This article has been written by Anmol Garg, pursuing the Diploma in International Business Law from LawSikho.
Table of Contents
Introduction
India’s first food-tech company and a brain child of Deepinder Goyal and Pankaj Chaddah has recently been in the news a lot due to its Initial Public Offer (IPO) at the Bombay Stock Exchange and due to the huge investment it received from Ant Financial making its valuation at $1billion. Zomato Media Private Limited was founded in India in 2008 and was initially known as the FoodieBay till 2010 when it switched from just functioning as a directory of restaurants to a multinational aggregator and a food delivery company. Zomato today has expanded to 24 countries like India, the Philippines, United Arab Emirates, South Africa, Turkey, Brazil, Qatar, Indonesia, Brazil, etc. Zomato is also called the Acquisition King because till date it has done 14 major acquisitions with the most recent one being UberEats of India.
Zomato has made the food from top restaurants easily accessible at our doorsteps. Top restaurants from across the world are available on Zomato for delivery and a directory about their ratings, food menu, specialties and reviews are also accessible. Today, Zomato has established itself as a leader in its industry at its home ground but it is not easy to expand to foreign countries. It is believed that Zomato is now in talks with the Singaporean Government to expand its services to Singapore as well but nothing has been confirmed yet. But the interesting part is what all compliances, licenses, etc. that it will have to acquire and abide by before expanding its roots in another country. Let us further try to understand the concept of food delivery e-services and the legal work and compliances that a company like Zomato will have to undergo.
Functioning of food delivery apps
Food delivery services like Zomato function through a service app that handles all the interaction between the customers and the restaurants. We can now easily order food at our doorsteps with just a few clicks on our phones. These apps confirm the order from the restaurant, answer the queries of the customer, arrange drivers for deliveries, provide various payment options and ensure that the food delivered is of a standard and of edible quality. At the same time, there are a lot of legal implications behind the functioning of these apps like entering into contracts, negotiations, and a number of business activities that take place. Before an app lists a restaurant, it needs to ensure that the restaurant complies with all the requirements. It also employs a number of drivers for timely delivery of the food who have to be trained as well. The company also ensures to make profits in order to pay its employees and later on it decides to expand to other countries.
But to expand it requires investors who can aid this process. Zomato today has a number of investors and the biggest one is Alibaba’s payment partner-Ant Financial with a 26% stake in stake. Other major investors of Zomato are- Info Edge India, Sequoia Capital, Kora, Tiger Global Management, Temasek, and Vy Capital. With the pandemic, people relied on apps like Zomato, Food Panda, Swiggy, etc. extensively as it is a safer option than roaming around outside. Singapore has also taken a number of measures to promote restaurants going online. The Singapore Food Agency has laid down rules which are to be followed by the delivery services and also laid down the ways promoting the businesses to go for online delivery.
Why should Zomato expand to Singapore?
Singapore has a growing population with an ever-blooming global economy. It is the business center for Asia and is thus most preferred by businesses that are looking to expand in Asia. Due to its strong currency, stability, and strong infrastructure it is often referred to as the ‘Lion City’ which in turn makes it attractive for companies to set up their businesses. Following are some of the reasons why expanding to Singapore is a lucrative option for Zomato-
- Singapore overall ranked 2nd in the Ease of Doing Business Ranking, wherein it ranked 1st in the enforcement of contracts and 4th in starting a business.
- Singapore has a very lucrative market for businesses, especially for start-ups.
- There is easy availability of labor and skilled workforce
- A lot of start-ups are setting up with investments from venture capital
- A sound network of trade, Intellectual Property protection, attractive tax system, use of English as business language
- Singapore is highly stable due to its policies and has a strong currency as well
- Singapore is home to people of different diversities
- Due to Covid-19, the government is encouraged to set up online
- Revenue in the food industry is already high in Singapore and is expected to further grow
- Enterprise Singapore has specifically launched delivery of food package which encourages businesses to opt for delivery options through third-party or themselves by offering them exemptions, etc.
