Just Eat's Takeout Deal Tests U.K. Merger Regulator's Tech SavvyBy
Just Eat-Hungryhouse under tough scrutiny as review concludes
Critics say CMA fails to understand evolving tech industries
Pizza, Thai or Indian? You might think British takeouts have plenty of ways to serve hungry customers poring over menus from their iPhones or laptops.
They can sell direct through their own apps or websites like Domino’s Pizza Group Plc and Pizza Hut, use delivery specialists such as Amazon.com Inc., UberEats and Deliveroo, or log on to a restaurant aggregator like Just Eat Plc or Hungryhouse, which provide an online service for takeouts.
But lawyers say a merger between the latter two hangs in the balance as the Competition and Markets Authority weighs concerns that the deal will cut the options for restaurateurs looking for a slice of the U.K.’s booming takeout market. Provisional findings are scheduled to be released by early September.
The probe is one of a string of examples where the regulator has intervened in rapidly changing industries that have been transformed by the internet -- riling critics who say the CMA doesn’t do enough forward-looking analysis, giving it a blind spot in fast-evolving markets where new entrants can deploy high tech to obliterate incumbents almost overnight.
‘Not Good Enough’
“It’s not good enough to start with the position you see in the market place, but unfortunately that’s the way they operate,” said Tim Cowen, a lawyer at London-based Preiskel & Co. “There is an alternative, which is that you monitor what’s happening in digital markets very closely, employ people to track them, and look at forward-looking market research rather than looking at everything in the rear view mirror, because it’s out of date already.”
The London-based CMA referred Just Eat’s 200 million-pound ($257 million) acquisition of Hungryhouse for an in-depth probe in May. The regulator cited concerns that the two are close competitors because of similar services and broad geographical coverage and said at the time that a merger could lead to “worse terms” for restaurant clients.
The companies argue the deal will enable them to compete more effectively with fast-growing existing competitors and new entrants with “significantly deeper pockets.”
These rivals include established brands such as Deliveroo, as well as Amazon Restaurants, which extended its U.S. restaurant-delivery service to London a year ago, and prospective takeaway services to be offered by Facebook Inc. and Alphabet Inc.’s Google.
Still, those titans of technology aren’t direct competitors, according to the CMA.
Just Eat and Hungryhouse’s niche -- that they are the only two companies that allow small restaurants to do their own deliveries -- may seem trivial to customers who have an almost identical experience using the app as they do using the plethora of competitors. But restaurants pay only 14 percent commission on each order to list with Just Eat, compared with a typical rate of 30 percent if they use delivery services Deliveroo, UberEATS and Amazon, the CMA said in its decision published June 9.
“Their problem is there’s nobody else,” said Rona Bar-Isaac, a partner at Addleshaw Goddard. “If you’re a little restaurant you’d much rather be on Just Eat than giving away a chunk of your margin to Amazon or Deliveroo.”
Just Eat and Hungryhouse declined to comment, as did the CMA.
The CMA has been grappling for years with how to define markets that are changing rapidly, and regulate mergers with competitors waiting in the wings. It referred the 2015 merger of Poundland and 99p Stores for an in-depth review on fears consumers seeking a single-price retailer would only have a single option once the deal was done, as if the same shoppers wouldn’t just go to Aldi, Lidl or Iceland instead. The regulator later cleared the deal, acknowledging that the new retailer would be a fraction of a much larger market.
The regulator doesn’t always opt for a protracted probe in such cases. During the 2013 merger between Web Reservations and Hostelbookers.com Ltd., the Office of Fair Trading -- the CMA’s forerunner -- cleared the deal after acknowledging that Expedia Inc. had recently started offering hostel booking services.
But it isn’t always this clear, when companies like Amazon and Deliveroo have the power to expand exponentially. Amazon Restaurants added London to its list of U.S. cities last year, saying it provided food delivery from hundreds of restaurant branches “from family favorites to fine dining.” Deliveroo went from a handful of drivers to operating in 84 cities across 12 countries during its first three years in business.
The CMA can’t always know who is currently working on things that can provide an alternative, said Preiskel & Co.’s Cowen.
“It’s a tough gig being a regulator because sometimes you don’t know and it must be really embarrassing if they intervene too early and nobody comes in,” said Cowen. “It’s a bit of a nightmare.”
— With assistance by Paul Jarvis, Thomas Mulier, and Adam Satariano