Amazon’s investment in online on-demand food delivery major Deliveroo this May has come under scrutiny in the U.K. The country’s Competition and Markets Authority (CMA) served an initial enforcement order (IEO) to the two companies in June, to clear its concerns on the transaction.
This May, Amazon led Deliveroo’s $575 million fundraising – a fresh round of investment along with existing investors like Fidelity Management, Greenoaks and T. Rowe Price. Though the CMA did mention Amazon’s share of the money to be a ‘minority investment,’ it still has its concerns around the transaction, which it fears might stop both the companies from being ‘distinct.’
The IEO serves two purposes – one, it immediately halts the tie-up between Amazon and Deliveroo and forces the two businesses to operate separately, and two, it buys some time for the CMA to decide if it needs to launch a formal probe on ‘Phase 1’ competition.
On the other end of the British market, companies like Uber Eats and Just Eat will get some breathing space, as the combination of Amazon and Deliveroo might be too big an opponent to compete against in the food delivery space. Cab-hailing giant Uber is betting big on its Uber Eats division. As a successful global last-mile delivery service, it would be a key step towards its overarching goal of exerting dominance in last-mile logistics – be it freight or people movement.
In 2018, news broke that Uber was in talks with Deliveroo to buy the company that was then valued at $2 billion. However, the deal never took place, with Amazon capitalizing on the situation by clawing itself into relevance with its investment.
Notably, Amazon ran its own last-mile delivery service called Amazon Restaurants, which offered food delivery across 25 cities, until it closed down earlier this week. Though the company might possibly have found the strength of its customer base on Amazon Restaurants underwhelming, Amazon also might have likely struggled from the lack of depth in its last-mile logistics network.
By buying into Deliveroo, Amazon has a perfect vantage point to determine what went wrong with Amazon Restaurants, while also understanding how to scale-up a food delivery business and create a robust last-mile delivery network. Amazon can also channel the information gleaned from this market into building its ecommerce last-mile delivery network, which is essential for it to expedite shipping from the current two-day delivery promise to its ambitious one-day delivery service to every Prime customer.
With the IEO now temporarily stopping the Amazon-Deliveroo partnership, it remains to be seen how the companies work with the regulatory body to move ahead with their tie-up. “We believe this minority investment will enable Deliveroo to expand its services, benefiting consumers through increased choice and creating new jobs as more restaurants gain access to the service,” said Amazon in a statement.
Deliveroo has mentioned that the investment will help the company scale-up operations by growing its geographic footprint and also indirectly help expand the restaurant segment as well.