- The government has also tightened the safety measures to be undertaken by delivery personnel and the restaurants in order to remove fear from the minds of the customers, which is further helping food companies maintain a standard of services
- Singapore has welcomed other delivery companies like Deliveroo and Honestbee, UberFood and Food Panda
- Zomato received investment from Singapore’s Temasek Holdings and Vy Capital in 2015 which is an incentive for Zomato as and when it decides to expand
- Zomato already lists a few restaurants in Singapore on its app so it will be easier for Zomato to gain public trust
- Being a known brand, it will be easier for Zomato to establish and market itself
Compliances for food delivery companies when expanding to Singapore
As a food delivery company, Zomato will have to follow all the protocols and abide by the compliances of both as a company and as a food business, which is all listed below under the name of agencies that will be regulating them-
- Singapore Food Agency-
Being a food delivery company, Zomato is not going to be handling, cooking or processing the food in any manner and will just be responsible for receiving the orders and delivering them after they are cooked by the restaurants. As a result, it is not required to obtain any license from the Singapore Food Agency (SFA) to operate in the country. However, Zomato will have to ensure that the food is delivered while ensuring all of the food safety standards under the Sale of Food Act (SOFA) and Environmental Public Health Act (EPHA). If these are not complied with, SFA has the authority to take appropriate actions against them.
2. Sale of Food Act (SOFA)-
This Act lays down that the food that is delivered shall be hygienic and complying with all the standards for food safety. Further, Section 15 of the Act which deals with ‘Selling unsafe or unsuitable food’ lays down that a person shall not sell such food which he knows or ought to know that the food is not safe or suitable for consumption. By this, the responsibility falls on Zomato to ensure that the food is of standard quality and is safe for consumption.
3. Environmental Public Health Act (EPHA)-
There is a food hygiene course in Singapore that is to be attended by all restaurants before opening, however, as Zomato will not be directly involved with the preparation of the food it will not be required to attend so. It will just have to ensure that the food delivered is of consumable quality. In 2008, Environment Public Health (Food Hygiene) Regulations on “Transport of Food” were issued which stipulated that the food shall be transported in covered repositories like boxes, containers, carry bags, etc. so as to avoid contamination of food and keep it safe for eating. If these rules are not followed, it is considered an offense.
4. Land Transport Authority’s (LTA)-
LTA is the regulating body that lays down the road safety rules. Among all the rules, the following are some of the main rules which Zomato will have to pay special attention to:
- All the riders shall follow the basic rules of safety on the road like red lights, speed limit, etc.
- Riders who join the company shall inform the company about their mode of delivery like will they be using Personal Mobility Devices (PMD) like Kick-scooters, electric scooters, hoverboards, unicycles, or will they be using motorbikes, Power- Assisted Bicycles (PAB)or will they deliver on foot.
- If any PMDs or motorbikes are used then the company shall verify the registration of the vehicle
- PMDs and PABs are usually electronic thus it shall be ensured by the company that they do not exceed 20kg of weight, a width of 70cm, and are driven at a maximum speed. 25km/h
5. Workplace Safety and Health Act-
Under this Act, Zomato will have to ensure that the workers have sufficient training in the use of bicycles, motorbikes, personal mobility devices, or any other means of transport being used by them.
6. Safe Management Measures-
Due to Covid-19, The Multi-Ministry Taskforce (MTF) announced on 20 July 2021 which places responsibility on the food delivery personnel to take additional precautions and the liability for this falls on the companies. Under this, the delivery companies need to ensure the delivery man wears masks at all times, avoid clusters, keep minimum interaction and maintain a safe distance of 1-meter from the restaurant workers and the customers.
7. Joint rules laid down by ESG, LTA, and SFA-
Recently, the government is encouraging restaurants to go for online delivery and is actively working to promote this sector of the food industry. The Enterprise Singapore (ESG), Land Transport Authority, and Singapore Food Agency (SFA) laid down additional regulations that are to be observed by the delivery companies which mainly focus on ensuring that the delivery personnel keep a safe distance, wear masks, etc. Also, they have been advised to impose stricter penalties on the personnel who are not adhering to these rules like the first-time offenders can face a fine of up to S$10,000, imprisonment of up to six months, or both, and all subsequent offenses may face a fine of up to S$20,000, imprisonment of up to twelve months, or both.
