Tech

Amazon's investment in virus-hit Deliveroo provisionally cleared by UK antitrust watchdog

Key Points
  • The Competition and Markets Authority said it had taken the decision due to a "deterioration" in Deliveroo's financial position caused by the coronavirus outbreak.
  • Deliveroo informed the CMA that the impact of Covid-19 meant the company would "fail financially and exit the market without the Amazon investment."
  • Amazon was the lead investor in Deliveroo's $575 million funding round announced back in May last year.
A food delivery cycle courier waits for orders from Deliveroo, operated by Roofoods, in London, U.K., on Dec. 22, 2016.
Simon Dawson | Bloomberg | Getty Images

Britain's competition watchdog has provisionally cleared Amazon's investment in food delivery start-up Deliveroo.

The Competition and Markets Authority said Friday that it had taken the decision due to a "deterioration" in Deliveroo's financial position caused by the coronavirus outbreak.

"Without additional investment, which we currently think is only realistically available from Amazon, it's clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market," Stuart McIntosh, chair of the CMA's independent inquiry group, said in a statement.

"This could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality. Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon's investment in Deliveroo."

Amazon was the lead investor in Deliveroo's $575 million funding round announced back in May last year. But antitrust regulators froze the e-commerce giant's minority stake, citing competition concerns raised by the deal.

Amazon has in the past operated an online takeout business, called Amazon Restaurants, but it shuttered U.K. operations in 2018 and closed down completely the following year. The CMA previously argued that Deliveroo's cash injection from Amazon could reduce competition by removing the possibility of the e-commerce giant re-entering the market.

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Both companies disputed the suggestion that Amazon would be hesitant to re-enter the U.K. market alone as a result of the deal. They also pointed out the possibility for other players like U.S. firm DoorDash and Spanish start-up Glovo to enter the British food delivery space.

UK lockdown hits food delivery

Many restaurants in the U.K. have been forced to close as a result of the Covid-19 lockdown measures, prompting Britons to turn to food delivery services such as Deliveroo and Uber Eats.

The CMA said that while Deliveroo had witnessed a recent boost to grocery sales, these were "limited" and failed to make up for losses in its restaurant business.

Deliveroo had recently informed the regulator that the impact of the coronavirus epidemic meant it would "fail financially and exit the market without the Amazon investment." 

It comes shortly after Britain's government announced a three-week extension to the country's lockdown restrictions. 

The CMA said it was now asking for feedback on its provisional finding by May 11 and that the deadline for its final decision was June 11.

Deliveroo said on Friday that it was "delighted" with the CMA's decision, adding it would "be a boost to the U.K. economy."

"The unprecedented health crisis we all face has disrupted businesses across the country," the company said in a statement. "This investment will help us to overcome immediate and long-term challenges, allow us to continue to improve our service for customers, enable us to develop new innovations and offer people even greater choice."

An Amazon spokesperson said in a statement that its investment in Deliveroo "will benefit both consumers of Deliveroo's service and its small business restaurant partners."

The Amazon-Deliveroo deal isn't the only transaction the CMA has been investigating. It launched a probe into Dutch firm Takeaway.com's £6.2 billion ($7.7 billion) takeover of British rival Just Eat at the start of the year, but recently lifted restrictions preventing the two companies from integrating. The watchdog said its investigation remains ongoing.

Online food delivery has seen intensifying competition with a variety of players operating in the space, from GrubHub to Uber Eats. The market last year saw increased signs of consolidation, in the form of Takeaway.com's Just Eat deal and the sale of Uber's Eats business in India to local operator Zomato.