Author: Simon Stokes
One of the hot topics in competition law is how competition regulators respond to the fast-moving competition challenges of digital markets, online marketplaces and platforms. The digital sector is a priority for European regulators.
In the UK on 11 December 2019 the Competition and Markets Authority (CMA) announced the results of its Phase 1 investigation into the online retailer and grocery provider Amazon's substantial investment in the UK-based online delivery company Deliveroo, announced earlier this year. This investigation and its outcome is very important as it shows the CMA is prepared to be pro-active in investigating and potentially blocking technology and data driven mergers which it sees as substantially lessening competition in the UK.
In the UK a merger for competition law purposes doesn't necessarily require the acquisition of a majority shareholding – here Amazon only acquired a minority shareholding rather than outright control of Deliveroo. This is because the investment gave Amazon what the CMA considered to be the ability for Amazon to exercise material influence over Deliveroo.
Also in the UK there is no requirement to notify/pre-clear mergers – so businesses have a choice to either notify the CMA and seek clearance in advance or proceed without clearance and take the risk of a subsequent investigation by the CMA. The latter appears to have happened here.
By way of background Amazon’s UK business, in addition to its wider Amazon.co.uk marketplace, includes a wide range of grocery offerings through Amazon Prime and Prime Now, Amazon Fresh, and Whole Foods Market.
Deliveroo has grown rapidly since being founded in 2013. It now makes global sales of close to £500 million and operates in over 100 towns and cities across the UK, as well as expanding from being an online delivery platform for restaurants to also offering online convenience store delivery from suppliers such as Co-op Food.
Amazon and Deliveroo are currently competitors in online convenience grocery delivery – this raises potential competition concerns. In addition Amazon did briefly have its own UK food delivery venture, Amazon Restaurants UK, too – this started in 2016 but closed two years later in 2018. So clearly Amazon had ambitions in this sector and could have re-entered the sector. Instead it choose to invest in Deliveroo in May 2019. This investment attracted the attention of the CMA after it was announced and the CMA served an enforcement order on Amazon and Deliveroo in June 2019. The order effectively required the parties to operate their respective businesses separately and not to consolidate or integrate them further whilst the CMA's investigation is on-going..
The CMA’s initial Phase 1 investigation found that the investment, in its current form, could harm competition in two ways.
First, it is concerned that the deal could damage competition in online restaurant food delivery by discouraging Amazon from re-entering the market in the UK. Currently, there are only a small number of companies that act as the middle-man between restaurants and customers, and Amazon offered this service in competition with Deliveroo until 2018, when it exited the market. Although Amazon closed its Amazon Restaurants business, the CMA believes evidence uncovered in Amazon’s internal business documents shows a strong, continued interest in this sector and a material likelihood that Amazon would look to re-enter. Given the limited number of existing suppliers, the CMA found that the potential re-entry by a supplier such as Amazon would significantly increase competition in online restaurant food delivery in the UK.
Secondly, the CMA is concerned that the deal could also damage competition in the emerging market for online convenience grocery delivery, where the two companies have already established market-leading positions. Again, there are only a small number of suppliers offering the “ultra-fast” delivery of groceries in the UK. Although several supermarkets and online food platforms are experimenting with convenience grocery delivery, Amazon and Deliveroo – which both have UK-wide delivery networks to support their operations – are two of the strongest players in this market at present. While there are some differences in the services that Amazon and Deliveroo offer to customers, the CMA found that competition between them could increase in future as the market develops.
The CMA is concerned that if the deal were to proceed in its current form, there was a real risk that it could leave customers, restaurants and grocers facing higher prices and lower quality services as these markets develop. This is because the significant competition which could otherwise exist between Amazon and Deliveroo would be reduced.
The companies now have a very limited time period to offer legally-binding proposals to the CMA to address the competition concerns identified. The CMA would then have 5 working days to consider whether to accept the offer instead of referring the case to an in-depth investigation. If the CMA considers the parties' proposals don't address its concerns then it will refer the merger to a detailed Phase 2 investigation.
If the deal moves to a Phase 2 investigation the outcome will be a landmark in setting out how the CMA sees merger control applying in digital and data driven transactions.
For legal advice on this matter, contact our technology lawyers.
