This article has been written by Namrata Kandankovi, pursuing B.A LL.B (Hons), Symbiosis Law School, Pune.
Understanding Competition Law
Considering the Indian scenario, it can be stated that the decade of the 80s and 90s were the ones of significance as it was at this time when there came to be new developments like that of the introduction of new economic policy, and also the opening up of the Indian market to the world at large. As a consequence of this there were numerous other developments like that of The New Economic Policy of 1991 was brought into effect, this policy further widened the scope for privatisation, liberalisation and globalisation of the Indian economy. This eventually broadened the scope for market forces in India and also brought down the role of government in various economic and business sectors.
It was in the year 1969 when India adopted its first Competition Law which was in the form of Monopolies and Restrictive Trade Practices Act (MRTP). The enforcement of this act was based on the socio-economic conditions of India which were in line with the socio-economic philosophy laid down in the Directive Principles of State Policy which has been contained in the constitution of India. With the passage of time, the MRTP act went through a number of changes and various amendments were brought into being.
The inception of Competition Law in India
The government of India constituted a committee in the year 1999 known as the Raghavan Committee, which functioned under the chairmanship of Mr SVS Raghavan. This committee in its report came up with certain important implications like that of- To bring effective competition, the rivals should be given opportunities in terms of competition in the markets and this should be provided to them on the basis of the quality of their outputs. Taking all these recommendations into consideration a draft was proposed in the parliament in November 2000. After taking into account the recommendations of the committee, the parliament passed the bill in the year 2002 by the way of which the Competition Act 2002 was brought into effect. Hence, the Competition Act 2002 replaced the MRTP act from the date of 1 September 2009and the MRTP act was stood repealed.
Following this, it was the Competition Act 2002 which laid down the rules and regulation for competition laws in India, it also established the Competition Commission of India which acts as a quasi-judicial body and enshrines the principles of rule of law and also possesses all the powers of a civic body in terms of gathering evidence.
The advent of food delivery apps in India
The concept of food delivery has occupied the most commonplace in the modern world. The very idea of food delivery comes up with the combination of both quality food and convenient service in delivering the same. The current phase at which the popularity of food delivery is growing in India is the highest when compared to any other day in the past. The current rate at which online delivery of food is growing has resulted in an increase in the number of orders per day reaching to around 40,000 in a metropolitan city like that of Bangalore. This, in turn, means that the food deliveries went up to 56% of the total number of orders delivered by the food tech sector in India.
The saga of Swiggy and Zomato
The major players like that of Swiggy, Zomato and Foodpanda would be on advantage with the investment in in-sourcing delivery. Swiggy which is seen as a significant player in terms of competition in the food delivery world has in-sourced from the time of its inception and has continued to do the same and has been able to process 100% deliveries. Zomato on the other hand, which started as a restaurant discovery medium, eventually turned into a food delivery app. It further went on to acquire leading companies like that of Runner, a hyper logistics firm which again boosted its in-house delivery sector.
Looking at the current facts and figures, it could be predicted that even in the recent future, the two leading giants, that is Swiggy and Zomato would continue to earn profits and exercise their control over the market. But at the same time, one’s attention should be drawn towards the development where Ola, one of India’s largest taxi-handling sectors has planned on buying Foodpanda. This kind of development could affect the business established by Swiggy and Zomato and prove to be a tough competition for both these giants. Having a look at this model of development various experts have expressed their opinion stating that there can be a risk to this market as various other sectors with deep pockets try to buy the market shares and express the undue influence on the market.
Dependence of consumers on food delivery apps in India
E-commerce in India was expected to grow on a wider scale from the period of 2013 to 2020, which actually came true in terms of numbers and figures. Amongst all other developments in the field of E-commerce, the sector of online food delivery is growing rampantly, this current demand for online delivery also leaves an impact on the small scale restaurants. Some of the significant reasons behind the unprecedented growth of these food delivery applications in India have been discussed under:
- Ideal Indian Demography– It is to be noted here that, India caters to a population of 1.2 billion and in addition to it, India is one of the biggest consumer markets in the world. Adding to the point, more than 50% of the Indian population falls under the age group of 25 years, which is again the youngest population in the entire world. The widely accepted notion which is also true is that most of the demands for food come from the population aged between 18-2 and as India caters to almost all the ideal conditions, it becomes a hub for online food delivery market.
