Explained: The Zomato price-parity case and why restaurants oppose it

NRAI's latest plea has brought Zomato's price-parity clauses back into focus. Here's what the case is about and why these provisions are under scrutiny

The National Restaurant Association of India (NRAI) on Tuesday asked the Competition Commission of India (CCI) to stop Zomato from enforcing price-parity and exclusivity clauses until the regulator delivers its final order in a long-running antitrust case.

 

The request comes even though Zomato says it no longer includes exclusivity provisions in its standard agreements and removed price-parity requirements earlier this year. The restaurant body wants the regulator to ensure those practices are not revived while the proceedings continue.

 

Here’s what the case is all about:

Why is the case back in focus?

NRAI has sought interim relief from the CCI ahead of the regulator's hearing scheduled for July 22.

   

According to a Business Standard report published on Tuesday, the association wants the watchdog to direct Zomato not to impose, monitor or enforce price-parity provisions, exclusivity clauses or other restrictive contractual conditions until the case is decided.

 

It follows the Director General's investigation, which has reportedly concluded that three categories of contractual arrangements—exclusivity conditions, minimum business guarantees and wide price-parity clauses—may violate Section 3(4) read with Section 3(1) of the Competition Act.

 

The DG's findings are only part of the investigation process and do not represent the CCI's final decision. 

Where did the case begin?

The dispute dates back to 2021, when the NRAI filed a complaint against Zomato and Swiggy, alleging that their agreements with restaurants contained several anti-competitive conditions.

 

In March 2022, after examining submissions from all parties, the CCI ordered the Director General to investigate multiple allegations under the Competition Act.

 

The investigation covered several practices, including: price-parity clauses, exclusivity arrangements, minimum business guarantees, platform neutrality, cloud kitchens, and private labels.

What is a price-parity clause?

A price-parity clause requires a restaurant to keep menu prices on a delivery platform at least as attractive as those offered through other sales channels.

 

For example, if a restaurant sells a burger for ₹250 on Zomato, it may not be allowed to offer the same burger for ₹220 on its own website, ₹230 through another delivery app or ₹210 through WhatsApp orders.

 

The CCI's 2022 order described such clauses as restrictions that can prevent restaurants from maintaining lower prices or offering bigger discounts on their own websites or rival platforms.

Why do restaurants oppose these clauses?

The NRAI argues that such restrictions reduce restaurants' ability to compete outside large food-delivery platforms.

 

According to its complaint, price-parity provisions make it harder for restaurants to build their own ordering channels, offer exclusive discounts through direct sales or compete through other online aggregators.

 

Restaurants have also argued that these clauses increase their dependence on dominant food-delivery platforms and reduce pricing flexibility.

What concerns has the CCI raised about price parity?

The competition watchdog has said that widely drafted price-parity clauses could discourage platforms from competing through lower commissions charged to restaurants.

 

In its 2022 order directing an investigation, the Commission said such restrictions may increase entry barriers for new food-delivery platforms while offering limited benefits to consumers. It also observed that these arrangements could inflate commissions and eventually affect prices paid by customers.

 

The CCI therefore found that the issue required a detailed investigation under Section 3(4) read with Section 3(1) of the Competition Act.

What has NRAI asked for now?

According to the report, the association has asked the CCI to direct Zomato not to enforce or revive price-parity clauses, impose exclusivity conditions, monitor compliance with such provisions, or penalise restaurants for not following them, until the Commission delivers its final order in the case.

 

The association has also urged the regulator not to grant further adjournments in the proceedings, it said.

What is Zomato's stand?

Zomato has said it does not include exclusivity clauses in its standard agreements and removed price-parity requirements in April or earlier this year.

 

The company did not respond to the Business Standard’s queries on NRAI's latest application.