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The Australian Competition and Consumer Commission (ACCC) has launched an investigation into whether last year’s merger between Menulog and Eat Now will lead to a substantial lessening of competition in Australia’s online food ordering market. The ACCC review, which commenced on 5 April 2016, will decide whether the merger is detrimental to the competitiveness of the online food ordering industry.

In January 2015, online takeaway food ordering business Menulog merged with EatNow. In May, Menulog was acquired for $855 million by its British rival Just Eat. The ACCC investigation will assess the fairness of the merger, particularly for restaurants to pay commission for the delivery services. Restaurant owners have raised concerns that Just Eat now controls an estimated 90 per cent of the market, and the merger will lead to a sharp rise in commissions further down the track. Currently, the commission is set at 10 per cent plus GST per each order.

Eat In or Takeaway

There are two types of competition: interbrand and intrabrand. Interbrand competition is competition amongst all brands (such as Coca Cola v Pepsi Cola). On the other hand, intrabrand competition is competition for the one product between different sellers (such as selling a MacBook Air at David Jones, JB Hi-Fi, and Harvey Norman). The Competition and Consumer Act 2010 (Cth) (the Act) sets out Australia’s competition laws for interbrand and intrabrand conduct, including law and policy about anti-competitive conduct.

Under section 50 of the Act, mergers are not permitted where it can be demonstrated that it will have the effect of substantially lessening competition in a market. At the time of the merger and the subsequent acquisition for Menulog, the ACCC never reviewed the arrangement as no filing was received. However, Just Eat did advise its investors that the absence of a filing meant that that ACCC could assess the deal up to six years from completion. The ACCC have stated that they recognise that both players are “significant online aggregators of takeaway and delivered meal services” and as such, a cause for launching the investigation.

It is possible for the ACCC to authorise and grant clearance for the merger if the ACCC does not believe the merger will substantially lessen competition under s 95AN. The Australian Competition Tribunal can also grant authorisation where a merger will substantially lessen competition, but would leave to a benefit to the public.

Having a Big Appetite

The ACCC will consider a number of factors in determining whether the merger and acquisition will substantially lessen competition in the market, resulting in controlling a substantial amount of takeaway orders for restaurants and takeaway operators. Factors include whether consumers would look to different delivery agents, substitute services and if customers would switch away. If there is a constraint of market power, it is likely that Menulog’s conduct is likely to substantially lessen competition.

With the merger of Eat Now and Menulog, restaurateurs are concerned about the growing power of the group. It is estimated by industry sources that Menulog controls 90 per cent of the $3 billion a year takeaway and delivery market. The ACCC review of the Menulog takeover has no expected deadline set. We will keep a close eye on the developments in the review and its impact on the online ordering industry.

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