- Rapidly changing lifestyles– As the trend these days demands the working of both the parents, there arrives a rapid change in the lifestyle in the family including their food habits, consumption and their routine, and all these elements make the family bank on the delivery apps in order to fulfil their requirements. Along with the existence of demand for food delivery apps, there also exists a wholesome ability to satisfy these needs as they are available at affordable prices.
- Increase in the number of working women– Considering the changing aspect of the society, the number of women being employed in numerous sectors of business is also on the increase. As a result of this, women start investing most of their time in their work being produced in the same and as a result, there is less time left for them to focus on the household courses and this factor again adds as a major one in terms of increasing the dependency on food delivery apps.
- Improved standards of living and increased consumption– When the young population of India gets employment opportunities, their standard of living tends to improve with the amount of salary being granted to them in various sectors like that of IT, Corporate etc. These developments make a large chunk of the young population in India opt for online delivery of food, as they become affordable to whatever costs are to be incurred for ordering in.
Zomato, Swiggy, Foodpanda and others eating into the business of small scale restaurants?
In the recent past, there have been allegations made by small scale and midsized restaurants that the food delivery apps like that of Zomato, Swiggy, Foodpands etc. have been making undue use of their positions and in addition to this, dominance has been showcased by these delivery apps in order to earn greater profits and this, in turn, is acting as a huge burden on the small scale restaurants.
As a response to the ongoing miscreation, the restaurants have filed an online petition, which has been addressed to the Competition Commission of India (CCI) and the Prime Minister’s Office(PMO). Now looking from the perspective of the delivery apps, it is to be noted that some of the apps like Swiggy and Zomato have negated the allegations, while some others like that of Foodpanda and Ubereats have declined to respond to the query expressed by these small scale restaurants. However, the Competition Commission of India stated that it would look into the matter and would further try and put an end to the unsustainable pricing by these food delivery applications. Some of the significant issues which the Competition Commission of India had to address in this matter were- issues related to deep-discounting, cloud kitchen and in-house kitchens. These issues will be further discussed in detail in the forthcoming section of the article:
- In-house Kitchens– The petition filed by the small scale restaurants mentioned the in-house kitchen started by Swiggy, which is – The Bowl Company, the prime concern expressed by the restaurants was that a company like Swiggy by starting an in-house kitchen is trying to divert all the consumer base towards itself. In addition to this, there are certain measures taken up by Swiggy, For example- The first advertisement which pops up when the user logs into Swiggy are the advertisements of The bowl Company, which is their in-house kitchen. The petition has stated that this amounts to the misuse of consumer database. Swiggy has denied these allegations and has stated that they do not intend to divert the consumer base towards their in-house kitchen but they try to meet the needs of the consumers whose needs haven’t been met and have gone ahead to state that they try to bridge the gap which exists in the market.
Zomato, on the other hand, also has an in-house kitchen named HyperPure, which delivers vegetables, meat and chicken etc. The tactic used by Zomato here is that it has made it mandatory for other restaurants to purchase these items from HyperPure, which goes against the Competition Act. But, in its defence, Zomato had stated that its prime idea was just to provide fresh ingredients to the restaurants and has also said that forcing restaurants to buy products from HyperPure would actually go against their ethics and there is no compulsion issued by Zomato on any restaurants.
