Amazon and Deliveroo face an in-depth investigation by competition regulators into the US online firm’s purchase of a stake in the British food delivery company.
Neither Amazon nor Deliveroo offered any undertakings in response to the concerns of the Competition and Markets Authority (CMA), which earlier this month said the deal could harm British consumers.
Amazon was the lead investor in a $575m (£442m) funding round, announced in May, which reportedly gave it a 16% stake in Deliveroo.
The deal was aimed at pitting the London-based platform against other deep-pocketed rivals such as Uber Eats, owned by the taxi app company Uber, and Just Eat, the FTSE 100 delivery platform that is currently the subject of a bidding war.
However, the CMA’s decision to refer the transaction to a full investigation will cast doubt on whether the investment will go ahead. The regulator has the power to block the investment completely or to demand specific remedies from the companies.
The CMA said the deal could leave customers, restaurants and grocers facing higher prices and lower-quality services. Amazon and Deliveroo had been given five days from 11 December to come up with changes, but did not offer anything. The CMA says it will conclude its investigate by 11 June 2020.
One of the main concerns was the impact on the incipient ultra-fast grocery delivery market. In the UK Deliveroo has been working on grocery deliveries within two hours for Morrisons and the Co-op, going up against Amazon’s one-hour service for subscribers to its Prime service. While the sector is still relatively small, the CMA was concerned that an effective merger between two firms could erode competition.
Amazon has previously tried to enter the food delivery market. In 2016 it unveiled Amazon Restaurants, which was initially available to some Londoners as part of its Prime subscription service. However, the service was closed in December 2018, a testament to the difficult economics of delivering hot food at low cost.
The CMA’s investigation represents a rare regulatory rebuke to Amazon. The $926bn company, founded by Jeff Bezos, has built up commanding positions globally in online retail and cloud computing with relatively few regulatory hurdles.
However, its size and use of offshore jurisdictions to minimise tax payments have increasingly attracted the attention of politicians across the world. The US Democratic presidential candidates Elizabeth Warren and Bernie Sanders have called for Amazon, and other online platforms such as Google and Facebook, to be broken up.
In the UK Boris Johnson last month said internet companies needed to make a “fairer contribution” on tax, although trade experts have questioned whether his government will push ahead with a levy that could anger the US ahead of crucial post-Brexit trade talks.
Deliveroo, which was founded by the former investment banker Will Shu, has raised a total of $1.5bn since it launched in 2013.
It is understood the CMA will publish an issues statement, setting out in detail what it expects to investigate, in the coming weeks.
A spokesperson for Deliveroo said: “Deliveroo has been working closely with the CMA and will continue to do so. We are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers.
“Deliveroo is a British company operating right across the country and this investment will be particularly beneficial to the UK economy.”
An Amazon spokesperson said: “A homegrown UK business like Deliveroo should have broad access to investors and supporters. Amazon believes that this investment funding will lead to more pro-consumer innovation by helping Deliveroo continue to build its world-class service and remain competitive in the restaurant food delivery space by creating more highly skilled jobs, innovating in the restaurant food delivery sector, and developing new products for customers.”
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