Competition regulator raises ‘serious concerns’ about Amazon’s investment in Deliveroo

Profile picture for user ddpreez By Derek du Preez December 11, 2019
Summary:
Back in May it was announced that Amazon would lead a $575 million funding round in food delivery business, Deliveroo.

Deliveroo

UK competition regulator - the CMA - has said that it is not happy about Amazon’s planned investment in Deliveroo, citing concerns that it could lead to reduced opportunities for new entrants in the food delivery market. 

Deliveroo is a UK based online food delivery company that has grown rapidly since its inception in 2013. It makes global sales of close to £500 million and operates in over 100 towns and cities across the UK. 

It was announced in May of this year that Amazon was set to be the largest investor in Deliveroo’s Series G funding round. Deliveroo is raising a total of $575 million with participation from Amazon and other existing investors, including T Rowe Price, Fidelity Management and Research Company, and Greenoaks. 

The funding is set to be used to expand Deliveroo’s tech team at its UK headquarters and expand further reach to new customers. 

The deal would give Amazon a minority shareholding along with certain other rights, allowing it to participate in the management of the company. And while Amazon wouldn’t take full control of Deliveroo’s business, the CMA has said that it could influence Deliveroo’s strategy and have a negative market impact for customers and competitors. 

At the time of the investment announcement, founder and CEO of Deliveroo, Will Shu, said:

This new investment will help Deliveroo to grow and to offer customers even more choice, tailored to their personal tastes, offer restaurants greater opportunities to grow and expand their businesses, and to create more flexible, well-paid work for riders.

Amazon has been an inspiration to me personally and to the company, and we look forward to working with such a customer-obsessed organisation.

This is great news for the tech and restaurant sectors, and it will help to create jobs in all of the countries in which we operate.

Regulator unconvinced

However, despite Deliveroo and Amazon’s optimism, the CMA is unconvinced for two main reasons, which it set out today. 

Firstly, it is concerned that the deal could damage competition in online food delivery by discouraging Amazon from re-entering the market in the UK. Amazon began operating a similar service to Deliveroo until 2018, when it decided to exit the market. 

Although Amazon Restaurants ceases to exist currently, the CMS believes evidence uncovered in Amazon’s internal business documents shows a “strong, continued interest in this sector” and a “material likelihood that Amazon would look to re-enter”. 

The CMA said that given the limited number of existing suppliers, the potential re-entry by a supplier such as Amazon would significantly increase competition in online restaurant food delivery in the UK. 

Secondly, the regulator is concerned that the deal could also damage competition in the emerging market for online convenience grocery delivery, where both Deliveroo and Amazon have already established market-leading positions. 

The CMA said that although supermarkets are experimenting with convenience grocery delivery, Amazon and Deliveroo - which both have UK-wide delivery networks to support their operations - are 2 of the strongest players in the market at present. The CMA argues that competition between them could increase in future as the market develops. 

Andrea Gomes da Silva, CMA Executive Director, said:

Millions of people in the UK use online food platforms for takeaways, and more than ever are making use of similar services for the same-day delivery of groceries.

There are relatively few players in these markets, so we’re concerned that Amazon having this kind of influence over Deliveroo could dampen the emerging competition between the 2 businesses.

If the deal were to proceed in its current form, there’s a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop. This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced.

Amazon and Deliveroo now have 5 working days to offer legally-binding proposals to the CMA to address the competition concerns that have been highlighted. The CMA would then itself have 5 working days to consider whether to accept the offer, instead of referring the case to an in-depth investigation.

Image credit - Image sourced via Deliveroo

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