India’s anti-monopoly watchdog has launched an investigation into the practices of your fave delivery apps—based on a complaint filed by very angry restaurant owners. We look at why they are upset with these companies.
Researched by: Sara Varghese & Prafula Grace Busi
The food delivery biz: The food delivery market is slated to be worth $8 billion this year—of which two-thirds is owned by app-based aggregators. It is essentially a duopoly—with Swiggy and Zomato ruling the roost. That said, delivery is just 6% of the overall $54 billion restaurant industry. But it is one of the fastest growing segments of e-commerce—expected to grow by 21% by 2026.
The anti-monopoly case: On Monday, the Competition Commission of India (CCI) ordered a probe into allegations of unfair practices. The decision was in response to a complaint filed by the National Restaurants Association of India (NRAI)—which represents over 500,000 restaurants—filed in July last year. The CCI said there is “a prima facie case with respect to some of the conduct of Zomato and Swiggy, which required an investigation by the director general”—who has been ordered to complete it within 60 days.
Point to note: We explain the NRAI’s issues with food delivery apps in greater detail below. But here’s the broader argument: The duopoly of Swiggy and Zomato—and the absence of any new entrant into the market—points to the lack of competition. And this combined might leaves restaurants at their mercy—giving them disproportionate power to set the terms, often at the restaurants’ expense.
A bitter history: This battle is not new—and first kicked off in 2018. In 2019, NRAI led a boycott of Zomato, Swiggy and DineOut—where 2,000 restaurants pulled their business off their platforms. Hostilities were suspended during the pandemic—when restaurants became dependent on delivery companies. The row has now kicked off again—but with CCI wading into the fray—which means there will be real consequences as opposed to long-drawn negotiations.
The Swiggy/Zomato reaction: When the complaint was filed last year, Zomato called it “misplaced”—and has now promised to “explain” to the CCI why it is in perfect compliance with the law. Swiggy has not said a word.
There are two main issues here:
Deep discounting: Swiggy and Zomato offer the convenience of ordering in—but at discounted prices. They’ve turned us into bargain-hunters—often at the expense of our favourite restaurant. Here’s how it works according to one NRAI official:
“[T]hey will propose Rs 100 off, I bear Rs 50, you bear Rs 50. This is the best-case scenario. It is never a scenario where they will bear the entire expense of discounts. What is more perturbing here is that with a lot of smaller players, the apps force the discounts down their throats—that if you don’t take this discount, you may lose on orders.”
More importantly, the discount addiction damages customer loyalty—since it incentivises us to chase cheaper prices on the app. As restaurateur AD Singh puts it:
“The discounting model has disrupted the restaurants business because it turns the focus of customers from value to discounts. It has totally commoditised the decision of who to order from.”
This works perfectly for Swiggy or Zomato as we soon become more loyal to the app than to a restaurant.
Point to note: Restaurants that refuse to offer the required discounts are often less visible on apps—or so NRAI claims: “The algorithm is all in their control. They control what is visible (in searches) and what is not.”
The Zomato Gold example: The program launched in 2017 became the lightning rod for NRAI’s #logout campaign in 2019. And here’s why. First, Zomato enticed restaurants by promising that the premier membership program would be limited to in-house dining. The restaurant would bear the costs of membership perks—a buy-one-get-one free dish plus the same deal for two drinks. The benefit: It will get more footfalls.
The costs worked as long as Zomato Gold remained exclusive with 5,000 members across 80-100 restaurants. But the company instead sold one million memberships:
“So what was supposed to be khaas (special) became an aam (commonplace) thing. That is where our problem began because customers who were not even my regular clients came with a Gold subscription and I was compelled to give something free on something.”
The big grouse: Zomato pocketed the revenues from the membership fees—and did not share a penny with restaurants. Worse, it started charging new entrants between Rs 20,000-50,000 to become part of Zomato Gold.
Point to note: The #logout campaign ended in a whimper. Zomato made nominal changes to its Gold program—but soon after capped compensation paid to restaurants for cancelled orders. As The Ken put it: “For aggregators, it has been about giving an inch and taking a yard.” Also: There were more restaurants enrolled in the program than ever. No wonder, NRAI has now pinned its hopes on the government wielding the danda instead.
