Deliveroo could collapse without Amazon investment

Thanks to the hot food delivery company Deliveroo’s deterioration due to the impact of the pandemic, the UK Competition and Markets Authority (CMA) has provisionally cleared an investment from Amazon into the company.

The CMA had previously expressed concern that the investment would discourage Amazon from re-entering the hot food delivery market and convenience store delivery market in the UK.

As it entered Phase 2 of its investigation it became clear that the pandemic has been having a significant impact on Deliveroo’s revenues thanks to the suspension of the restaurant industry. As a startup in growth phase however it relies on investment in a large part for its cash flow. The firm has attempted to expand its grocery delivery business but this has had limited results and has not replaced the loss of the hot food delivery revenues.

As a result of these factors, Deliveroo informed the CMA that it would fail financially should the investment from Amazon be prevented. This was supported by evidence from the company’s financial advisors.

Should Deliveroo exit from the market, the CMA believes that competition in the hot food delivery market would be impacted. The least worst option would be to allow the Amazon investment to proceed and thus the provisional clearance.

Stuart McIntosh, Chair of the CMA’s independent inquiry group, said: “These wholly unprecedented circumstances have meant reassessing the focus of this investigation, reacting quickly to the impact of the coronavirus and deciding what it would mean for the businesses involved in this transaction and, in turn, for customers.

“Without additional investment, which we currently think is only realistically available from Amazon, it’s clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market.

“This could mean that some customers are cut off from online food delivery altogether, with others facing higher prices or a reduction in service quality. Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment in Deliveroo.”