What do you want FSSAI’s food delivery norms to be?

The Online food delivery market is set to grow siginificantly, GoI has relaxed the compliances required under the FSSAI registration by making the license a perpetual one. How this impacts food safety norms is yet to be seen.

The online food delivery market in India is expected to expand at compound annual growth rates of- 30.55% (based on revenue) and 10.19% (based on number of users) during the 2020-2024 period, leading to a revenue of INR 1,334.99 billion with a user base of 300.57 Mn by 2024.

Dominos pizza in early 2000s, popularised the delivery system with a promise of 30-minute delivery at door step! That was the initiation of FoodTech to say the least.

Like all tech revolution it started with first restaurant listing platforms,. The restaurants and FoodTech players operated through a hybrid model of their own delivery arm and through the food delivery system. This brought the “Aggregator” filling significant need gaps with hyperlocal or on-demand aggregators. These, largely operated by startups, evolved to own the entire food stack i.e. from restaurant/ dish discovery, creation, to demand generation and last mile delivery.

FoodTech 4.0

The sector is moving to the fourth evolution, FoodTech 4.0 wherein large established food tech unicorns are leveraging their service expertise and customer base to expand into adjacent categories, resulting in “Quick commerce”. Eg, Dunzo moved into e-commerce. More on this here.

In 2014- 2015, there was a surge in inception and investment rounds, this was followed with recalibration in 2016-17, when many single brand cloud kitchen startups like Faasos, Dazo, Eatlo, EatOnGo offered healthy gross margins, Delivery aggregators where addressing the larger pain point and hence a larger market opportunity. Around this time full stack delivery aggregators (the ones’ with their own restaurants/ dish discovery) started supporting demand generation,last mile food delivery, the challenges of unit economic and profitability issues, remained..

Moving from city-level viability of unit economics, in 2018, Swiggy raised a total of $1.31 billion across three financing rounds and Zomato mopped up around $410 million in two rounds of fund raising. Consolidation began with Ola acquiring Foodpanda and Zomato acquiring UberEats India unit.

Major operators in India include platforms to customer service providers like Swiggy (Bundl technologies Private Limited), Faasos (Rebel Foods Private Limited) and Zomato (Zomato Media Private Limited). Apart from this, there exist certain companies that work on restaurant-to-customer delivery model like Box8, Domino’s and KFC (Yum! Brands, Inc.).

Dominant Position

Retail moved to internet and took competition concern alongwith it to e-commerce market. The Competition Commission remains vigilant and adjudicates 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.

According to the clarification of the FDI policy issued in 2018, 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.

Intermediary Food Delivery Model and FDI Policy

The FSAs are food delivery models with tie-ups with several restaurants and provide delivery options through a single online portal, acting as an intermediary and catering both to the restaurateurs and consumers. These delivery apps, which play a dual role in the market, could be marketplace competitor while also being intermediaries. With deep discounts to the customers they have amassed a huge consumer base. Very hard to be matched by other channels like the dine-in restaurant. The intermediaries are inferred by an annual growth rate of 25-30%.[1]

The FSAs have, therefore, established dominance in the market through user dependence provided in section 19(4) (f) of the Competition Act

19. Inquiry into certain agreements and dominant position of enterprise
(4) The Commission shall, while inquiring whether an enterprise enjoys a dominant position or not under section 4, have due regard to all or any of the following factors, namely:—
(f) Dependence of customer on the enterprise;

Restauranteurs feel there is a need to be present in all the major platforms to cater to customers which does indicate 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 (variable) on delivery orders. The gold subscription initially was meant for just a handful of customers, but later was made open for all. It was a tool like offering deals e.g., A table orders four dishes on which Zomato Gold is applicable, they will have to pay for only two dishes. The “Deals” strategy indirectly pushes consumers to choose restaurants covered by Zomato Gold creating dependency and compelling the restaurants to tie up with Zomato. Thisdeep discounts led to the #logoutcampaign[2] 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.

The condition in the clarification of the FDI policy which has gained popularity is-

  • the lack of ability 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 should 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, and it is actionable under Section 4(2) (e) of the Act, due to various harm it entails.

4. Abuse of dominant position
(2) There shall be an abuse of dominant position 4 [under sub-section (1), if an enterprise or a group] –
(e) Uses its dominant position in one relevant market to enter into, or protect, other relevant market.

