Amazon won’t have it easy in UK food delivery

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Aden - Yasmin Abdel Azim - Britain’s competition regulator has decided to challenge the e-commerce giant’s planned investment in Deliveroo Image Credit: Reuters

It’s the worst nightmare of supermarkets and food delivery firms alike: Amazon.com Inc turbocharging its grocery business with a network of couriers who can have grub on your doorstep within an hour.

So you can see why Britain’s competition regulator has decided to challenge the e-commerce giant’s planned investment in Deliveroo, the UK rival to UberEats. The Competition and Markets Authority needs to tread carefully, though, as denying the funds to Deliveroo might inadvertently make it less able to compete in the food delivery business. That would be an unfortunate outcome.

Back in May, Deliveroo announced a $575 million funding round led by Amazon. On Wednesday, the CMA determined that the investment might hurt competition in UK food delivery.

It has given the companies five days to offer remedies, and it will launch a deeper probe if they don’t.

Amazon’s has reasons

The CMA’s concerns are warranted. While Amazon shuttered its British restaurant delivery operations last year, it remains interested in the market.

The Deliveroo investment is a way of staying in the game; the American company is no doubt interested in the British business’s tens of thousands of riders. The two are also rivals in grocery deliveries, so forging a closer alliance would discourage them from competing.

That’s a risk for delivery rival Ocado Group Plc and supermarket chains such as J Sainsbury Plc and Tesco Plc.

A lengthy CMA investigation might be a problem, though, because of Deliveroo’s pressing capital requirements. A probe probably wouldn’t complete until the second quarter of next year, according to Bloomberg Intelligence.

A year too long

By then Deliveroo will have waited a year to receive its investment. If previous form is a guide, it needs that money. In 2018 Deliveroo burnt through almost 200 million pounds ($263 million) of cash.

If it has been spending at a similar clip this year, it might be nearing the bottom of its pile.

There are plenty of remedies that might be acceptable to the CMA: An assurance from Amazon that it won’t try to buy Deliveroo for five years; a pledge not to integrate delivery services; and Amazon refraining from taking a board seat. If such concessions remove Amazon’s rationale for the investment, then it should back out.

At least that would give Deliveroo an earlier opportunity to find different funding.

The CMA will have one eye on what happened recently in the German food delivery market, where Takeaway.com NV acquired the local businesses of Delivery Hero SE, giving it more than 90 per cent market share.

But it can afford a degree of lenience in this case. It could still block any merger, should that materialise. Delaying Deliveroo’s access to funds would probably hold the company back in its market scrap with UberEats and Just Eat Plc.

Regulators have been poor at anticipating the market-cornering impact of deals in the past, most famously Inc.’s acquisition of Instagram and Google’s $3.2 billion purchase of DoubleClick.

Scrutinising Amazon is right and proper, and a commitment not to integrate Deliveroo’s courier network would be a fair condition. But unless a full merger is on the table, the CMA mustn’t overdo things.

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