- Deep-Discounting– The very idea of deep-discounting used by the online platforms is actually diverting consumers from the restaurants to these platforms, and as a consequence of this, the footfall on consumers in getting reduced in the small-scale restaurants. For the small-scale restaurants, the cost of doing business is also escalating day by day as the commissions are directly getting impacted and also, this is hurting the small-scale restaurants in the long-run. Again, in their defence, the delivery apps stated that providing discounts is a voluntary act and its main objective is to increase the participation of the consumers in terms of buying the food products. They also stated that the restaurants can also participate in the discounting campaign. But, in reality, this idea of deep-discounting is acting as a burden on the part of the small-scale restaurants.
Showcase of Dominance
In the market of competition, expression of dominance is never considered to be a bad aspect per se, but when it comes to abuse of power by the way of dominance, then it falls under the ambit of arbitrary dominance and calls for the attention of the competition act of India to resolve the matter. The various aspects of dominance have been discussed as under in line with the provisions of the Competition Commission of India:
- Practices which are Exclusionary in nature– The main objective behind imposing dominance by various firms by adopting strategies like that of contracts and different pricing strategies are in order to stop the new competitors from entering the marketplace. This, in turn, would lead to the market being restricted only to certain competitive firms who can continue to earn profits. This strategy is executed by the firm, by pricing the commodities below the production rate in the initial stages in order to exit the competitors and eventually raising the prices in the medium and the long run in order to make up for the losses incurred previously. Now the concept of predatory pricing comes into picture where in order to bring in the practice of predatory prices, the following conditions should be fulfilled:
- Pricing the commodity at a lower cost in the first place.
- The reduction in prices being made in order to reduce competition and eliminate competitors from the market.
- Rebates– The term rebate refers to the reduction in the amount to be paid. Section 2(4) of the Competition Act 2002, gives out a wider ambit to the concept of rebate. In the current market in terms of food delivery in India, rebating has been used by different sectors in order to create a foreclosure of the market to the new enterprises to ensure that they do not enter the market. Generally speaking, there are three different provisions by way of which rebating can be brought into effect which are:
- The threshold rebates– If the total value of a customer purchase crosses a certain threshold during a given period, then the dominant firm offers a discount of X per cent to its customers.
- Selective price cuts– In this model, price cuts will be offered only to certain selective customers. This has been widely in practice in various dominant firms in the market.
- Fidelity rebates– This particular aspect comes into play more as an arbitrary measure adopted by a dominant firm, whereby, discounts are offered only to those consumers who purchase products only from these dominant undertakings.
All these measures have been used by the food delivery apps in India in some or the other way, and taking the legal clauses of competition law into consideration, it can be said that these fall under arbitrary use of dominance by the way of power and it is termed as a differential condition of sale of goods which also attracts liability under Section 4 (2) a (1) of the Competition Act, 2002.
- Market Access being denied– Section 4(2)(c) of Competition Act, 2002 provides that any entry barriers imposed by the dominant enterprises through their conduct results in the abuse of power which is wrong under Competition Act. Further, such acts of creating an entry barrier affect the way the market functions and as a result, there might even be an impact on the upstream and downstream of the market. Hence, such acts purported by the dominant firms call for legal action against them. Hence, these firms can be subject to liability for their acts under The Competition Act, 2002.
The Food Fight- Tackling the ongoing problems
In recent times, which is in August 2018, the National Restaurant Authority of India (NRAI) had issued letters to all the prime delivery applications in India, that is Swiggy, Zomato, Foodpanda and Ubereats. There were serious concerns raised by the NRAI where it brought the attention of these delivery apps towards the raising concerns towards the ongoing issue of a food fight between the food delivery apps and the small scale restaurants operating in the country. In the four different letters addressed to the food delivery apps, the NRAI raised concerns about the issues of Lack of transparency, deep-discounting offered by the delivery apps and the abuse of their dominant position in the marketplace and how it is affecting the small scale restaurants.
