In the before times, they would lurk in twos and threes outside restaurants in city centres, waiting to whisk hot food into teal-coloured isothermal packs stamped with the face of a kangaroo. Now they’re everywhere: more than 50,000 hardy couriers who have taken over our streets during the pandemic. And if everything goes according to plan, they will give Deliveroo near total dominance of the £9.8 billion takeaway delivery market.

Deliveroo will deploy its legion of couriers in 100 new towns and cities as it gears up for a blockbuster public listing. Its estimated valuation has soared to as high as £8bn, almost double what it was worth in 2019. Will Shu, who founded Deliveroo in 2013 and owns a 6.8 per cent stake in the business, could stand to gain a payout of more than $500m when it goes public.

To get here, Deliveroo has staged an almighty comeback. Just over ten months ago, the company was on the brink of collapse. In December, Shu labelled Covid-19 a “unique and severe challenge”. He wasn’t exaggerating. Before March 2020, when everything went wrong, Deliveroo was in rude health. Its 2019 accounts, which were made public in December, show that revenue was up by 62 per cent to £771.8m with cash reserves at £229.8m. Deliveroo’s operating losses grew by almost a third from £257.1m to £317.7m during the period, pushed by “higher administrative and operating expenses” as the company expanded.

When the first lockdown began, Deliveroo was the worst prepared of the three major takeaway delivery players in the UK. Its biggest draws – KFC, Burger King and Wagamama – were forced to shut down. The bottom fell out of the demand for big chain takeaways, and Deliveroo didn’t have Uber’s resources, nor Just Eat’s roster of local restaurants, to plug the gap. But salvation was within reach in the form of a £575m investment led by e-commerce giant Amazon. The bold move was blocked by the Competition and Markets Authority (CMA), the UK’s competition watchdog, for almost a year. With a decision scheduled for July 2020 and an uncertain outcome, Deliveroo was strapped for cash and didn’t have any backup plan. It was the perfect storm.

“This is the tale of how Covid can utterly transform fortunes initially in a very negative way, and then in an extraordinarily positive way,” says Simon Neill, head of competition at law firm Osborne Clarke. The CMA had been working to ensure that Amazon’s well-lined purse and logistics expertise wouldn’t destroy the competition in the market for takeaway deliveries. It didn’t matter that Amazon wasn’t buying Deliveroo – it was its previous foray into the restaurant takeaway business that had caught the attention of the regulator.

The CMA had focused its inquiry on “material influence” – which enables it to assert jurisdiction over a deal where there's only a really small minority stake, but where the stake lets the acquirer steer the strategic direction of the business. Normally a stake under 20 per cent is unlikely to meet that criteria, Neill says, but the factors at play made this situation unusual: one, there was a £575m investment, which gives an awful lot of influence. Two, Amazon had gained a seat on the board as part of the deal. Three, Amazon was involved.

The CMA had to evaluate what would happen to competition in the fast food delivery sector if the Amazon investment did not take place, a scenario it calls “counterfactual”. If it ushered the deal through, the CMA believed Amazon would gain entry into the operations of a major rival, and it would not need to relaunch its restaurants business, lessening the competition. So the CMA decided to put a halt to the deal and extend its investigation, which had already gone on since July 2019, to examine the market in a phase two review.

By March 17, the day Deliveroo got in touch with the CMA to admit it was failing, the watchdog was already preparing a preliminary decision on its phase two investigation. The second inquiry had not gone smoothly. The CMA claimed there was “a pattern of errors in Amazon’s approach to compliance”, which had a “significant adverse impact on the conduct of the inquiry”. The CMA said it had to expend significant time and public resources in verifying the completeness of Amazon’s responses. (Amazon was eventually handed a £55,000 penalty noticein August 2020 for providing 189 documents “between a few days and more than two months late, and only after follow-up by the CMA”.)

