India’s Food Delivery Sector: The Rise of Private Label Brands

India’s food delivery sector is seeing significant changes as major players like Swiggy and Zomato venture into private label food brands. Initially, these platforms served as neutral links between consumers and restaurants, but their increasing interest in creating and managing their own brands raises alarms concerning data security, equitable competition, and market fairness.

Expansion of Private Labels: Snacc and Bistro

Swiggy has introduced Snacc, while Zomato, through its Blinkit service, is actively promoting Bistro. Both Bistro and Snacc are in direct competition with the restaurants featured on Zomato and Swiggy’s applications. Unlike traditional food aggregators, which function merely as intermediaries, these platforms are now occupying dual roles—serving as both marketplace providers and rivals to restaurant operators.

Concerns Over Data Privacy and Market Fairness

The primary issue relates to data access and privacy. With deep insights into consumer choices, ordering habits, peak demand periods, and popular cuisines, these companies hold a distinctive edge over independent restaurants. This access to critical market data brings forth a vital question—could this information be shaping their private-label tactics, thus granting them an unfair competitive edge?

Perspective of Industry Experts

Thomas Fenn, Joint Secretary of the National Restaurant Association, has noted that the emergence of rapid food delivery services like Bistro and Snacc creates an unbalanced environment for restaurants. He remarked that these platforms procure food from external kitchens, market under private labels, and utilize marketplace insights, thus obtaining an unjust advantage. Fenn indicated, “Nothing hinders them from diverting customers to their own offerings at reduced rates, without incurring high commission fees.”

Fenn stressed the necessity for stringent regulations, stating that Zomato and Swiggy utilize their scale to strike advantageous pricing deals and subsidize expenses with investor funds, hampering the ability of local vendors and restaurants to compete effectively. He added, “Price parity regulations further block competition. Stronger regulations, akin to Press Note 3 for retail, are essential to safeguard local enterprises.”

Regulatory Insights on Data Sharing

In response to fears about data sharing between Zomato and Bistro, Blinkit CEO Albinder Dhindsa stated on X that Zomato will “never launch private brands on the Zomato app to compete with its restaurant partners.” He reaffirmed that Bistro operates independently with its own app, asserting that no Zomato restaurant data is utilized, and that the Zomato app would not facilitate its promotion. However, an investigation by Startup Superb revealed a Bistro promotional banner on the Blinkit app, although it did not appear on Zomato. Industry specialists note that all three—Zomato, Blinkit, and Bistro—are under the same parent company, complicating the verification of any internal data-sharing activities. A similar trend was noted on Swiggy, where promotion of the Snacc app was visible within the Swiggy app.

Industry Reactions and Concerns

Restaurant coach and mentor Randheer highlighted on Instagram that these platforms that initially functioned as intermediaries are now competing with the very establishments they support. With services like Blinkit’s Bistro, Swiggy’s Snacc, and Zepto Café, these aggregators are not merely delivering food from affiliate restaurants; they are also creating and delivering their own products, effectively seizing a more substantial segment of the value chain. This evolution prompts a critical inquiry for restaurant owners—should they be alarmed? Without a doubt.”

Despite reassurances from the founders that their private label initiatives do not compete with existing restaurant listings on the food delivery apps and are not utilized for their marketing strategies, worries remain. The paramount risk lies in the possible misuse of proprietary data and consumer insights from the core platforms, including patterns in customer behaviour, purchasing trends, and market interests, which could grant these private labels a strategic upper hand over independent restaurant partners.

Regulatory Actions and Expectations

The ongoing uncertainties pose significant questions for restaurant owners: Could their business insights potentially identify trending food items, which might then be mirrored by aggressively-funded private-label brands? While concrete evidence of illicit data-sharing has yet to surface, the inherent advantage these platforms enjoy continues to be a major concern.

As of November 2024, a report from Reuters indicated that the Competition Commission of India (CCI) launched an investigation into Zomato and SoftBank-backed Swiggy for breaching competition regulations by favouring specific restaurants. The report, citing confidential CCI documents, revealed that Zomato entered into exclusive agreements for lower commission rates, while Swiggy guaranteed growth to restaurants registering exclusively on its platform.