The concept of deep discounting and data masking which have been unfolded by the delivery apps has caused trouble to the midsized restaurants on a larger scale. Some of the important activities rolled out after the issuance of letters by the NRAI which have been discussed in the following segment of the article:
- The #logout campaign– There was unwinding of the #logout campaign earlier in the month of July during which some 2000 small sized hotels and restaurants delisted themselves from the delivery apps and this was done as a response to the heavy discounting offered by the various dining programs like that of Zomato, Swiggy, EasyDiner, Dineout etc. Taking this matter to book, the Mumbai head of NRAI- Anurag Katriar that the association has urged the delivery apps and the small-sized hotels to resolve the matter mutually and come to a conclusion. He further stated that as an industry body NRAI would like to actively involve with the food aggregators to find a solution to the existing problem.
- Reviewing Discounting Schemes by food aggregators– The deep discounting schemes offered by the various delivery outlets act as a major problem in terms of creating problem to the business of small scale restaurants. Hence, if the food delivery apps come to a consensus with the hotels and work on their deep discounting scheme, there can be some resolve given to the small-sized restaurants. There has also been a warning issued by The Federation of Hotels and Restaurants Association of India that there would be nationwide protests if the food aggregators do not consider working on their discounting schemes in order to make it advantageous towards the working of the small scale restaurants in India.
- Zomato calls for a truce and says it’s willing to rectify the mistakes of the past- Following the recent developments where it saw a face-off between the small-sized restaurants and food aggregators, Zomato founder Deepinder Goyal in series of tweets called for a truce and sanity. After the unfolding of the #logout campaign, Zomato lost around 65 restaurants which almost amounted to 1% of its entire program. Zomato in its tweet came out with the statement that whatever is good for the restaurants is good for Zomato and whatever is good for the consumers will be in the interest of Zomato. Goyal further stated that Zomato is committed to working by serving the interests of the consumers and also the interests of the small-sized restaurants. Hence, if the food aggregators themselves start analysing the existing problem and work in terms of resolving it, then there can be a smooth functioning between the food aggregators and small scale hotels.
After analysing and understanding the aspect of the problem faced by the small-scale restaurants, it can be stated that there exists a gap between the working of food aggregators and small scale restaurants and in order to curb the differences between them, there is a dire need to come up with an immediate solution to the existing problem. Considering the economic scenario of the market and the provisions of the Competition Act 2002, it can be said that there are necessary provisions under the said law, which would come in handy in order of imposing liability on the sector which takes undue advantage of its position and abuses its power. This will also create a deterrence to the happening of such instances in the future and ensure the safety and independence to the functioning of the small-scale restaurants in India. In order to make this happen, there should be strict compliance with the provisions of the Competition Act 2002 and also the implementation of the same in the numerous arenas whenever it is required.
- Restaurants shrink as food delivery apps get more popular, Livemint, https://www.livemint.com/Companies/IJpQEIcTkZk4UhgDNSQLFK/Restaurants-shrink-as-food-delivery-apps-get-more-popular.html
- Zomato, Swiggy & others eating into our business: Restaurants, Economic Times, https://tech.economictimes.indiatimes.com/news/internet/zomato-swiggy-others-eating-into-our-business-restaurants/67358478
- How Delivery Apps May Put Your Favorite Restaurant Out of Business, The New Yorker, https://www.newyorker.com/culture/annals-of-gastronomy/are-delivery-apps-killing-restaurants
- The changing market for food delivery, Mc Kinsey, https://www.mckinsey.com/industries/technology-media-and-telecommunications/our-insights/the-changing-market-for-food-delivery
- Consumers Love Food Delivery. Restaurants and Grocers Hate It, The Wall Street Journal, https://www.wsj.com/articles/consumers-love-food-delivery-restaurants-and-grocers-hate-it-11552107610
- Online Food Service in India: An Analysis, AIIMS Institute, https://theaims.ac.in/resources/online-food-service-in-india-an-analysis.html
- Deep Dive: Third-Party Delivery Apps Face Growth Challenges, Pynmts, https://www.pymnts.com/restaurant-innovation/2019/third-party-delivery-apps-growth-challenges/
- What is the importance of food ordering mobile apps for business? Quora, https://www.quora.com/What-is-the-importance-of-food-ordering-mobile-apps-for-business
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.