Then Deliveroo dropped the bombshell. It told the CMA’s team of around 25 case workers, lawyers and economists, led by a four-strong inquiry panel, that if it didn’t approve the investment, the company would go bust. “To the credit of the CMA, it accepted the new situation,” says Neill. ”Its provisional findings back in April were effectively based on a counterfactual that said, absent this transaction, Deliveroo will go out of business.” Deliveroo used the “failing firm” defence, which essentially means a company has to prove it was unable to raise any sort of funds from any other source.

For Deliveroo to survive, the CMA would need to agree that the company had no alternative. More than that, the CMA had to agree that Deliveroo failing would be worse for competition than letting Amazon save it. To do this, Neill says, the watchdog had to "kick the tyres" of Deliveroo's business model to see how close to failure it truly was.

That tire kicking amounted to what the CMA describes as an "extensive analysis of internal documents from Amazon and Deliveroo" alongside a survey of more than 3,000 consumers and lengthy submissions from interested third parties. The CMA also had the power to ask for minutes from board meetings, details of the company's cash-flow and access to its financial advisers. If Deliveroo really was on the verge of collapse, the CMA had resolved to find the cause.

There aren’t many failing firm defences. Such admissions are rarely made publicly as a company is essentially saying it is going under. “Shareholders and suppliers tend to run for the hills,” says Neill. “The fact it was privately owned, I think, probably made a difference”. In the end, the only option was to usher the deal through. Without the investment from Amazon, “it’s clear that Deliveroo would not be able to meet its financial commitments and would have to exit the market,” said Stuart McIntosh, chair of the CMA’s independent inquiry group, in an April 2020 statement. “Faced with that stark outcome, we feel the best course of action is to provisionally clear Amazon’s investment in Deliveroo.”

Yet, in the same breath as it approved the deal, the CMA issued a warning. If Amazon increased its shareholding in Deliveroo, the watchdog would likely open another investigation. It’s unclear what the exact threshold could be for this to happen. Judging by its response, Amazon was unhappy. In two letters to the CMA sent after its preliminary decision, the company’s lawyers argued that the watchdog was wrong to launch an investigation in the first place. The idea Amazon would exercise material influence over Deliveroo is “unprecedented” and “unsupported by the facts and goes beyond precedent without justification”, Amazon’s lawyers said. The legal team also dismissed the idea that Amazon and Deliveroo’s grocery businesses would converge saying they “operate fundamentally different business models”.

In the case of restaurant delivery, Amazon’s business model failed and Deliveroo’s has so far succeeded. But while Deliveroo obviously benefitted from the deal, Amazon is also getting a brilliant return on investment. “It has given Amazon the opportunity to look under the hood of Deliveroo for a negligible cost,” says Sucharita Kodali, retail analyst at Forrester. “They [Amazon] are more likely to do delivery experiments early on in Europe, to learn the market. Amazon exited the restaurant delivery business in the United States. But they're very persistent.” Perhaps it was a problem with Amazon’s execution, maybe it was structural factors, but Deliveroo seems to be doing something right, Kodali says. She argues that Amazon can learn from it to relaunch its own restaurant business, or to maneuver into the still relatively untapped market for dark kitchens in other territories.

Soon after the deal was approved, Deliveroo started clawing back its losses and was free to finance further dark kitchens with Amazon’s money. With physical restaurants remaining shut for the better part of a year, use of delivery apps soared. Deliveroo’s major rivals posted huge gains: Uber Eats announced a 150 per cent jump in UK deliveries year-on-year in the three months to September, while Just Eat, the UK market leader by order volumes, said it processed 17 million transactions in October, up from ten million in January 2019.

In the space of a few weeks, Deliveroo went from fast-growing startup, to failing firm, to on track for an IPO. Deliveroo said that in the second and third quarters of 2020 it managed to turn an operating profit in the majority of its markets – a statement that will be subject to greater scrutiny once it starts publishing investor reports. Its most recent accounts revealed that the scale of its 2019 losses forced Deliveroo to take out a loan of £198m from a mystery source, which was later “extinguished” when the CMA made its decision. Deliveroo declined to name the lender.