Alarm from the National Restaurant Association of India

Representing over 500,000 restaurants, the National Restaurant Association of India (NRAI) has formally approached the CCI to address such practices. Startup Superb reviewed the NRAI’s filing, which asserts that Zomato and Swiggy contravene Section 3(1) of the Competition Act. This matter is currently under scrutiny.

Fenn mentioned that the CCI has recognized several of these concerns in its report, but noted that more robust and prompt regulatory measures are crucial.

Lessons from E-commerce Regulation

This situation bears similarities to the regulatory responses faced by e-commerce titans Amazon and Flipkart, who encountered similar examination prior to the Department for Promotion of Industry and Internal Trade (DPIIT) introducing Press Note 3 regulations in 2016. These guidelines were established to prevent foreign-funded e-commerce platforms from maintaining inventory, aimed at prohibiting marketplace operators from favouring their own sellers and gaining an unfair edge through data access.

Both Amazon and Flipkart faced accusations of indirectly guiding preferred sellers, using deep commercial insights to promote their own brands, while offering them preferential treatment regarding pricing and visibility. Currently, food aggregators appear to be treading a similar path, provoking the need for a parallel regulatory structure to safeguard the restaurant sector.

The large-scale shift to online spending as seen with Amazon and Flipkart, is mirrored in the rapid delivery impact on local grocery stores by services such as Blinkit, Swiggy Instamart, and Zepto. Zomato and Swiggy venturing into private labels now poses a threat to independent restaurants. By utilizing customer data and marketplace analytics, these platforms can elevate their own products above those of partnering restaurants, echoing the practices of e-commerce giants who favoured their internal offerings over third-party sellers. This transition resembles past disruptions in retail and grocery sectors, placing food delivery platforms in positions as both gatekeepers and competitors, potentially thwarting smaller restaurants like independent sellers in the past.

Trust and Fairness in Food Delivery

The restaurant industry currently stands at a pivotal juncture. Will regulatory entities such as the Competition Commission of India (CCI) implement new frameworks to guarantee fair competition among food aggregators? Or will restaurants encounter the same hurdles that independent sellers in e-commerce struggled with prior to government action?

Presently, restaurant owners find themselves in a precarious situation reliant on aggregators’ assurances of fair play—without any established regulations to avert possible misuse of their data.

Global Perspective on Private Label Expansion

Leading food delivery services in both China and the United States have also expanded into private label offerings alongside their marketplace operations. In China, major players such as Meituan and Ele.me dominate the sector, while DoorDash and Uber Eats have adopted a similar strategy in the U.S. Nevertheless, China’s regulatory environment is more stringent, with the State Administration for Market Regulation (SAMR) penalizing Meituan $534 million in 2021 for anti-competitive actions. Conversely, the U.S. lacks specific regulations governing private label initiatives, primarily focusing on labour rights, data confidentiality, and antitrust issues.

Fenn argues that the sector requires regulations similar to Press Note 3, which restricted foreign-funded e-commerce entities like Amazon and Flipkart from having inventory-led operations. “Just as Press Note 3 shielded retail platforms, a comparable policy must address food delivery entities, regardless of their ownership status. Without regulation, local businesses risk diminishing and becoming overly reliant on two major players,” he stated.

Startup Superb reached out to Swiggy and Zomato with a comprehensive questionnaire regarding potential data-sharing issues concerning restaurant insights. Zomato chose not to respond, while Swiggy has yet to provide feedback after three weeks.

The Path Forward for Food Delivery Platforms

Even as the platforms claim to maintain operational boundaries and offer a limited menu for the time being, this does not guarantee future compliance. Evaluating their expectations with restaurant owners, one can see the logic is questionable by most standards.

The government should enact definitive regulations to ensure market neutrality in the food delivery sector, akin to scrutiny faced by e-commerce platforms for favouring their in-house brands over independent sellers. Regulations must incorporate mandates for data transparency, requiring platforms to disclose the utilization of consumer insights while enforcing comprehensive separation of marketplace and private label operations to avert potential conflicts of interest.

With the CCI already investigating Swiggy and Zomato for anti-competitive conduct, the discourse on data protection and market neutrality may soon gain regulatory attention.