E-commerce giant Amazon‘s 16% minority shareholding in UK food delivery app Deliveroo has officially been approved following a lengthy investigation.
In May last year, Amazon led a $575m Series G funding round in Deliveroo. The UK Competitive Markets Authority has been investigating the deal since 2019 in order to determine whether it could negatively impact the market.
It initially halted the deal on the grounds that it could deter Amazon from re-entering the UK food delivery industry therefore reducing consumer choice. Amazon ended its restaurant delivery service, Amazon’s Restaurants, in the UK in 2018.
However, the investigation concluded yesterday that the deal “has not resulted, and may not be expected to result, in a substantial lessening of competition within a market or markets in the United Kingdom”.
Deliveroo initially claimed that it would not be able to survive without a funding injection after the early stages of the Covid-19 pandemic negatively impacted the company as many major food chains closed their doors, leading Deliveroo to cut 15% of its global staff in April. Provisional CMA findings, published in April, concluded that concluded that “Deliveroo would have been likely to exit the market as a result of the Coronavirus (Covid-19) crisis without additional funds”.
However, the later months of the Covid-19 pandemic has seen an uptick in food delivery, with UK restaurants only permitted to offer takeaway and delivery options during lockdown.
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Despite its rapid expansion to over 200 cities, Deliveroo’s 2019 financial results revealed that it is still a loss-making company, losing £232m in 2019 despite its revenue growing by 72%.
The CMA has now concluded that Deliveroo should not be considered an “exiting firm” as a result of changes to market conditions, noting that the company performed significantly better than expected in April, May and June, with a positive cash flow in the latter two months.
This comes the week after Amazon CEO Jeff Bezos faced scrutiny, along with Tim Cook of Apple, Mark Zuckerberg of Facebook and Sundar Pichai of Alphabet, as US lawmakers investigate whether the big four of the tech world have engaged in alleged anti-competitive practices.
Martin Garner, COO, CCS Insight told Verdict that the investment is part of Amazon’s push to further expand into delivery and grocery services, particularly in light of the pandemic.
“Amazon will be pleased to see its investment in Deliveroo finally cleared by the CMA. Deliveroo says it will use the investment for internal product developments in various areas, but it would be surprising if those did not include services that help Amazon’s logistics,” he said.
“Amazon has been investing heavily in expanding the range of delivery options, as well as overall capacity – and this push has gone into overdrive during the pandemic. Deliveroo’s service could fit well with Amazon’s huge ambitions in same-day deliveries and groceries, not just take-away meals.
“The pandemic has shown that large parts of the gig economy are vulnerable to a big shock such as the pandemic. As one of the leading players in the gig economy, Deliveroo was quick to start delivering other things such as food essentials. With Amazon it is in a position to broaden that out hugely.”