Code of conduct may stop Swiggy, Zomato from offering heavy discounts

If the new FDI guidelines, which came into effect on February 1, applies to foodtech unicorns Zomato and Swiggy, users may not be able to avail heavy discounts on these platforms soon.

Food tech unicorns Zomato and Swiggy may not be able to offer humongous discounts to its users in the near future. Two weeks ago, the National Restaurant Association of India (NRAI) had sent a letter to the Department for Promotion of Industry and Internal Trade (DPIIT), seeking clarity on whether the new FDI guidelines that came into effect on February 1 applies to Zomato and Swiggy.

According to media reports, Rahul Singh, President of NRAI, said that while the association is happy with the marketplace model as it brings restaurants closer to the consumer, they cannot get into "exclusive, arm-twisting, promoting their own brands, using their (search) algorithms," he was quoted as saying. 

The NRAI is planning to put in place a code of conduct for the food aggregators, and the association will be holding an internal meeting in Mumbai on Thursday. Reports suggest that the association is looking at a strong course of action to be taken against unicorns Swiggy and Zomato, who they believe have distorted the market with deep discounts, says media reports.

Rahul said, while it is good to have 'happy hours' and 'end of the season sale', influencing the market forces by offering discounts the entire month is not acceptable.

According to the new FDI guidelines, the body bars marketplaces from selling products that are either exclusive on its platform, or products on which the marketplace has some stake. Swiggy's in-house brands - The Bowl Company and House of Dabbas - fall under this category.

While Zomato doesn't have a cloud-restaurant of it's own yet, its HyperPure follows a farm-to-fork model, delivering fresh produce from farmers to restaurants.

Other online marketplaces, including ecommerce giants like Amazon and Walmart-backed Flipkart, had requested for an extension of the deadline to comply with the norms laid out in the latest ecommerce policy. The Department of Industrial Policy and Promotion (DIPP) had, however, rejected the request and the new FDI guidelines came into effect from February 1.

Also read: It's official: no extension of the Feb 1 deadline for complying with new FDI norms for ecommerce

For sometime now, Swiggy and Zomato have been battling with their restaurant partners. In July 2017, when some of Swiggy's ex-employees took to blogging site Tumblr to explain the failings of the company, the fight with the restaurant partners was one of the issues.

The accusations ranged from cheating restaurant partners, cheating investors, to a bad work culture and a management that is tough to deal with. Sriharsha Majety, Co-founder and CEO, Swiggy, had promptly rubbished the accusations.

For two years now, restaurant owners claim that they started out by paying six to seven percent margins. Since then, the margins have been constantly increasing - from 10 percent to 15 percent and then 20 percent, which currently is said to be at 25 percent.

While the battle between the foodtech unicorn continues, whether Swiggy and Zomato will fall under the FDI guidelines is yet to be decided.