By Aditya Kalra
NEW DELHI, April 23 (Reuters) – India’s biggest food delivery app Zomato has agreed to drop a contract term that penalized restaurants for offering cheaper meals to walk-in diners, a company source said, after opposition from eateries who said the policy undermined their pricing decisions.
Eternal’s Zomato app has 24 million consumers and 300,000 listed restaurants. As demand for food delivery boomed, Eternal shares have more than doubled since their 2021 listing and the company is valued at nearly $26 billion.
For years, Zomato has had a “charges for price disparity” clause in its contracts, which allowed it to fine restaurants if their eat-in or their own delivery prices were lower than those listed on the Zomato app. Zomato’s contracts also stated that it could use mystery shopping, or secretive restaurant visits, among other tactics to check that outlets were not undercutting the app in price, according to contracts seen by Reuters.
The clause was never enforced but has been dropped now, a Zomato source said on Thursday, without explaining the rationale for the decision.
Reuters is first to report Zomato’s decision, as a review of publicly available Zomato policy for restaurants also showed the clause has been dropped.
Zomato did not respond to Reuters queries.
With players like Domino’s and KFC competing with millions of restaurants in India, the country’s $94 billion food services market is set to be worth $153 billion by 2031, Mordor Intelligence estimates.
ANTITRUST RISK OF CLAUSE
According to Zomato’s contracts, it would charge a fine equal to “three times the differential amount” per order. This was opposed by the National Restaurant Association of India as it restricted their pricing ability, said Sagar J. Daryani, president of the group that represents over 500,000 outlets.
“It’s our product and should be our pricing. We appreciate their assurance that price parity will no longer be enforced,” Daryani told Reuters.
Five lawyers and one former Indian antitrust official who reviewed the clause in the Zomato agreement said it was prone to hurt competition and could have faced scrutiny from regulators.
They referred to how a complaint by a hotels body led to a 2022 decision by India’s antitrust watchdog which asked travel booking websites MakeMyTrip and GoIbibo to remove clauses that prohibited hotels from offering lower rates to other agents.
“The clause has resemblance to those found to be in violation in India hotel booking business … though similar clauses have faced scrutiny world over, the company would have needed to provide an objective justification to defend it,” said Rahul Goel, antitrust partner at India’s AnantLaw.
An Indian antitrust investigation in 2024 also found Zomato and rival Swiggy breached competition laws with their business practices favouring select restaurants, Reuters has reported. The companies deny any wrongdoing.
(Reporting by Aditya Kalra; Editing by Susan Fenton)
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