Takeaway app Deliveroo has had its investment from Amazon effectively greenlit by regulators in a move which will have implications for listed rival Just Eat Takeaway.com (JET).

The Competition and Markets Authority (CMA) has provisionally cleared Amazon’s investment in Deliveroo after the delivery firm warned it could otherwise go bust due to the coronavirus pandemic.

The CMA launched an investigation into Amazon’s investment in Deliveroo, reportedly giving it a 16% stake, in December following concerns it would restrict competition in the takeaway delivery market with customers potentially facing higher prices and lower quality service.

But the CMA has now provisionally cleared the tie-up after Deliveroo said it would go bust otherwise, with the regulator concerned that some people may be cut off from online food delivery altogether if Deliveroo exited the market.

The decision has implications for Just Eat, particularly as it means Deliveroo can continue to target lucrative, high growth markets in cities like London and Paris, areas where Just Eat is also looking to gain market share.

The proliferation of higher-end restaurants offering delivery services in these cities means delivery firms can attract more affluent customers and higher order values, which should translate into better profit margins.

While the CMA wants to keep competition high in the takeaway space to prevent customers from losing out, firms are also looking to consolidate so they have the scale to ‘win’ big cities, something which is particularly important in an industry with low barriers to entry and high fixed costs.

Consolidation in the takeaway industry, which was worth £8.5bn in the UK in 2019, has been ramping up in recent years, with larger scale businesses with greater volume also able to reduce marketing spend and potentially increase delivery fees, which is important particularly in the current uncertain market conditions.

Marketing expenses take up a big proportion of costs for food delivery firms. For example, the Takeaway.com part of Just Eat Takeaway spent €153.8m on marketing in 2019 on the back of €415.9m in revenue.

Despite the current coronavirus lockdown, the opportunity for growth remains intact for  takeaway firms.

In an update on 21 April, the Just Eat part of Just Eat Takeaway.com said that after an initial reduction in orders mid-March, the business has ‘recovered quickly to above before-coronavirus levels’.

The Takeaway.com part of the group said it had observed a pattern in its markets where a brief dip in orders immediately after lockdown has been followed by an uptick as people look to treat themselves while stuck at home.

‹ Previous2020-04-23Next ›