Too Hungry?: The CMA presses pause on Amazon’s Deliveroo investment
July 7, 2019
3 min read
What's going on here?
The Competition and Markets Authority (UK’s competition regulator) has halted attempts by Amazon and Deliveroo to integrate on the grounds that the pair had “ceased to be distinct” following Amazon’s $575 million funding round, which was used to invest in Deliveroo.
What does this mean?
The Competition and Markets Authority (CMA) is demanding that Amazon and Deliveroo maintain separate sales and brands, following Amazon’s bid to become a minority shareholder in the UK-based food delivery service. Because Deliveroo couriers are self-employed, a Deliveroo courier could deliver both Amazon items and Deliveroo takeaways, without the companies officially integrating. But the CMA has ruled that the pair must have different supplier lists and undertake customer and supplier negotiations separately. The CMA’s action allows the two companies to continue to participate in talks but prevents commercially sensitive information and key staff to be shared between the two.
Both Deliveroo and Amazon have argued that the move is doing the opposite of what the CMA is suggesting. They argue that by working together they increase competition and offer customers more choice. Amazon stated that it “believes this minority investment will enable Deliveroo to expand its services, benefiting consumers through increased choice and creating new jobs as more restaurants gain access to the service.”
What's the big picture effect?
The CMA will now consider whether Amazon’s bid to become a minority shareholder would also allow it the right to access information about Deliveroo’s strategy and plans for innovation and expansion. The action taken by the CMA is certainly in line with its more interventionist role since Andrew Tyrie and Andrea Coscelli took up the positions of Chairman and Chief Executive in recent times. This new approach is highlighted by its “destruction” of the attempted merger between Sainsburys and Asda, in the words of Clive Black (Head of Research at Shore Capital). The CMA has also announced its digital strategy that focuses on the likes of Google and Facebook to spot anti-competitive behaviour in the digital economy. As Nicole Kar (the head of Linklaters’ London competition practice) explained, “anything connected to what Amazon, Facebook and Google do at the moment is really high on the [CMA’s] agenda”.
For Amazon, this could be a huge frustration to its second attempt to enter the food delivery market. In 2016 Amazon Restaurants UK was created but shut just two years later, while in early June of this year, Amazon Restaurants US closed too. In 2017, Amazon acquired Whole Foods (the supermarket chain) for $13.7 billion, demonstrating its hunger to break into this market.
When Amazon went about raising $575 million to invest in Deliveroo, many believed it was actually seeking to acquire Deliveroo. After all, Deliveroo (which was valued at $2 billion two years ago and has a total of 60,000 couriers delivering in 14 countries) seems to be a smart way for Amazon to break into the food delivery market. Just Eat (the market leader in the UK’s food delivery industry) is feeling under threat as both Uber and Amazon had been in talks to purchase Deliveroo. The question can be asked, why did Amazon not just buy Deliveroo? Maybe it wanted to tread more carefully in the food delivery market after the previous failure of Amazon Restaurants. Or maybe it believed that it would be cheaper to be a minority shareholder, but would essentially achieve the same goals. If the latter is true, then the CMA certainly has good reason to halt the investment. For now, Amazon will have to wait to see where its next meal will come from.
Report written by Will H
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