Now add high commissions: Swiggy and Zomato charge restaurants between 15-23% of the order value as commission. That number can go as high as 30%. Want to pay lower commission fees? The restaurant has to promise to be exclusively listed on the platform. When added to costs of steep discounts, the fees are the proverbial last straw.
This one is fairly straightforward. Zomato and Swiggy do not share any customer data with the restaurants—citing privacy concerns. As a result, they have no clue about who is ordering their food, what they like, and who are their repeat customers—all of which is essential to any business. As NRAI committee member Gauri Devidayal explains: “Not knowing who is eating your food and being able to remarket to them is a big problem.”
According to an ex-Swiggy executive, this lack of transparency has less to do with privacy than the business model: “It’s not an issue to share with restaurants, there are a few security issues, but that’s solvable. It’s mainly not wanting to share data. They don’t want to become middlemen and become redundant.”
Point to note: Swiggy and Zomato also don’t share search data. For starters, NRAI claims that the results don’t always match the search keywords—as the companies use the tool to push its own preferred restaurants.
Adding insult to injury: Worse, Swiggy and Zomato used that very customer data—from food and price preferences to timings and locations of orders—to launch their cloud kitchens and private labels—which compete with restaurants. FYI: This is very similar to what Amazon does on its platform—which is also why it is in trouble with CCI. Point to remember: While Zomato shut down its cloud kitchen brand last year, it will soon revive them with a vengeance to fulfil its new 10-minute delivery promise.
As the food delivery business grows, restaurants will become more dependent than ever on the apps to survive. And the NRAI fears that an already lopsided relationship will become entirely one-sided. Here are some examples of that power equation:
One: Cancellation fees. The apps unilaterally change the amounts due to restaurants if a customer cancels an order—and do so without warning. As mentioned before, in 2020, Zomato announced it will cap the compensation of orders marked ‘ready’ to 80% of the net value—minus its commissions and charges. In 2021, Zomato upped the ante and started forcing restaurants to compensate customers for rejected orders—either because the establishment is too busy or not able to provide a certain dish.
Two: Exclusivity. Restaurants often are told to sign exclusive contracts to get preferred treatment—lower commission fees, greater visibility etc. But this in turn violates platform neutrality—and hurts restaurants who don’t sign that deal.
Three: Bundling. The restaurants have to use all the services offered by the app. More importantly, they cannot also have a service that is available through the app. Example: Other than Domino’s, no restaurant is allowed to have its own delivery service. Rest of World lays this out best:
“The two aggregators’ success has come from their ability to build four main business areas: online storefronts that make discovery easy for users; payment gateways; their own large delivery fleets; and an understanding of user data that gives them insights into how customers order.
Having created these powerful stacks of technology and logistics, the aggregators insist that restaurants on the platform commit to using all of them… ‘India is a rare country where if you want to work with an aggregator, you have to give everything up,’ said Naman Pugalia, Bengaluru-based founder of direct order platform Peppo.”
Not very much. Swiggy has never engaged with these issues in public. Zomato’s Deepinder Goyal has been more vocal, but is often vague on specific issues. Here’s a good summary of his view of the NRAI complaint:
“It’s a one-sided spat. We don’t have a spat with anyone. Even restaurants are largely happy. In the second wave, we were hiring 40,000 riders a week—that was how quickly we were scaling, and there were no jobs back then. Restaurants were unable to cater to that volume. We actually fuelled growth for the restaurant sector, jobs for riders, and growth for ourselves while catering to customers. We can’t over-index on a handful of people who might have vested interests or something. No matter what you do, you can’t make everyone happy.”
Of course, the spat may become two-sided if CCI rules against Zomato and Swiggy.
The bottomline: It is unclear whether NRAI will win the battle—or even secure a partial victory. But just remember this: the big winner of the Zomato and Swiggy business model is also you, dear user. The restaurant business is brutal—not least because of its own customers.
Economic Times has the most details on the CCI probe. RestOfWorld has the best deep dive into why restaurants are opting out of Swiggy and Zomato—and for direct delivery platforms instead. Also useful in understanding NRAI’s point of view: This Quartz interview with NRAI member Anurag Katriar. This older Ken piece on the failure of Zomato Gold is illuminating—but is behind a paywall. Leaflet looks at the legal implications of the ongoing battle.
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