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New e-commerce rules: Food-tech firms Swiggy, Zomato and others are a confused lot

Lawyers said that food-tech companies are not strictly out of the ambit of Press Note issued by the Department of Industrial Policy.

twitter-logoGoutam Das | December 28, 2018 | Updated 19:11 IST
New e-commerce rules: Food-tech firms Swiggy, Zomato and others are a confused lot

Restaurant aggregators such as Swiggy and Zomato need to examine Press Note 2 closely, issued by the Department of Industrial Policy & Promotion this month. Although the Note, which issued new guidelines on FDI in e-commerce, appears targeted at e-tailers such as Amazon and Flipkart, food-tech companies are not strictly out of its ambit, lawyers Business Today spoke to are of the opinion. The Press Note could have unintended consequences on their business models because the definition of 'e-commerce' is not just the buying and selling of goods over a digital network - it also includes services.

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There are many unanswered questions and lawyers, themselves, are grappling to digest and unravel what the Press Note 2 means for restaurant aggregators.  Here are some confounding questions that companies have to grapple with:

  • Much like the e-tailers that run private label businesses, food aggregators have or are starting their own private label restaurants. They are investing in their own 'cloud kitchens'. Going by the Press Note, if they have equity participation in these kitchens, they can't be selling on the marketplace. The model needs to be flipped here. Some of the cloud kitchens, nevertheless, are about providing the infrastructure to third party restaurants to cook. Providing kitchen infrastructure as a service seems to be okay because here, the food-tech company wouldn't be owning or controlling the inventory. Further clarifications are awaited.
  • In some sense, restaurants are manufacturers - they 'manufacture' a dish using raw materials. In the case of biryani, for instance, the raw material could be rice and meat but the final biryani is a product that has been made afresh. One of the lawyers Business Today spoke to said that it is not yet clear whether restaurants would be treated like manufacturers; if they are treated like manufacturers would they still fall under the ambit of the new guidelines?
  • Can restaurant aggregators sell a can of coke? This applies to cloud kitchens again -- if a kitchen is selling a coke, it is retail. There is no policy that talks part-retail and part-manufacturing.
  • Finally, there are question marks around 'exclusives'. Restaurant aggregators have exclusive tie-ups with restaurants and they are promoted on the platform.  The Press Note specifically mentions that "e-commerce marketplace entity will not mandate any seller to sell any product exclusively on its platform only".  

It is surely a confusing time to be in the food-tech business.

Read More: FDI in e-commerce: Why new policy won't stop Amazon, Flipkart from offering discounts

We are drafting new e-commerce policy, says DIPP secretary Ramesh Abhishek

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