UK’s CMA clears Amazon’s 16% Deliveroo stake, says COVID-19 impact less severe than initially thought

More than a year after Amazon announced that it would be lead a $575 million investment into UK food delivery startup Deliveroo, the country's competition regulator, the CMA, has finally announced that it has provisionally cleared the deal, without any additional remedies (that is, requests to alter the terms), saying that it does not pose any threats to potential competition. The investment, which gives Amazon a 16% stake in Deliveroo, is now being opened up to views and feedback from interested parties one more time, due by July 10, before announcing its final decision on August 6.

The decision only relates to this investment, not to further financial tie-ups between the two, it added: This decision reflects the 16% shareholding that Amazon is acquiring at the present time," the CMA notes. Were Amazon to acquire a greater level of control over Deliveroo, in particular by making a full acquisition of the company, this could trigger a further investigation by the CMA."

The deal comes about two months after the CMA initially indicated that it would be giving a nod to the investment, although - in a weird shift - in that period the reasons for approving it have changed.

Back in April, the CMA said that the impact of COVID-19 would have meant that without Amazon's cash, Deliveroo would have gone bust. Now, however, it has changed its tune, saying that the impact of the health pandemic was not as strong as initially thought on the startup's business.

Regardless, Stuart McIntosh, who chaired the CMA's inquiry into the deal, noted other developments in the wider competitive landscape - remember that JustEat and Takeaway.com have now merged and will represent strong competition for Deliveroo and Uber Eats, the other big player - have meant that this deal will not have a negative effect on competition in the food delivery market, specifically competition between Deliveroo and Amazon themselves.

The impact of the coronavirus pandemic, while initially extremely challenging, has not been as severe for Deliveroo as was anticipated when we reached our initial provisional findings in April," he noted. The updated evidence no longer shows that Deliveroo would exit the market in the absence of this transaction. This has required us to re-evaluate our initial provisional findings.

We've carefully considered how this investment could affect competition between the two businesses in future. Looking closely at the size of the shareholding and how it will affect Amazon's incentives, as well as the competition that the businesses will continue to face in food delivery and convenience groceries, we've found that the investment should not have a negative impact on customers."

The development caps off nearly a year of investigations by the Competition and Markets Authority, spurred initially by Labour MP Tom Watson, who had asked the CMA to either impose restrictions on the deal, or to block it outright, not just because of the impact it would have on the competitive landscape, but because of the trove of data Amazon would amass as a result of the deal,.

It's called surveillance capitalism," he said at the time of Amazon's approach to how it uses data from customers to build and sell products. It's a digital dystopia, and I shall be writing to the Competition and Markets Authority demanding they launch an investigation into this investment.'"

The CMA then spent months looking into the numbers on the deal - which would have been Amazon's only foray itself into ready-made food delivery in the UK, after it shut down its own homegrown effort, Amazon Restaurants, back in 2018 (around the time that it first started eyeing up Deliveroo). But that investigation took on several more twists in the last few months.

The first twist came in the form of COVID-19, which brought much of the economy to a grinding halt. While many have seen e-commerce and the sub-section of food delivery as two areas that could flourish - since people were significantly homebound and restaurants were closed - it appeared that in fact business seemed to be dragging, as people opted to reduce exposure even to contactless deliveries, leading to a big decline in demand.

That led the CMA to determine that Deliveroo would have exited the market without [the Amazon investment], because of the negative impact of the coronavirus (COVID-19) pandemic on its business. The CMA considered that the imminent exit of Deliveroo would have been worse for competition than allowing the Amazon investment to proceed."

However, Deliveroo made cuts (including 15% of staff) and on a closer examination, Deliveroo's finances shows considerable improvement in its financial position, reflecting, in part, changes which were not foreseeable during the early stages of the pandemic," the CMA noted. This means that no Amazon deal would not have killed the company, so then attention turned to competition between the two businesses as a result of the investment.

The CMA said it surveyed 3,000 consumers, read submissions from third parties and examined internal documents from the two companies, and without going into detail of what kind of competition might ever exist in future between the two - especially considering that Amazon has already pulled out of food delivery in the UK - it determined that a deal wouldn't preclude competition per se, based on Deliveroo's interest in restaurant food delivery and Amazon's existing business in grocery delivery, which in the UK currently includes both Amazon Fresh and a small Whole Foods footprint, but could potentially expand into more.

This minority investment is good news for UK customers and restaurants, and for the British economy," a Deliveroo spokesperson said in a statement provided to TechCrunch. As we have argued for the past year, since the beginning of the CMA's investigation, the minority investment will enable British born, British bred Deliveroo to compete against well-capitalised overseas rivals and continue to innovate for customers, riders and restaurants. As the British economy recovers from the damage caused by COVID-19, a stable regulatory environment is critical. We therefore urge the CMA to conclude their review as swiftly as possible."

More to come.