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Amazon's Food Delivery Ambitions Stymied by UK Regulatory

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Amazon’s (AMZN - Free Report) comeback attempt into food delivery business has been brought to a halt by Britain's Competition and Markets Authority (“CMA”). The company, which led a $575 million fundraising in Deliveroo in May this year, has been ordered to operate separately from Deliveroo til a “Phase 1” competition probe is conducted on the deal. Amazon’s contribution to the fund was not revealed by either of the parties.

Amazon, however, has refuted CMA’s decision, maintaining that the deal was a “minority investment” and not an acquisition.

Deliveroo, which competes in Britain with Just Eat and Uber Technologies’ (UBER - Free Report) food delivery division Uber Eats, said that it is closely working with the regulators to obtain the necessary approvals. It believes that the deal will encourage healthy competition in the restaurant sector. The company also noted that the Amazon-led investment would boost job creation and help restaurants to expand.


Restaurant Ambitions Face Obstruction

The takeaway delivery market is estimated to be worth around $100 billion globally, and it is not surprising that Amazon is eyeing it. However, the industry seems to be jinxed for the behemoth.

The company recently pulled the plug on its own food delivery unit, Amazon Restaurants, shutting down the U.K branch in November last year and the U.S. business in June this year. Even though no reason was stated, the service had reportedly been struggling to stand against Uber Eats, Grubhub (GRUB - Free Report) , and Doordash, which, per Edison Trends, jointly rule about 80% of the U.S. market. The same firm noted that Amazon Restaurants didn’t even come in the list of top vendors.

However, prospects of the restaurants and takeaway delivery business are too dazzling to be ignored by Amazon. This led the company to attempt investing in Deliveroo to help it foray into the business once again. Deliveroo’s robust restaurant network of more than 80,000 takeaway outlets across 14 countries positioned Amazon well to provide significant competitive pressure to its rivals. Hence, the company was well poised to rapidly penetrate the global online food delivery market.

Zacks Rank & A Key Pick

Amazon currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the broader Computer and Technology sector is eGain Corp. (EGAN - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for eGain is projected to be 8%.

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