.
  • Online food delivery app like zomato and swiggy was out of work which turn them to be heavy competitor after unlock started.
  • Revival from economic damage made many online food delivery app go for heavy discounts and offers without following the norms to gain more profit in less time.
  • Recently news about closing Hotel Hayat is one such example of lose faced by hotel and food sector.

What can be done for future sustainability?

  • Regarding the lessons that this pandemic has brought to the future of the restaurant sector, the line-by-line coding process allowed four major topics to be discerned:
    • “Management”, “fund”, “hygiene”, and “social commitment”.
    • The “management” topic is based on rethinking the catering operation in order to increase profit margins and to create a sustainable business in the long term, with more controlled investments and shorter returns and by diversifying activities.
    • The need for a “fund” is related to a working safeguard capital for similar situations. Concerning “hygiene”, participants highlighted the importance of valuing health, of implementing systems for greater perceived safety by customers, and of cleaning spaces.
    • Finally, the topic of “social commitment” aims at the need for are-education of the players in the restaurant business, with new habits and ways of life and betting on the motto “happy business, happy workers, happy customers.

Conclusion:

The restaurant industry should consider increasing advertising expenditure during Covid-19 type of crisis in order to start recovery immediately and as a form of informative communication with its consumers, providing important safety-related tips.

Mains oriented question:

Lockdown amid Covid-19 pandemic affected all the sectors including food sector, write about the measures that need to be to tackle with lose and make business profitable again? (200 words)