Summary

Recently, the Trade Competition Commission of Thailand (“TCC”) has issued a new draft notification, i.e., Guidelines on Unfair Trade Practices between Online Food Delivery Service Providers and the Restaurant Business Operators (“Draft Guidelines”).[1]  The Draft Guidelines have completed the public hearing stage on 15 September 2020 and are subject to further changes and publication.  It is expected that such Draft Guidelines will be published in the government gazette by the end of this year.

The Draft Guidelines aim to regulate any unfair acts by powerful online food delivery service providers on various aspects, e.g., setting of commission fee, advertisement fee, promotion fee, delayed credit terms, refusal to deal, and unreasonable delisting, etc.  Such Draft Guidelines signal the TCC's goal for stricter regulations in the online food-delivery sector.

Market Background Information and Problems

Recent data estimated that the online food delivery market size in Thailand is approximately worth USD 1.2 billion (approximately 33 to 35 billion THB) with an average growth of 14% a year (based on 2019 financial year information).[2]  At present, there are main business operators, from various foreign unicorn start-ups, having significant market shares, Grab Food (from Singapore), holding 52.9% of the market share[3] currently reigns as the market leader, other business operators are Line Man (South Korea), Food Panda (Germany) and Get! Food (Indonesia).  Please note that Uber Eats (USA) already exited Thailand market since 2018, due to Grab’s South East Asia regional business takeover.[4]  More recently in July this year, Line Man has purchased ‘Wongnai’, its strategic Thai partner, which is Thailand’s number one food reviews website and application, to reinforce their access to a large network of restaurants in Thailand.[5]  The nature of market competition is extremely fierce with each business having to take on much losses, sustaining approximately USD 3 to 6 million (approximately 100 to 200 million THB) in losses a year on average in order to survive and grow their market shares.[6]

Unfair Act and Issuance of Detailed Guidelines

Pursuant to the TCC’s recent press releases and newsletter[7], unfair acts may have arisen around March to April 2020 in which many complaints were filed by some of the restaurants, including SMEs.

During the COVID-19 shut-down in Thailand, many restaurants heavily relied on the online delivery channel to connect with their customers.  Also, there were high consumer demands for take-away food due to the nation-wide shut-down and fear of spread of diseases from eating-out.  As a result, certain online food delivery service providers became extremely powerful in deciding their trade terms and conditions against these struggling restaurants, especially service fee and advertising fee  charges which were in a very high range of 35-40%, exclusive dealing condition, etc.[8]  It can be seen that, without any regulatory intervention, restaurants could become victimized.

The TCC therefore issued the Draft Guidelines pursuant to Section 57 of the Trade Competition Act of 2017 (“TCA”)[9]. 

The Draft Guidelines provide legal definition of “Online Food Delivery Service Provider” as “a business operator who provides service of collecting food from the restaurants operators and delivers to the consumer, with the order being made by electronic channels”.  The Draft Guidelines lay out the principles of free and fair trade, non-mandatory, non-discriminatory, clear and written terms in advance as well as having reasonable business practices.  The following unfair acts are regulated:

  1. demanding unfair economic benefits, e.g., unreasonably high commission fee and extra fee outside the agreed terms are not allowed, the criteria of charging the commission fee shall not be unreasonable and discriminatory towards certain restaurants based on the same delivery distance, location, as well as the quality and quantity of the food offered;
  2. unreasonably high marketing and advertising fee, e.g., Online Food Delivery Service Provider shall honor the previously agreed terms with the restaurants and not charge excessively;
  3. exclusive dealing, e.g., restaurants cannot be forced to use only one Online Food Delivery Service Provider’s application not the competitor’s application and they should not have to face discrimination as a result of the same;
  4. rate parity clause, e.g., restaurants cannot be forced to list the same food prices for all distribution channel of Online Food Delivery Service Providers;
  5. delayed credit term, e.g., restaurants should not have to wait for a long period of time before the food order money is transferred into their account after the sale;
  6. harsh penalty without reasonable ground, e.g., service boycott, delisting, refusal to deal with certain restaurants who try to negotiate or complain, is not allowed; and
  7. arbitrary termination and amendment clauses, e.g., restaurants shall be given notice before there is termination of services by the Online Food Delivery Service Provider.  The Draft Guidelines also suggests that a 60-days’ notice for any change in service termination date be placed in the terms and conditions.

Furthermore, intervention by the Online Food Delivery Service Providers in relation to the pricing and operations of the restaurants is not allowed.  As the Draft Guidelines do not set any price ceiling for commission charges, it remains uncertain on how the TCC will interpret what constitutes excessively high charge.

Conclusion

The Draft Guidelines reiterate the TCC’s stance that unfair and abusive actions by the powerful business operators will not be tolerated.  It also shows the tendency for the TCC to expand into other fields with similar problems concerning several e-commerce platform operators with the power to abuse their smaller trading partners.  The TCC has in the past, issued many specific sector-based regulations that aim to regulate certain segment of the market, e.g., franchise, modern trade/manufacturer regulations.  This Draft Guidelines represents the TCC’s initial testing of their regulatory power into the e-commerce sector in general.

The TCC hints that, should there be any cartel price fixing activities found between any Online Food Delivery Service Providers, Section 54 of the TCA could be invoked with strong criminal penalty.[10]  For example, the Online Food Delivery Service Providers who agree to jointly charge similar commission fee rate and not compete with each other to lower the commission fee against the restaurants on purpose could possibly be in violation of horizontal cartel among the business operators.  Foreign investors in the e-commerce sector should be particularly aware of future unfair trade and anti-competition aspects that may be regulated by the TCC