Why is Amazon still in the sights of the Adjudicator?

In the week millions will have flocked to Amazon for its 10th annual Prime Day sale, a shadow hangs over its relations with suppliers.

Groceries Code Adjudicator Mark White has threatened an investigation following his latest annual survey, which revealed less than half of suppliers believe it sticks to the Groceries Supply Code of Practice. Not only that, but its performance has got worse in the two years since the CMA added it to the list of GSCOP designated retailers (see table).

White has said he will “not hesitate” to run an investigation – carrying the threat of a fine equal to 1% of UK turnover – unless Amazon takes “swift and comprehensive action”.

So, why are so many suppliers unhappy with Amazon, and what is it doing about it?

A major source of ire is Amazon’s algorithm-driven pricing and delisting processes.

The Grocer understands the Adjudicator has received multiple complaints, despite Amazon taking measures following previous warnings from White.

In January last year, the online giant introduced changes to its delisting process, known internally as CRAP (cannot realise a profit).

The move was prompted by a flood of complaints alleging that suppliers were given as little as 24 hours’ notice of delistings.

Amazon has now committed to providing “reasonable written notice” of any delist. That is a requirement of GSCOP, which sates a retailer must provide “reasonable notice” with written reasons.

However, what counts as reasonable is a grey area. And The Grocer understands suppliers have said Amazon remains routinely “unresponsive and unaccountable”.

The Adjudicator is understood to be considering whether Amazon is breaching a key objective of GSCOP, which is to prevent unexpected costs and excessive risks passing from retailers to suppliers.

Historic grievances

Long before Amazon was added to the GSCOP list, suppliers were up in arms over payment deductions for disputed delivery and order errors

White’s predecessor Christine Tacon was approached by suppliers in 2019 and urged to act but could do nothing because Amazon was outside GSCOP jurisdiction at the time.

Now, delivery issues have again emerged as a key issue in the latest evidence given to White.

Sources say late last year Amazon adopted a new policy of refusing to accept traditional proof of delivery to its fulfilment centres. Suppliers have told the Adjudicator they have had substantial sums deducted, The Grocer understands – ranging from major global firms to small operators.

In January, Amazon told The Grocer it had brought in a 30-day guarantee to stop suppliers being hit with automatic deductions over these delivery issues.

This move, it said, included upgrading its system with a new ‘Receive Variance Dashboard’ to provide suppliers with real-time data that automatically alerts them when shipment variances occur, enabling them to resolve disputes faster.

Yet when the Adjudicator met suppliers several months later, The Grocer understands they claimed to be unaware of the dashboard, and said deductions remained unchecked.

The Adjudicator has been urged to declare the process a delay in payment, which is outlawed by the code.

“The red line for me is if you [for example] receive 1,000 cases but only pay for 800, then that is a delay in payment and a hardline breach of GSCOP which has to be acted upon,” says the source. “This is something a huge proportion of Amazon suppliers say is happening – it is not isolated complaints.

“The sums vary but they can run into tens of thousands of pounds on a single delivery.

“Multiply that by the amount Amazon is selling and they are making a fortune from these delayed payments.

“This is the most outrageous breach of GSCOP we have seen for many, many years.”

Amazon says it has held webinars to make suppliers aware of the new dashboard and issued newsletters to provide guidance on how to use the new tool.

“We will be increasing awareness through further communications and encouraging suppliers to contact their account managers for more information,” a statement says. The company also urges suppliers to contact its code compliance officer. Tom Gorrard-Smith, the latest in a series of people in the role in the past two years, if the experience proves “unsatisfactory” .

The practice is reminiscent of when suppliers complained of supermarkets unfairly deducting tens of millions of pounds for so-called drop & drive discrepancies. In 2017, Tacon warned supermarkets they were “drinking in the last chance saloon” over the practice.

Since then, the widespread introduction of so-called Good Faith Receiving has seen claims fall by well over 50%.

Tacon’s intervention “clarified that disputed shortages amount to a delay in payment when unjustified”, says John Noble, director of the British Brands Group. “Amazon may choose not to use Good Faith Receiving, but it is obliged to ensure its alternative is GSCOP-compliant.”

