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Amazon Cleared by U.K. Antitrust to Invest in Food-Delivery Startup Deliveroo

By John Ballard – Apr 17, 2020 at 11:35AM

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The online retail titan and Deliveroo could be a powerful duo in the U.K.

After months of waiting, Amazon.com's (AMZN -3.01%) investment in food-delivery start-up Deliveroo has finally received provisional clearance by the U.K. antitrust overseer. In 2019, Amazon was the lead investor in a round of financing that provided $575 million for the food-delivery start-up.

However, regulators in the U.K. were concerned about reduced competition if the two strongest players in U.K.'s food-delivery market joined forces. But it seems the financial crunch put on local restaurants, as well as Deliveroo's business, as a result of the COVID-19 pandemic left U.K. regulators no choice but to allow the investment. 

The news comes as Amazon's own grocery-delivery business through Whole Foods stores has seen unprecedented demand lately.

A food delivery courier handing a delivery to a customer.

Image source: Getty Images.

Is the investment a stepping stone to something bigger?

As a result of this deal, Amazon gains a very capable new partner to expand its food-delivery stronghold beyond the U.S. Deliveroo has experienced explosive growth since its founding more than five years ago. It's using machine learning technology to help identify the fastest route to get food from restaurants to customers' door. Restaurants have seen a 30% spike in sales after signing up with Deliveroo. 

The combination of Amazon's backing and Deliveroo's technology is what the U.K. regulators are worried about. The antitrust authorities want more competition in the U.K. Regulators are concerned that, by investing in Deliveroo, Amazon will no longer have an incentive to reenter the market with its own service. 

Amazon had previously operated its own restaurant delivery business in London (Amazon Restaurants) until closing it in 2018. But less than a month after leading the funding round for Deliveroo last year, Amazon decided to shutdown Amazon Restaurants in the U.S., too. 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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