In January, Deliveroo raised $180m (£130m) in new funding from existing investors, led by Durable Capital Partners and Fidelity Management, valuing the eight-year-old company at more than $7bn, without including the newly-funds raised. Analysts agree that the timing for an IPO in the first half of 2021 is crucial. Right now, Deliveroo is profiting from high demand, which will likely calm when the pandemic is over and people are able to return to restaurants. When approached for this story, Deliveroo’s investors said they were bound by NDAs and unable to comment. Deliveroo declined to provide an interview for this story.

But Deliveroo’s troubled 2020 shows how turbulent the market can be. Amazon’s backing, while important for its standing in front of other prospective investors, may not be enough if Deliveroo doesn’t use the momentum it gained from the pandemic. “If there was going to be a year that was one for getting your house in order, it would actually be 2020,” says Dan Thomas, senior analyst at research firm Third Bridge. “It’s important to remember the circumstances at the moment. Arguably, the market has never been better.”

The big risk to Deliveroo would be the entry of another logistics player in London, which would take a cut out of everyone else in the market. Unlike Uber Eats, Deliveroo doesn’t have a ride-hailing business to fall back on, nor does it have the scale of Just Eat. It’s not impossible to think that it could draw from Amazon’s logistics expertise to aid its grocery delivery business, but there’s no evidence of that happening yet. If you look at Deliveroo’s most recent accounts, it wouldn't necessarily be able to stand on its two feet in the same way as Just Eat can, Thomas argues. Even if Just Eat’s investment were to dry up, it could survive on the profits of its marketplace business for a long period of time, he says.

Victory might come down to the profit margins that each company is able to make on deliveries. “That density question is only going to get more challenging now that Just Eat is pushing hundreds or even thousands of riders into London,” says Thomas. “It's going to be tougher for both Deliveroo and Uber Eats to maintain a sensible level of density that will enable them to mirror this model.”

Just Eat is the one to beat. It merged with Takeaway.com last year and announced the $7.3bn acquisition of US online food delivery player Grubhub, which is expected to clear later this year. In an earnings call in January, the company’s CEO Jitse Groen said that London will be its main target. “We are at 100 per cent [coverage] and we are going to go after London. If somebody else wants to go after 100 hamlets, then by all means,” he said.

In the end local restaurants, not Amazon, may be the ones to make the most material impact on Deliveroo’s strategy. Businesses that have relied on Deliveroo to provide them a lifeline during the pandemic have accused the company of unfair commission rates of up to 35 per cent. Once they reopen, they could decide it’s not worth it. “These platforms represent the only lifeline for a lot of restaurants and I think that caused a fair deal of resentment within the supply base,” says Thomas. “There's a limit to how far you can push the economics of a platform to make it work.” In January it announced plans to extend the support it offered to existing restaurants hit by the pandemic in April 2020, with zero per cent commission on pickup orders, faster payments and no joining fees. But such concessions will impact its bottom line.

Deliveroo also needs restaurants on its side to make its dark kitchens strategy work. Also in January, the company said it would double the number of dark kitchen sites it operates worldwide this year from 32 to 64. It will have to compete with the likes of Karma Kitchen, which has had a meteoric funding round in the last year and has partnered with Uber Eats.

After a year of turmoil, Deliveroo has survived – but at a cost. The rush caused by the pandemic let Amazon muscle in on the restaurant delivery industry once more, but this time with no risk to its own business.

Deliveroo could become a bargain basement testing ground for Amazon’s wildest takeaway ambitions. Thanks to Deliveroo, it no longer has to figure out how to win the restaurant game. It can simply watch the gruelling delivery tug-of-war from the sidelines and learn what works and what doesn’t. The global market for dark kitchens is expected to be worth $71.4bn by 2027. Deliveroo pioneered them, but it could be Amazon that truly scales them.