Ten foodtech companies in India including Zomato and Swiggy, have come under Food Safety Standards Authority of India (FSSAI) radar for failing to remove the non-FSSAI licensed/registered food operators (restaurants) from their platforms.
Directing them to delist the unlicensed restaurants from their platforms, the foodtech firms were asked to submit an action-taken report to the regulatory body by July 31. However, the body seems to have softened its stand somewhat, at least for now. When The Passage contacted FSSAI on August 2, the authority informed, “We have given them a week's time to come back to us with a detailed action plan report.”
Earlier, in a press release the FSSAI had said, “Following a series of complaints related to sub-standard food being supplied by food businesses listed on e-commerce food service platforms, FSSAI has directed 10 such platforms to debar the non-FSSAI licensed/registered food operators and ensure compliance of food safety rules and regulations.”
“There were also several complaints of sub-standard food being delivered to consumers through online market aggregators, Food Authority, in its direction to e-commerce food service platforms has asked them to initiate immediate action to delist the defaulting food businesses and submit an action taken report along with details of FBOs listed on their platforms by 31st July 2018,” the release had mentioned earlier. To increase food safety in India the government body had issued guidelines for e-commerce Food Business Operators (FBOs) in February 2018. The direction had asked for a display of FSSAI license number of listed FBOs on the e-commerce platforms.
The instructions largely fell on deaf ears, prompting the regulator to adopt a tougher stance.
The ten foodtech companies mentioned are Box8, Faasos, FoodCloud, Foodmingo, Foodpanda, JusFood, LimeTray, Swiggy, UberEats and Zomato. While two among these – Zomato and Swiggy – are Unicorns, some have just been seed funded.
Contacted, Zomato said they are “fully supportive of FSSAI's intentions to make the restaurant industry safer for consumers.” In an emailed response to this correspondent, Zomato’s spokesperson said, “Most users check a restaurant's Zomato rating before they visit or order from a new restaurant. Our core reviews and ratings platform help users get a voice – (we) have democratised the quality audit of food being served by a restaurant. There is so much more that can be done, and various stakeholders in the industry, including the FSSAI, are fully aligned and deeply care for making India a better and safer place to eat.”
They also informed that they had launched hygiene rating services for restaurants in late 2017 and have already conducted audits at more than 2,000 restaurants in India.
Asked if they had already compiled a list of unlicensed restaurants operating via their platform, the spokesperson said, “We have already started listing the restaurants’ FSSAI license numbers on our app.”
Welcoming the move, Delhi-based home chef aggregator FoodCloud said that they would make sure that all their sellers are registered. “FoodCloud is where there are housewives and ladies who sell the food. These women are the ones who cannot go full time for work and have chosen us. Even if they are home food makers, most of them have their GST numbers and are licenced bodies. The reaction from them was very positive on the rule and (they) will comply to (read with) the same,” said, Sanjhi Rajgarhia, Co-Founder & COO at FoodCloud. Currently it is very easy for restaurants to get listed on the food aggregators’ websites. The deep pocketed aggregators are able to spend money on customer acquisition through aggressive marketing, deep discounting, fast delivery promises and brand building. “The consumer is trusting the aggregator brand without realising that the food is coming from third party vendors of varying kinds. This is potentially dangerous as sub-standard vendors without quality standard , certification and testing can price the food low, pass on larger commissions to the aggregators giving perverse incentives to promote such shops,” said Krishnan Ganesh, serial entrepreneur.
Since this is one of the initial directions to foodtech companies, experts believe that this is just the start. “Wherever large, funded players are operating in a pure aggregator model, it becomes the responsibility of the aggregator to ensure that certain basic norms are adhered to,” said serial entrepreneur Krishnan Ganesh.
This regulation seems to be a trifle compared to those faced by China’s foodtech firms which are made responsible for the food safety. As published in a report by PWC China in 2017, “The third-party platforms are responsible for food safety. They must have food safety management systems and staff who have demonstrated their capability through examinations. They have to conduct checks and report violation to local FDA.”
Ganesh added, “This is absolutely needed especially given the size and scale aggregators are reaching to. Aggregators are providing a great service, convenience and defining a net category but such standards need to be there to ensure consumers are not harmed.” Regulations on foodtech in India is expected to increase as the number of foodtech companies keep increasing. According to Nascom 2017 report on startups, the share of newly incorporated startups in B2C foodtech was highest with 98 percent.
Investment in Indian foodtech companies gained traction in 2017. After Uber introduced Uber Eats in May 2017, ride hailing rival Ola acquired FoodPanda in December of the same year. In June 2018, Swiggy became a unicorn after a USD 210 million funding from Meituan-Dianping, Naspers and DST Global.
While regulations usually dampen investments, right now the foodtech sector in India is in no such danger. “The entire food sector or technology-enabled food sector is huge. We have not even scratched the surface. Though very much in news for valuations and large fund raising, aggregators doing last mile delivery is just one small segment of the whole market. For instance Freshmenu, that operates in on-demand fine dining space through internet or cloud kitchens, Growfit that is in health and nutrition space , Chai Point, Fresh Food, Supplement and Hungerbox in the B2B food tech, Hector beverages in drinks are leading players in different sectors in food tech space,” concluded Krishnan.