CADE prevents IFOOD from conducting new exclusivity contracts with restaurants

CADE prevents IFOOD from conducting new exclusivity contracts with restaurants
Photo: 15.03.2021 467

On the 10th of March, the Superintendency General of the Administrative Council of Economic Defense imposed a preventive measure against the IFOOD food delivery app. The company is now prevented from forming new contracts containing an exclusive agreement clause. IFOOD can also not alter arrangements already concluded without the clause of exclusivity to include the restrictive condition until the final decision on the case.

The investigation began with the complaint formulated by the competitor Rappi Brasil in September last year. The company claims that IFOOD has a dominant position in the food delivery market and uses this advantage to adopt restrictive anticompetitive practices through the contracts, containing exclusivity clause with partner restaurants.

According to the Rappi representatives, the strategy adopted by IFOOD creates a strong incentive for the accession of restaurants to the restrictive business model, which restricts and decreases competition in the market. It can also increase barriers to the entry for the new companies in the sector due to long-term contractual exclusivity clauses.

The Brazilian Association of Bars and Restaurants also forwarded a complaint against IFOOD to CADE last December. In its complaint, the entity noted that since the beginning of the pandemic, the food apps had become an even more relevant sales channel for bars and restaurants, which are their affiliates. Considering that IFOOD is a market leader, it is possible that establishments would have become dependent on the platform services, which are subject to signing exclusivity agreements.

The competitor Uber EATS, in turn, entered the request for intervention as a third party interested in the investigation procedure at CADE, reinforcing the arguments that IFOOD's exclusive agreements constituted barriers to the entry and expansion of competitors.

In order to open the preparatory procedure to determine the charges, CADE has to verify that, in addition to high market share, IFOOD enjoys the "pioneer advantage", retaining a dominant position in the food delivery digital platforms. The analysis will be a long in-depth investigation. The adoption of clauses of exclusivity by agents with these characteristics has a high potential to impair competition between companies.

To avoid damage to the market and ensure companies' regular functioning in the food delivery platform market, CADE adopted preventive measure. IFOOD can not sign new contracts containing an exclusivity clause. It has also established that the company should not add an exclusivity clause to contracts already concluded without an exclusivity clause until the final decision on the case.

CADE has defined that IFOOD may keep contracts with an exclusive clause already signed with restaurants that are part of their portfolio. However, at the end of the validity, these contracts may only be renewed containing the exclusivity device if both parties are interested and provided that it will be monitored for one year until the final decision on the case.

On the other hand, if IFOOD renews a contract that contained an exclusivity clause without including it in a new one, it cannot have the exclusivity clause in subsequent renewals until the final decision on the case. 

However, CADE pointed out that it can review, throughout the investigation, the conditions laid down for these cases and may determine the suspension of contracts with exclusivity clauses if it means that such a measure is essential to ensure market rivalry.

digital markets  Brazil 

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