Amazon’s investment in Deliveroo “raises serious competition concerns” and may require an in-depth investigation, the UK’s competition watchdog said on Wednesday.
While the extent of Amazon’s stake has not been publicly disclosed, it was the lead investor in a $575m (£457m) funding round announced by Deliveroo in May.
The Competition and Markets Authority (CMA) had signalled in July that it had “reasonable grounds for suspecting” that the two companies were planning on a merger that could violate UK competition rules.
Both companies have insisted that Amazon (AMZN) has only taken a minority stake, but the authority’s initial investigation found that the investment, in its current form, could harm competition in two ways.
It said on Wednesday that it was concerned that the deal could damage competition in the online food delivery sector by discouraging Amazon from re-entering the market in the UK. It also is worried that the deal could damage competition in the online grocery delivery market.
Both companies now have five working days to come up with proposals that address the concerns. The watchdog will then have five days to accept the offer or decide to refer the case for an in-depth investigation.
Deliveroo said on Wednesday that it has been “working closely” with the watchdog and that it would continue to do so.
“We are confident that we will persuade the CMA of the facts that this minority investment will add to competition, helping restaurants to grow their businesses, creating more work for riders, and increasing choice for customers.”
A spokesperson for Amazon said that homegrown UK businesses like Deliveroo “should have broad access to investors and supporter.”
“Amazon believes that this investment funding will lead to more pro-consumer innovation by helping Deliveroo continue to build its world-class service and remain competitive in the restaurant food delivery space,” it said.
Amazon last year quietly pulled its Amazon Restaurants arm out of the UK, just two years after it had launched the food delivery service in London.
Amazon Restaurants failed to make headway in a market that is dominated by Deliveroo, Uber Eats, and Just Eat (JE.L).
The watchdog said it had uncovered evidence in Amazon’s internal business documents that shows that the company has a “strong, continued interest in this sector”, suggesting that it could be interested in re-entering the market.
Because there are so few providers in the food delivery market, the watchdog said that the “potential re-entry” by Amazon “would significantly increase competition” in the sector.
Similarly, the authority believes that the deal reduces competition in the grocery delivery sector.
Both Amazon, with its AmazonFresh service, and Deliveroo, which has expanded its on-demand grocery delivery service, are two of the “strongest players” in that market, it said.
“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.”
Deliveroo was founded in London in 2013 by Will Shu, a former investment banker. It has since become a giant in its own right, and has raised more than $1.5bn dollars in funding. The company is valued at more than $2bn.