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Deliveroo warning of collapse paves way for Amazon investment

UK competition authorities have provisionally cleared Amazon’s investment in Deliveroo after the takeaway delivery firm warned it could collapse because of the coronavirus crisis.

The takeaway firm told the Competition and Markets Authority it had suffered a “significant decline in revenues” since the government lockdown to limit the spread of the virus closed many of the restaurants it dealt with nearly a month ago.

Efforts to step up grocery deliveries, with partners such as Marks & Spencer and Morrisons, have not offset the loss of trade from major restaurants which put deliveries on hold during the lockdown, such as Burger King, Wagamama and KFC. Burger King and KFC reopened a handful of restaurants for delivery only this week.

Deliveroo and its financial advisers told the CMA the business would fail financially and exit the market unless Amazon went ahead with its investment.

In December, the CMA launched an in-depth investigation into Amazon’s investment in Deliveroo, which reportedly gave it a 16% stake, amid concerns it would limit competition in the takeaway and ultra-fast grocery delivery markets. It feared that customers, restaurants and grocers could face higher prices and lower-quality services because of the deal.

But on Friday, the CMA said it had been considering new evidence about financial difficulties at Deliveroo “as a matter of urgency” and had “provisionally concluded that Deliveroo’s exit from the market would be inevitable without access to significant additional funding, which the CMA considers that only Amazon would be willing and able to provide at this time.”

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.”

Deliveroo secured the investment from Amazon last May when it raised £450m of new investment. How much of that investment was from Amazon was never disclosed, but it is understood it was the biggest investor in that funding round. The cash injection was paused during the CMA’s investigation and cannot be handed over until the watchdog makes its final judgment, which may take another two months.

The watchdog has asked for views on its provisional findings by 11 May and will make its final decision before 11 June.

Deliveroo said: “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.”

The takeaway firm has been expanding rapidly but made a loss of £232m in 2018, the last reported figures, despite a 72% rise in sales to £476m as it doubled the number of towns and cities in which it operated.

Deliveroo wanted investment to boost its performance against other deep-pocketed rivals such as Uber Eats, owned by the taxi app company Uber, and Just Eat, the FTSE 100 delivery platform which was recently bought out by European rival rival.