Zomato, McDonald's face ₹1 lakh fine for sending non-veg in place of veg order

Food delivery platform Zomato and American burger chain McDonald's have been told to pay a penalty of ₹1 lakh by the District Consumer Dispute Redressal Forum in Jodhpur for allegedly sending non-vegetarian food items in place of a vegetarian food order.

The District Commission has imposed a monetary penalty of ₹1 lakh for violation of the Consumer Protection Act, 2019 on Zomato and McDonald's, the restaurant partner whose food was delivered through Zomato and awarded ₹5,000 as cost of litigation.

Both monetary penalty and cost of litigation are to be borne jointly by Zomato and McDonald's.

Zomato says it is in the process of filing an appeal against the said order and based on the advice from its external counsels, Zomato believes it has a good case on merits.

"The current litigation pertains to an alleged wrongful delivery of non-vegetarian food items in place of vegetarian food items. The Terms of Service which govern Zomato's relationship with the customer clarify that Zomato is merely a facilitator for the sale of food and the restaurant partner is responsible for any deficiency in service, wrong delivery of order/order mismatch and quality," the food ordering company says in a stock exchange filing.

The district consumer dispute redressal forum's order failed to appreciate the distinction in responsibility and imposed a joint monetary penalty on Zomato and McDonald's under the relevant provisions of the Consumer Protection Act, 2019, claims Zomato.

The order has no material financial, operational or any other kind of impact on Zomato, the company says.

The penalty comes at a time when Zomato's stock has hit a 52-week high as analysts see more upside for the company. Shares of Zomato rose 1% on Friday to ₹111.80 apiece on the National Stock Exchange (NSE). The company's market capitalisation jumped to ₹95,595 crore today from ₹90,948 crore on October 3.

In September, foreign brokerage Jefferies said the food ordering company has a long runway for customer acquisition and revenue growth. With only 20 million monthly transacting users currently, Zomato has a long runway for customer acquisition and revenue growth, albeit this may come at the cost of near-term profitability, the brokerage said in a note. The food delivery major clocked a profit for the first time in the quarter ended June.

The brokerage says Zomato's unit economics will steadily improve with scale as the company unlocks cost efficiencies and as customer willingness to pay for convenience increases. Its base case price target on Zomato is ₹130. Among the downside risks, Jefferies cites an increase in competition from Swiggy as well as direct ordering.

"Until IPO, it was all about survival but post-IPO and given enough capital, focus is to keep organisation future-ready," the brokerage says, adding that Zomato's focus is on preserving a start-up culture, which means a foray into new areas is not ruled out.