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CMA Clears Amazon Investment in Food Delivery App Deliveroo

Michael Behr

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Deliveroo investment deal

Deliveroo initially claimed that the Amazon investment was necessary to save the company.

The UK’s Competition and Markets Authority (CMA) has cleared Amazon to take a 16% share in food delivery service Deliveroo.

After a Phase 1 investigation found that the purchase could harm competition in the food delivery market, a more in-depth Phase 2 investigation found that the 16% investment will not substantially lessen competition.

In June 2019, the CMA served an initial enforcement order on both companies, ordering them to operate independently while an investigation took place.

After the investigation, the authority found there was a ‘realistic prospect’ that Amazon may not re-enter the food delivery market or develop its online grocery delivery business in the UK should the transaction go through. This triggered an in-depth investigation to assess whether Amazon taking a 16% share would disincentive it to compete with Deliveroo.

During the investigation, Deliveroo argued that loss of revenue from the coronavirus pandemic meant the company would fail without Amazon’s investment.

Initially, the regulator concluded that Deliveroo met the criteria for a ‘failing firm’ and that having it drop from the market would be worse for competition and customers than allowing the investment to go ahead. The deal was provisionally cleared on that basis.

However, a review of Deliveroo’s finances from April 2020 onward showed the restaurant food delivery market had beat expectations and shown a strong recovery.

Combined with a market that was moving away from large fast-food chains towards smaller, independent restaurants, Deliveroo’s financial position had undergone a rapid and significant turnaround.

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This meant that the CMA could no longer consider Deliveroo as a failing firm. A substantive assessment would be needed to determine if the transaction would lessen competition.

The final decision to approve the deal was taken after an analysis of internal documents from Amazon and Deliveroo, a consumer survey and taking submissions from interested third parties.

However, the CMA noted that if Amazon were to acquire a greater level of control over Deliveroo – through, for example, acquiring a controlling interest in the company – this could trigger a further investigation.

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Inquiry Chair Stuart McIntosh said: “Today’s final decision is the result of a thorough examination of this deal and the markets in which Amazon and Deliveroo operate.

The CMA’s initial Phase 1 review of the transaction highlighted potential competition concerns which the independent Inquiry Group has considered in detail during the Phase 2 investigation.

“Taking account of the higher legal standard that applies at Phase 2, the group has concluded that the transaction will not result in a substantial lessening of competition in either restaurant delivery or convenience grocery delivery.

“Our decision reflects the scale of Amazon’s investment in Deliveroo (16% of the company’s equity) and its incentives to compete in both markets.

“When looking at any merger, the CMA’s role is to assess whether consumers will lose out from a substantial lessening of competition.

“We have not found this to be the case given the scale of Amazon’s current investment, but if it were to increase its shareholding in Deliveroo, that could trigger a further investigation by the CMA.”

Michael Behr

Senior Staff Writer

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