Hong Kong: As food delivery companies gobble up their competitors around the world with mounting haste, the firms’ customers risk being left with scant choice when it comes to ordering nosh online. Regulators need to take notice.

Germany’s Delivery Hero SE agreed to buy Woowa Brothers Corp. in a deal valuing the South Korean company at $4 billion. The acquisition is a coup for Delivery Hero CEO Niklas Oestberg. The shares in his firm jumped as much as 23 per cent after the announcement to their highest since its 2017 initial public offering.

It’s just the latest in a series of efforts to consolidate the online food delivery industry. Much of the capital for the Woowa deal is funded by Delivery Hero’s own 930 million euro ($1 billion) divestment of its German operations to Takeaway.com NV, which created a monopoly in that market. In the US, DoorDash Inc. bought Square Inc.’s Caviar app for $410 million in August. Meanwhile in the UK, Takeaway.com and tech investment firm Prosus NV are scrapping to acquire Just Eat plc.

Strength in fewer numbers

The very reason executives are eager for these deals is also why they warrant close examination from antitrust police. In order to be profitable, companies need either to charge consumers more, take a bigger royalty cut from restaurants or reduce costs by using big data to anticipate demand and improve operational efficiencies.

A combination of all three of these things is even better. Less competition will enable just that.

Under selling the deal

While few food delivery companies are profitable right now, they have one thing in their favour: the market remains relatively small. That means that it’s easier to push through takeovers which could give them a monopolistic position. It depends what regulators decide is the scope of the relevant market.

Oestberg sought to deflect antitrust concerns by pointing to the overall size of South Korea’s food service market of 85 billion won ($94 billion). Delivery Hero and Woowa had combined gross order volumes in Asia as a whole of just 5.2 billion euros last year. On that basis, their market share looks like a drop in the ocean.

Oestberg also argued that lots of Koreans still order takeaways by telephone rather than online or through an app.

The Woowa takeover will, however, give Delivery Hero near total control of South Korea’s online food delivery market, a move that’s patently not in the interest of the country’s consumers. Indeed, in justifying the deal, Oestberg indicated that the reduced competition would mean both firms could reduce the amount they spend on marketing.

Woowa meanwhile takes a far smaller royalty cut from its restaurants than the Delivery Hero — revenue represented just 6.5 per cent of the gross merchandise value in the nine months through September. The German firm’s sales hit 19 per cent on that measure in the same period.

Should regulators approve the deal, the combined company will have far more scope to take a bigger cut from restaurants and charge consumers more for delivery, while controlling the market will let it use data to predict purchasing patterns and anticipate customer demand more efficiently. That helps justify the price it’s paying, which equates to about eight times Woowa’s 2019 sales, assuming that growth in the fourth quarter is in line with the rest of the year.

Takeaway.com agreed to pay 8.9 times sales for Delivery Hero’s German arm last year. The anticipation of a monopoly position that allows more pricing power justifies the high multiples.

The size of the deal means it will trigger an investigation by the Korea Fair Trade Commission. That body would do well to follow the lead of Britain’s Competition and Markets Authority, which is erring on the side of caution by pushing back against Amazon.com Inc.’s plan to invest in Deliveroo — it’s concerned that the two could fuse their networks of couriers.

Otherwise, we risk the world’s food delivery companies divvying up the spoils market by market before dinner has even been served.