Swiggy, Zomato and Uber Eats Violate Foreign Direct Investment (FDI) Rules Governing Ecommerce.

The government is soon expected to make clear whether cloud kitchens and private label brands started by food-ordering platforms Swiggy, Zomato and Uber Eats violate foreign direct investment (FDI) rules governing ecommerce.

Cloud kitchens rent out kitchen spaces to businesses which primarily sell through delivery apps or directly to consumers online. These do not provide a dine-out option, though.

The Department for Promotion of Industry and Internal Trade (DPIIT) will share a note with its comments on the issue shortly, after it was decided at a meeting of all stakeholders on Tuesday, people present at the meeting told ET.

The meeting had representation from online food ordering firms Zomato, Swiggy and Uber Eats, the National Restaurant Association of India (NRAI), Ministry of Commerce and Industry, Ministry of Consumer Affairs and the Ministry of Law. “If you go by the definition of marketplace in Press Note 2, these (online food ordering) platforms are transgressing the rules,” said a senior government official who was present at the meeting. “It needs to be decided whether to change the FDI norms to accommodate cloud kitchens or that it is not going to be allowed at all.”

Another official privy to the developments said DPIIT’s stand on cloud kitchens, private labels and other issues related to the sector will likely be clarified in a larger industry-wide notification on ecommerce, which is on the anvil.

The NRAI, which is also a part of the committee set up by the DPIIT to look into issues of the online food ordering sector, complained of these platforms violating FDI norms by starting their own private label restaurants and demanding exclusivity from restaurants for using their cloud kitchen infrastructure.

According to the Press Note 2, which came out in December 2018, ecommerce marketplaces are not allowed to control the inventory of goods sold on their platform or to engage in exclusivity deals with vendors.

The FDI norms also disallow online marketplaces from offering preferential treatment to vendors. Swiggy and Zomato both demand exclusivity from restaurants using their cloud kitchen infrastructure.

“We continue to make disproportionate investments towards creating a win-win cloud kitchen model… Swiggy has made it possible to run a high-volume delivery restaurant that lets even the smallest restaurant partners take advantage of the massive food delivery market with minimum investment in infrastructure,” a Swiggy spokesperson told ET.

Swiggy already runs four private brands, The Bowl Company, Homely, Goodness Kitchen and Breakfast Express, which compete with thirdparty restaurants on its platform. Explaining its stance on private label brands, Swiggy said its intent was to fulfill unmet consumer needs. “While we have grown (our) brand based on need gaps, we are happy that this has led to numerous partner restaurants (pan-India) following the trend,” it said.

Zomato has said previously that it does not own any private brands, and instead runs facilities for other businesses to operate from.

In 2018, Uber Eats entered into a strategic partnership with coffee chain Café Coffee Day to launch a network of virtual restaurants across multiple brands that will be available for delivery exclusively on Uber Eats. The scale of these operations is unclear. When contacted, Uber Eats declined to comment. Apart from the leaders in the online food delivery space, ecommerce giant Amazon is also looking to enter the online food ordering space and is also eyeing a play in cloud kitchens.

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