FOOD SERVICE AGGREGATORS AND THEIR ABUSE OF DOMINANT POSITION
Since global retail started focusing on buying and selling of goods over the internet, the competition concern shifted to the e-commerce market. The CCI has been proactively monitoring the e-commerce market and adjudicating cases on similar matters, deciding the implications of big data on competition, whether online and offline mode can be considered as different markets, and so on. In January 2020, it released a report ‘Market Study on E-commerce’[i] to understand the general trends and views prevailing in the e-commerce market for consumer goods, accommodation services, and food services industry for a better understanding of the market.
However, the service sector is still engulfed in a lot of ambiguities. The most recent being the clarification[ii] released to the FDI policy in 2018, which defined certain conditions or eligibility criteria of a company to receive foreign funding. The FDI policy was drafted keeping in mind various competition concerns, which were expounded in the clarification of the policy issued in 2018. According to the clarifications, the e-commerce platforms which engaged in or aimed at engaging in foreign direct investments were to: not discriminate between different market players, not allow an entity to transact business in which it has a stake in, not influence the sale price of goods or services, not mandate a seller to sell a product exclusively on its platform.
This article provides a case for the inclusion of Food Service Aggregators (FSAs) in the definition of e-commerce, as stated in the aforementioned Press Note. To address this issue, it is quite central to investigate whether the FSAs have the required market power to distort the competition and for its action to be labelled as anticompetitive.
Food Service Aggregators and Abuse of Dominance
The FSAs are food delivery models that tie-up with several restaurants and provide delivery options of food to consumers through a single online portal, acting as an intermediary and catering both to the restauranteurs and consumers. This innovation has spilled over to India as well, the major players in the market being Zomato and Swiggy[iii]. These delivery apps, which play a dual role in the market, act as an intermediary and also as a marketplace competitor. With its relatively huge market share[iv], they have established a strong base in the online food delivery market. These apps provide deep discounts to the customers helping them to attract a huge consumer base. The same, however, cannot be matched by other channels like the dine-in restaurant. Thus, the customers become inclined to use these intermediaries which can be inferred by an annual growth rate of 25-30%.[v]
The FSAs have, therefore, established dominance in the market through user dependence provided in section 19(4)(f) of the Competition Act, 2002 [ hereinafter ‘the Act’].[vi] This condition has been incorporated in the case of Sh. Dhanraj Pillay And Others v. M/S Hockey India[vii] where hockey players were completely dependent upon the services offered by Hockey India in order to play hockey at various national and international levels. Similarly, in this case, the users i.e., the restauranteurs feel there is a need to be present in all the major platforms without which they cannot cater to the customers online[viii] shows a certain amount of dependence on the platforms.
Further, in 2018, Zomato launched Zomato Gold which lets diners avail free drinks or food when dining out or a discount of INR 300 on delivery orders. The gold subscription initially was meant for just a handful of customers, but later was made open for all. This scheme offers huge discounts to the customers and also indirectly pushes them to choose restaurants covered by it. Thus, making customers dependent, and compelling the restaurants to tie up with Zomato. The deep discounts posed a huge problem of diverting the customer base of the restaurateurs. This led to the #logoutcampaign[ix] started by the National Restaurant Association of India (NRAI), where hundreds of restaurants delisted themselves from these FSAs; particularly the Gold Scheme of Zomato which had over 6,500 listed restaurants. But, still the policies of the FSAs did not change substantially. Thus, it can be inferred that the FSAs can function in the food service market irrespective of the market conditions which qualifies them as dominant.[x]
The condition in the clarification of the FDI policy which has gained popularity is the ineptness of e-commerce platforms to sell products from an entity over which they have equity participation or control. The question that arises is whether the cloud kitchens, which are an extension of the FSAs involved only in delivery, can be allowed to function while being a part of the marketplace entity running the platform.
When a dominant player uses its dominant position to enter a different market, the concept is termed as leveraging[xi], and it is actionable under Section 4(2)(e) of the Act[xii] due to various harm it entails. It is not a novel observation that a platform may favour certain products or rather its product over another. This has been the accusation[xiii] led by Spotify, against Apple who imposed discriminatory conditions such as levying a 30% tax on the subscription fee which inflated its final price provided to consumers.[SA9] However, similar taxes are not paid by Apple Music which enables it to continue to offer low prices without affecting its margin, thereby creating an unfair playing field. Google has also been embroiled in similar cases: the European Commission fined Google 2.42 billion Euros for diverting traffic to their comparison shopping services[xiv] from rival comparison shopping services using a favourable placement of the same, resulting in a loss of traffic to rivals leading to a loss in revenue; the Competition Commission of India also fined Google in the case of Matrimony.com Limited v. Google LLC and Ors.[xv] where Google manipulated its search algorithm to favour its products such as Google Maps, flight, etc. which are all favourably placed in the search engine result page.
CCI’s e-commerce report underlines certain potential harm that can be caused due to the functioning of the cloud kitchens.[xvi] The possible harms include: influencing search results and the user reviews or rating of a particular restaurant, which was mentioned by 500 small restaurants and businesses in an online petition addressed to CCI and PMO, which alleges Swiggy, Zomato, Foodpanda and UberEats to have abused their dominant position in the Indian market[xvii]. The Petition accused these aggregators of using in-house kitchens like HyperPure by Zomato and The Bowl Company by Swiggy. It is alleged that Zomato forces the restaurants registered to purchase items from its in-house kitchen. It has also been alleged that Swiggy is diverting customers to their own kitchens.
The cloud kitchens have an edge over the normal restaurants in terms of the relevant product, geographic and user data, available to them, to better target their consumers. Due to the absence of transparency, in the recommendation or search rankings, the issue can be further aggravated. This can aid the cloud kitchens to secure a more favourable place on the platform to entice the consumer. Thereby, affecting the consumer choice in the same way as it happened in Google’s case[xviii]: it was noted that the search results placed favourably in the first page saw 95% of total clicks.
In conclusion, FSAs are dominant and have been making undue use of their position to hamper the competition in the market. This would affect the restaurant owners due to the unaccommodating commission charged by the FSAs to increase their profits. And, the customers due to the lack of choice and artificial setting of price in the FSA platform. Therefore, regulation in the service sector must be attended keeping in mind the competition concerns of the market and the veracity of the e-commerce study.
[i] Competition Commission of India, Market Study on E-Commerce in India: Key Findings and Observations (2020). [ii] Department of Industrial Policy and Promotion, Press Note 2(2018), https://dipp.gov.in/sites/default/files/pn2_2018.pdf. [iii] Zomato had a market share of 45% (including Uber Eats) and Swiggy had a market share of 25% in the online food delivery market. https://www.statista.com/outlook/374/119/online-food-delivery/india#market-arpu. [iv] Id. [v] Indian online food delivery market to hit $8 bn by 2022: Report, Livemint (Jan. 28, 2020), https://www.livemint.com/technology/tech-news/indian-online-food-delivery-market-to-hit-8-bn-by-2022-report-11580214173293.html. [vi] The Competition Act, 2002, No. 12, Acts of Parliament, 2002. [vii] Case No.73 of 2011. [viii] ¶51, Supra note i. [ix] Suneera Tandon, Zomato revises Gold scheme, but eateries to stay logged out, Livemint (Aug. 22, 2019), https://www.livemint.com/companies/news/zomato-rejigs-gold-service-to-benefit-restaurants-ceo-1566402560626.html.