Food sector, be alert!

If you are a startup engaged in any online food business (operating kitchens, delivering food items including groceries, storing food inventory, facilitating deliveries, operating a marketplace, etc.), READ THIS. The Food Safety and Standards Authority of India (FSSAI) has passed an order on February 2, 2017, pursuant to which it has released “Guidelines for Operations of E-commerce Food Business Operators” (“Regulations”).

A lot of companies operating in this space had spent substantial time in the last three to four months deliberating with the FSSAI on draft regulations that ought to apply to online food business operators (FBOs). The February 2, 2017 Regulations were the result of such deliberation and I have to say, I am slightly disappointed with the end result. It appears that the FSSAI did not take into consideration all the practical difficulties expressed by new age companies in the food space. Let us look at what is in store for the sector going forward:

1. At the very outset, the Regulations clarify that these are not amendments to the Food Safety and Standards Act, 2006 and its rules (collectively referred to as the “Act”) but an “explanatory memorandum.” This implies that the Regulations have to be read, interpreted, and understood with the Act and not independently.
2. The Regulations define key terms such as “e-commerce FBO,” “marketplace-based model of e-commerce FBO,” and “inventory-based model of e-commerce FBO.” While the definitions are as expected, the definition of “marketplace-based model of e-commerce FBO” is interesting and states as follows:

“Marketplace-based model of e-commerce FBO” means providing of an information technology platform by an e-commerce FBO on a digital and electronic network to act as a facilitator between the buyer and seller/brand owner/manufacturer. E-commerce marketplace includes entities providing support services to sellers/brand owners/product manufacturers in respect of warehousing, logistics, order fulfilment, payment selection, facilitator of delivery, and other services.”

Note that the definition includes a facilitator of delivery which should definitely raise eyebrows of companies like Swiggy, Shadowfax, Runnr, and the likes.

1. The Regulations further state that the business model of e-commerce FBO includes, among others, the following four broad categories:

(a) E-commerce entity providing listing services to sellers, brand owners, manufacturers, restaurants on their platform.

(b) Sellers, brand owners, manufacturers, vendors, etc. who display and offer for sale their food products, including food services, catering, food ingredients, etc to the end customer either through an inventory-based model or a marketplace. This clearly includes all restaurants and home kitchens.

(c) Marketplace owners operating and providing storage and/or distribution services to the sellers, brand owners, manufacturers, etc. of food.

(d) Providing transportation services to sellers, brand owners, vendors, etc. of food products and last-mile delivery transportation to the end consumers.

If an e-commerce entity is engaged only in providing listing services as mentioned in 3(a) above and does not carry out any activity mentioned from 3(b) to (d), it will not require any licence from the FSSAI. This is, of course, good news. However, all those engaged in activities listed from 3(b) to (d) now unambiguously require a licence.

There are, however, some unanswered questions. Do delivery companies also fall under the ambit of “listing services” if they merely connect delivery personnel to kitchens/restaurants and don’t undertake the physical delivery? Do such delivery businesses fall within the scope of “transportation services” mentioned in 3(d) above? If they don’t, which in my view would be the right thing, does it imply that all the “independent” delivery personnel now have to individually seek an FSSAI licence? There is no clarity on this and perhaps that is best for last-mile delivery companies. Sometimes you are better off operating in the grey area of the law with no operational disturbance as opposed to having specific but impractical regulations with no scope to interpret them in your favour!

