Zomato Withdraws Price Parity Clause: What You Need to Know
Zomato, one of India’s leading food delivery platforms, has withdrawn its price parity clause from restaurant contracts. This move is expected to have significant implications for the Indian foodtech industry.
The price parity clause, which was previously included in Zomato’s contracts with restaurant partners, required them to match the pricing on their walk-in outlets and websites to the price offered on the Zomato platform. Failure to comply with this clause could result in fines of up to three times the differential amount for each order.
Why Was the Price Parity Clause Opposed?
The National Restaurant Association of India (NRAI) had opposed the price parity clause, citing that it restricted restaurants’ pricing ability. The NRAI argued that this clause was unfair, as it did not allow restaurants to set their own prices or offer discounts to their customers.
With the withdrawal of the price parity clause, restaurant partners will now have the freedom to set their own prices, both on and off the Zomato platform. This move is expected to benefit restaurants, as they will be able to offer competitive pricing and promotions to their customers.
What Led to the Withdrawal of the Price Parity Clause?
The withdrawal of the price parity clause is seen as a result of the intense competition in the Indian foodtech space. With the entry of new players such as Rapido’s Ownly, Zomato has been facing increased competition, and the company has been looking to revamp its commission models and policies to stay ahead.
Last year, Zomato had sought feedback from its restaurant partners to bring about changes to its commission models. However, nothing concrete came out of these discussions. The company had also rolled out a policy to split refund costs equally between the platform and restaurant partners, but this was put on hold due to a cold response from the restaurant partners.
Impact on Consumers
The withdrawal of the price parity clause is also expected to have an impact on consumers. With restaurants now having the freedom to set their own prices, consumers may see more competitive pricing and promotions on the Zomato platform.
However, it’s worth noting that Zomato has recently hiked its platform fees by nearly 20% to ₹14.9 per order on a pre-GST basis. This price increment came within months of the company hiking the platform fee to ₹12.5.
Challenges Ahead for Zomato
Despite the withdrawal of the price parity clause, Zomato is expected to face challenges in the coming months. The ongoing West Asia conflict has put a major burden on eateries due to difficulties in procuring LPG, and this is expected to have an impact on the financial performance of food delivery platforms.
A market analyst has noted that even a short-term LPG shortage could translate into fewer active restaurants, reduced menu availability, and lower order volumes, which will trigger investor reaction.
Zomato’s Financial Performance
Despite the challenges, Zomato has reported a strong financial performance in the December quarter. The company’s operating profit increased by 27% year-on-year to ₹547 Cr, while its revenue grew by 29% year-on-year to ₹2,676 Cr.
Eternal’s net profit jumped 73% to ₹102 Cr in the quarter, while operating revenue surged more than 3X to ₹16,315 Cr, largely due to Blinkit’s shift to an inventory-led model.
Shares of Eternal ended the trading session 1.16% lower at ₹259.90 on the BSE.
What’s Next for Zomato?
With the withdrawal of the price parity clause, Zomato is expected to focus on improving its relationships with restaurant partners and enhancing the overall user experience on its platform.
The company is also expected to continue to invest in its technology and logistics capabilities to stay ahead of the competition.
For more information on Zomato stock price and its impact on the Indian stock market, visit our website.
Also, read about the Indian foodtech industry and its growth prospects.
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