Egypt’s competition watchdog, the Egyptian Competition Authority, in a very interesting move, has ordered the Spanish on-demand delivery startup that recently exited Egypt for unknown reasons to resume its operations in the country. ECA is accusing Glovo and Delivery Hero of restricting competition in Egypt.
Glovo, a Barcelona-headquartered on-demand delivery startup that had expanded to Egypt exactly a year ago, announced last month (in a message sent to its delivery partners) that it was shutting down operations in Egypt, with 30th of April as their last day in the country. MENAbytes at the time had learned that Glovo within one year of their operations had acquired double-digit market share in Egypt’s highly competitive food delivery market, as 70-80 percent of all its orders in Egypt were food deliveries. We had also learned from a source with direct knowledge of the matter that the company was witnessing brilliant growth and had plans to expand its team when the decision to exit Egypt was announced. So it was kind of obvious that Glovo wasn’t leaving Egypt because of its performance and potential as a market but the reasons were still not clear.
The Delivery Hero connection
Delivery Hero, the European food delivery company that’s the leading player in MENA owning different brands across the region including Otlob in Egypt had acquired 15 percent stake in Glovo becoming the largest minority shareholder (at the time) in July last year. The company had then acquired another 1 percent by selling its operations in Italy to Glovo. Since Glovo’s exit from Egypt, its mobile apps and websites have been redirecting users to Otlob. The day Glovo shut down its Egyptian operations, it announced the closing of its $169 million Series B.
What’s ECA saying
The Egyptian Competition Authority is now accusing that the two companies had reached a market allocation agreement (an agreement used by competitors to divide markets and customers) that resulted in Glovo’s exit from Egypt.
“In 2018, Delivery Hero entered into a Shareholders’ Agreement with Glovo by acquiring 16% of Glovo’s shares. The Shareholders’ Agreement between the parties confers Delivery Hero with certain corporate rights that allows Delivery Hero to access commercially sensitive information of its competitor operations in the Egyptian market and to influence Glovo’s strategic business decisions,” the authority said in a statement yesterday.
“Although the acquisition of minority shareholding in itself does not constitute a per se infringement to ECL, the exercise of the rights conferred to Delivery Hero in such a way as to lead to a Market Allocation Agreement contravenes Article 6 of ECL (Egyptian Competition Law). The exercise of minority rights in such a way as to limit competition between the Parties is a recourse to methods that fall outside the scope of competition on the merits defined as the normal competition between firms in offering consumers better prices and/or quality,” the authority added.
The authority in the statement also said that the conduct in question could lead to a significant loss in jobs and investment in Egypt and could restrict the choices for Egyptian consumers.
“Glovo’s exit may increase the market power of Delivery Hero’s own brands and eliminate effective competition. The significant concentration of market power might lead to anticompetitive practices that may affect various sides of the market,” the statement added.
What does ECA want
ECA wants Glovo not to move forward with liquidation proceedings (the company even though had shut down its operations in Egypt last month but is apparently still in the process of liquidating its business) and resume its operations in Egypt.
So, what’s next
ECA has sent both the parties a Statement of Infringement last week informing them of their anticompetitive behavior and ECA’s decision and has given them 30 days to respond. It is very unlikely that Glovo will resume operations in Egypt after ECA’s interference. Both the parties may end up paying a penalty but that should be it.