Zomato share tumbles as the Competition Commission orders a probe

Responding to the probe allegation, Zomato assures co-operation in the investigation.

The shares of the online food delivery app-based company fell 5% after an investigation into its anti-competitive practices was ordered by the Competition Commission of India(CCI).

The food delivery market is largely owned by two major players- Zomato and Swiggy, together accounting for 95% market share. These duopolistic players are alleged to charge an exorbitant and arbitrary commission of 20-30% and delayed payment cycle which has placed the restaurants between the devil and the deep blue sea.

Zomato has responded to the probe issue by stating that, “We will continue to work closely with the Hon'ble Commission to assist them with their investigation and explain to the regulator why all of our practices are in compliance with competition laws and do not have any adverse effect on competition in India. We intend to promptly comply with any recommendations given to us by the Hon'ble Commission.’” 

The action by CCI was triggered by the complaint filed by the National Restaurant Association of India (NRAI). The accusations were levy of unilaterally decided commissions (by the online platforms) on restaurants, creating a strong barrier to entry by non-sharing of customer details with the restaurants and bundling of food ordering and delivery services. All this has led to hardship for the restaurant operators who are facing high barriers to entry and hence are unable to use their own delivery. High dependency on these platforms has further led to arbitrary unilaterally decided commissions.

The food delivery platforms are also accused of listing their own cloud kitchen brands exclusively on their platform, similar to private labels, thereby creating an inherent conflict of interest.

The competition watchdog has directed the probe to be completed in 60 days.

Amid such anti-trust allegations, the shares of Zomato were under selling pressure, closing at Rs 83.75 down 2.9% or Rs 2.5 per share.