It is not a novel observation that a platform may favour certain products or rather its own product over another. CCI’s e-commerce report underlines certain potential harm that can be caused due to the functioning of the cloud kitchens. Including-

  • 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.[3]
  • 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.

These practices by Zomato, UberEats, Swiggy and Ola financed Foodpanda are following are clearly a case of Predatory Pricing, offering food at unsustainable discounts below the cost price which forces small eateries and restaurant to shut down owing to huge losses. As per reports, Zomato intends to serve meals for as low as 50-60 Rs. Imposing some degree of unfair or discriminatory price in purchase or sale. They are also involved in Exclusive Sales Contract, Tie-in arrangements with restaurants and some like Swiggy have started their own kitchens like “The Bowl Company” and then drive traffic to their kitchens by passing other restaurants.

FSSAI new Guidleines for E-Commerce food companies

FSSAI has made delivery laws stringent for both cooked and packed food. They have stepped in with new guidelines for online food delivery companies.

FSSAI aims to prevent any sort of misconduct regarding food safety and delivery norms. 

Keeping the food safety of the consumer’s in mind FSSAI brought guidelines for food listing websites and packed food delivery apps/websites.

  1. The new guidelines indicate that the food can be intercepted at any point, can be sampled at any point. From where it is being cooked and packed, to where it’s being delivered. For dine in restaurants, the food inspectors can come in at any time and ensure the food is being prepared under hygienic conditions.
  2. It is now mandatory to add indicative images of the food on e-commerce websites. This will enable the consumers to identify the food that they are ordering and will eliminate any misinterpretation.
  3. All mandatory information mentioned in the FSSAI Act needs to be clearly mentioned on the website. This information should be made available to the customers before they make a purchase. This includes the expiry dates for the websites selling packed food.
  4. According to the new guidelines, restaurants and e-commerce websites are only allowed to deliver fresh food. Remaining shelf life on food should be of 30% or should be delivered forty-five days prior to the expiry date to prevent incidents of expired food products.
  5. There is a clear mention of the guidelines for the delivery executives as well. According to the guidelines, the food should only be handled and delivered by trained personnel. This will eliminate the chances of the food being handled carelessly.
  6. The safety of the food should not be compromised at any cost. The food should reach the consumer safely. The food should be handled with utmost caution from the time of preparation till the time of delivery.

Concluding

The pandemic had global tech giants – Amazon and Google – have both launched their own food delivery offerings in India. While this further validates the size of the opportunity in India, it brings a direct challenge to the homegrown Swiggy-Zomato duopoly.

Amazon, which is piloting Amazon Food in parts of Bangalore since May 2020, may leverage and enter the space.

Google, conversely will be operating on a third party model, much like how it operates in the US where the last mile delivery is fulfilled by the likes of DoorDash, Postmates, etc. In India, Google has partnered with Dunzo and other third party APIs for last mile delivery. It will be interesting to see if Google looks at Swiggy and Zomato as competitors or potential partners.

Emergence of ‘Quick Commerce’ is the next generation of e-commerce that focusses on an evolved consumer class (particularly single households, DINKs and elderly) which value speed, convenience and experience over price. The model takes advantage of centrally located cloud stores to provide a better customer experience than a traditional e-commerce model that relies on large warehouses built on the outskirts of the city. Given their expertise in logistics, technology, AI/ML and an existing customer base and delivery fleet, the food delivery operators in India are uniquely positioned to venture into quick commerce. Dunzo, which counts Google as one of its investors, has been an early mover into the space. More recently, we have also witnessed Zomato and Swiggy enter adjacent verticals like grocery, alcohol and pharma delivery. Quick commerce seems like a natural extension for food delivery operators to venture.

Whatever be the model- CCI is likely going to be busy.

This blog on Online Food Delivery is only for information purposes. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Endeavoured to accurately reflect the subject matter with legal analysis, without any representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this. This isn’t an attempt to solicit business in any manner.


[1] 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

[2] https://www.livemint.com/companies/news/zomato-rejigs-gold-service-to-benefit-restaurants-ceo 1566402560626.html

[3] Shreya Ganguly, DPIIT Summons Online Food Aggregators to Discuss Complaints of Predatory Pricing, Medianama (Jul. 4, 2019), https://fssai.gov.in/upload/media/FSSAI_News_DP_Medianama_05_07_2019.pdf.

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