1. The mandatory registration requirement of businesses listed from 3(b) to (d) also implies that household kitchens, small roadside vendors looking to sell online, and those selling ingredients in a box for customers to make their own meals all have to consider approaching the FSSAI. An important caveat is that the Act defines “petty food business operators” as those that have a turnover of less than Rs 12 lakh per annum. Such petty food business operators do not require a licence but just need to be registered with the FSSAI. My assessment is that this definition (i.e. exception to the licensing requirement) will apply in the online space as well. Another interesting development is that the Regulations mandate sellers, brand owners, and manufacturers to display their FSSAI licence/registration on the e-commerce platform. This leaves sellers with no option but to be licensed or registered regardless of their scale of operation. Of course, it is still to be seen whether the thousands of “independent” delivery personnel will require a licence/registration or not.
2. What happens if the sellers, brand owners, manufacturers, and all those people mentioned in 3(b) to (d) above who fall within the definition of “e-commerce FBO” do not have a licence/registration but are likely to now take steps to procure one? The Regulations make it abundantly clear that the e-commerce FBO entities, including those providing listing service, “shall immediately delist any food products listed on their platform” which are not in compliance with the Regulations. This can cause panic for a company whose business model involved connecting home kitchens to end customers or for those marketplaces that used to bring the food product (say, bananas) to a rented warehouse only to put the bananas in their bags and manage the last-minute packing before handing them to the delivery personnel.
3. It doesn’t end here. The Regulations also prescribe that all e-commerce entities offering just listing services have to “ensure” that no misleading information or images, false claims, etc. are shown on their platform. The Regulations also go on to state that such listing e-commerce entities should clearly specify on their platform that any liability under the Act would be of the seller, brand owner, vendor, importer, or manufacturer of the food product. While the latter provides sufficient immunity to listing companies, I am not sure about the choice of words (“ensure” — really?) used by the FSSAI for the former requirement. Additionally, all e-commerce FBOs are also required to “sign an agreement” with the sellers, brand owners, manufacturers specifically averring that the said persons are compliant with the Act. But what happens if there is no written contract? My guess is that e-contracts by way of a click-wrap agreement (terms and conditions that you accept without reading) would suffice as well. If not, I cannot even imagine the logistical nightmare in signing physical contracts with all sellers on the platform.
4. There is, however, a positive development as well. Those active in the offline food space would probably be aware that The Food Safety and Standards (Packaging and Labelling) Regulations, 2011, define “Principal Display Panel.” In the offline world, it is that part of the container/package which is intended or likely to be displayed or examined by the customer under normal conditions of display, sale, or purchase. In other words, it is all the information printed on the box of a pre-packaged product that you can read. The information that you typically read pertains to (i) name of the food; (ii) list of ingredients; (iii) nutritional information; (iv) declaration regarding vegetarian or non vegetarian; (v) declaration regarding food additives; (vi) name and complete address of the manufacturer; (vii) net quantity; (viii) lot/code/batch id; (ix) date of manufacture or packing; (x) best-before and use-by date; (xi) country of origin if food is imported and (xii) instructions for use, if any. You must be wondering why I listed all these items. Well, the Regulations now mandate that all sellers, brand owners, manufacturers who display any pre-packed food for sale either on their own e-commerce platform or on a marketplace, have to ensure that a “legible and clear picture” of the “Principal Display Panel” is made available for viewing by the customers. However, this panel can exclude the lot/code/batch ID, best-before and use-by date as well as the maximum retail price. This should offer operational ease to sellers and the marketplace operators because the batch ID, expiry date of products may vary and be impossible to share for each product. Definitely a business friendly approach. For the rest of the information, a clear image of the back and front of the food product should suffice.

To conclude, while these Regulations have attempted to bring clarity for food operators and service providers in the online space, the regulators have, in my view, not understood the practical business nuances. The onus to “ensure” verification of the listing should certainly not fall on the marketplace regardless of whether it enters into a contract with sellers or not. Similarly, there are also businesses that offer listing services for providing personnel to deliver food. Such companies should specifically be excluded from the registration/licensing requirement. Notwithstanding this, even if the “spirit” of the Regulations is positive, they should have given at least 40–60 days or so for e-commerce players to comply. I just hope the FSSAI has enough bandwidth to cater to all the licence applications that might start coming its way!

You can download the complete text of the Regulations here.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)