8. Contracts-
For starting a business in Singapore, Zomato will have to enter into a number of contracts like a Food Delivery Vendor Agreement with the restaurants, Employment Agreement with its delivery drivers, Terms & Conditions of the app for all the customers who will interact with it, etc. These are examples of some basic contracts and agreements which it will have to enter into even though Zomato does not require any license to function.
9. GST-
The services of Zomato will be liable for a 7% tax which it can charge its customers at the time of checking or include the cost in all the products accordingly. For this purpose, Zomato will have to get registered with the Inland Revenue Authority of Singapore (IRAS).
10. Singapore Packaging Agreement(SPA)-
Zomato shall abide by the rules of SPA and ensure proper recycling of the wastes, put the logo for Reduced Packaging wherever applicable.
11. Central Provident Fund (CPF) registration-
The riders for companies like Zomato are not considered as permanent employees, therefore, all employees other than the riders are to be registered and will get benefits of Central Provident Fund (CPF) account, medical leave, and paid annual leave.
12. Zomato shall also ensure that all the restaurants are following the Singapore Food Agency’s guidelines in relation to license, hygiene, and food safety standards.
Problems Zomato may face when establishing in Singapore
The Singapore government-funded holding Temasek Holdings and Vy Capital invested in Zomato back in 2015. So why hasn’t Zomato been able to establish itself yet?
The online delivery business is developing and is expected to grow more in the coming years because of the dependency of people on such apps. Even though Singapore ranks 2nd as in the Ease of Doing Business Report, Zomato still has a lot of hurdles in its way of establishing itself in the country. And the main reason for that is that there are already four major players in the market who have established themselves and maintain a steady flow of customers. Foodpanda was the first food delivery company to be launched in Singapore back in 2012, followed by Deliveroo and Honestbee in 2015, GrabFood in 2018, and WhyQ in 2020. Other than these there are many other companies like UberEats, MealPal, Plum, Grain, AMGD, The New Luncher, etc. The market is already flooded with a lot of options for the customers to choose from and companies like Foodpanda, Deliveroo, and Honestbee maintain a loyal customer set for themselves being the oldest and the most trusted. All the news apps that have come up offer specific cuisines or have a new innovative idea like AMGD provides diet food, The New Luncher delivers lunch boxes at schools and offices, WhyQ delivers food from street hawkers, etc.
Also, with so many competitors in the market, the competition is so high that all the sites are offering food coupons, discounts, and other exciting offers to attract customers. In fact, some of the companies like Honestbee were even selling on loss and are still recovering from the losses that they have incurred over the years.
Therefore, if Zomato were to enter the market so late, it will have to compete with the innovative brands and also the oldest brands to make place for itself in the market while also fighting with the competitive costs and technology.
Conclusion
Zomato has acquired some major companies and has managed to spread its roots in a number of countries after setting its roots in India. Rumor has it that Zomato may soon expand to Singapore as it has already started to list some Singaporean restaurants on its app and it received major funding back in 2015. In case, it plans to go ahead and plans to establish itself in Singapore’s soaring market, it will not require any major food license, however, it will be subject to a number of Acts and registrations and guidelines that have been laid down by various authorities in Singapore and some of them have been issued specifically for Online Delivery Service providers. In this article, all the important compliances to be followed by Zomato and the likes and the pros and cons of establishment in Singapore have been discussed in detail.
References
- https://www.lta.gov.sg/content/ltagov/en/newsroom/2020/4/news-releases/Ensuring_adherence_to_safe_distancing_measures.html.
- https://www.sfa.gov.sg/food-retail/overview/overviewnew.
- https://www.channelnewsasia.com/singapore/food-delivery-pmd-riders-must-comply-lta-rules-companies-say-923046.
- https://www.businesstimes.com.sg/brunch/food-fight-the-battle-for-the-food-delivery-market.
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