Deliveroo's Covid-19 hit was enough to provisionally clear Amazon investment, CMA says

Deliveroo today demonstrated the impact the UK’s ongoing coronavirus outbreak is having on antitrust priorities with news that the Competition and Markets Authority has provisionally cleared Amazon's keystone investment in the restaurant-meal delivery outfit.

The hit from the UK’s defensive lockdown — all restaurants were closed several weeks ago — meant that Deliveroo would have left the online food delivery sector, had it not been for the lifeline of the online retail giant’s investment, the regulator said.

This meant, the CMA said, that there was no need to reach a view on its two main theories of harm about the deal: that it could damage competition by discouraging Amazon from re-entering the UK’s online restaurant-food delivery market and from further developing its presence within the online convenience grocery delivery market.

The CMA started scrutinizing Deliveroo last June, shortly after Amazon bought a minority stake in the British company as the lead investor in a $575 million funding round. The regulator’s inquiry group — an independent panel of experts that examines mergers at the in-depth, phase II, stage — issued its provisional findings today.

In its findings, the regulator acknowledged for the first time that responding to the economic impact of the coronavirus crisis has become a priority in its merger probes, as MLex reported earlier this month.

It was clear in Deliveroo’s case how big a knock its business had taken, the watchdog said. Its financial position had been “substantially affected” as it experienced a “significant reduction in the number of restaurants operating during the crisis … [including] major brands that account for a significant proportion of Deliveroo’s orders. Deliveroo has also experienced a significant decline in revenue.”

The online restaurant-delivery sector has seen a sharp fall in orders due to the shutdown of many independent restaurants — notably the decision by major fast-food companies such as McDonalds and KFC to withdraw from deliveries — and due to consumer anxiety over infection.

— The CMA’s assessment —

Applying the “exiting firm scenario” — whether a company would have left the market absent the deal in question, and whether that deal is the best available outcome for consumers — the CMA found that Deliveroo would have exited, were it not for Amazon’s additional funding, and that no investor was available that would create a less anticompetitive landscape.

The CMA inquiry group also provisionally concluded that Deliveroo’s departure would be more detrimental to competition in the market and to consumers than permitting the investment would be.

It said there was no need "to reach a provisional view on the likelihood of Amazon re-entering this market in the UK for the purpose of the current decision, as it would not affect our conclusion in this case."

But it did say in a summary of its findings that if Amazon were to re-enter the market — either by building its own business or acquiring or partnering with an existing business — this would “take time, as it would be necessary to develop a point-to-point delivery network and establish a base of restaurants, riders and consumers.”

It also said that a potential weakening of Amazon’s incentive to compete with Deliveroo in the online grocery space is “limited as a result of the acquisition of a shareholding than in the case of a full acquisition.”

“If the market were to grow substantially, and if Amazon had the opportunity to compete by developing its own point-to-point network, it may have an incentive to do so, regardless of its holding in Deliveroo,” the CMA said.

— Reaction —

Deliveroo said it was “delighted” by the CMA’s decision and stressed the problems brought by the coronavirus emergency.

“The unprecedented health crisis we all face has disrupted businesses across the country. 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,” it said.,

Dom Hallas, executive director of the Coalition for Digital Economy, an industry lobby for tech startups, also welcomed the result, but reserved criticism for the CMA in mounting a probe to begin with.

“We should never have been in this position to begin with. Coronavirus or not, venture-backed tech businesses require investment as they scale, and it’s important that the CMA learns that before acting rashly in future to prevent companies accessing that much-needed capital,” he said.