Fellow GSCOP expert Ged Futter, founder of The Retail Mind, says suppliers are routinely being charged 15% of their turnover or more in a series of different types of chargebacks by Amazon.

These are said to include delays on deliveries, plus items Amazon claims not to have received, or received in the wrong packaging

“You almost have to be a detective to find out what the charges are [for] and this is down to a lack of transparency, which is within the remit of the adjudicator,” claims Futter. “Amazon is a business that relies on charges,” he adds.

Futter claims it also routinely requires suppliers to fund price-matching activity. One example came in December, when The Grocer revealed Amazon had demanded lump sums from suppliers running into tens of thousands of pounds, under threat of delisting, to help prop up profitability.

The move, co-ordinated from an office based in India called a ‘retail success team’, was described by experts as a blatant breach of GSCOP –though Amazon later said it was a “mistake” and tracked down the 30 contacted suppliers to withdraw the requests.

But White says many suppliers simply do not believe Amazon follows the code. Suppliers claim it is in effect passing on the cost of being competitive to its supply base.

Unlike major supermarkets, when it comes to price-matching, Amazon “doesn’t care if it is against a product which is on special offer”, says a source. “It’s the lowest price you must match. If you refuse, you will effectively be delisted.”

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More progress required

While Amazon’s UK sales have soared from roughly $4bn a decade ago to almost $33.6bn by 2023, its performance so far in the GCA league table has been abysmal.

Last year White said there were “no excuses” when less than 60% of suppliers said it consistently or mostly stuck to the code. This year that figure plunging to just 47% .

In contrast, the figure for The Co-op, which top the list of what was a generally improving picture of behaviour among the other supermarkets, was 98%.

Despite this, some still believe it is suppliers and the GCA which needs to adapt to Amazon’s business model, rather than the other way around.

“Amazon’s business model differs from most other retailers covered by the GCA survey,” says Martin Heubel, a former Amazon senior category manager and founder of strategy consultancy Consulterce.

“Amazon operates an almost entirely automated marketplace business. So it’s critical for suppliers to take a step back and look at their operational process compliance and approach to forecasting and cost price increases.

“Suppliers expect Amazon to respond like a Co-op or Waitrose.

“The difference is that Amazon is a self-proclaimed price-follower. So even if Amazon accepts a cost increase on an already unprofitable item, the product will likely be delisted shortly after, leading to the much-cited forecasting misalignment in the GCA survey.

“The same principle applies to shortages and unpaid invoices, which are often the result of non-compliance with Amazon’s standardised process requirements.”

“While it can be argued that Amazon could be more transparent, it’s also important for brands to educate their leadership teams on the required process adjustments when trading with Amazon.”

However, Amazon admits it needs to do much more if it is to avoid action from the GCA.

“Whilst I believe we have made significant progress in how we work with suppliers since being designated in March 2022, it is very clear we need to go much further,” says James Bate, grocery director of Amazon Europe.

“I am excited by the opportunities and growth we offer our suppliers and we want to build more sustainable relationships to help them to succeed.

“We take compliance with GSCOP extremely seriously, and we encourage suppliers to contact our code compliance officer for any questions or concerns they have. All concerns raised will be investigated confidentially and will never result in any negative consequences for a supplier’s business.

“We have invested substantial resources to increase transparency and provide greater consistency for our suppliers. As a result, we have introduced clearer communications to explain cost price increase decisions and minimum notification periods for delistings, as well as launched a new dashboard which provides suppliers with early visibility of shortages and gives suppliers 30 days to dispute deductions before they are applied.

“The business has made further changes in recent weeks by introducing faster dispute resolution times for chargebacks, ensuring that every supplier has an appointed account manager, and we are listening to our suppliers to prioritise addressing where challenges remain.

“This marks further progress towards our aim that all our suppliers have the support they need to resolve issues quickly and to remove unnecessary friction.

“We know there’s much more to do and we have a dedicated team who are focused on addressing the issues raised in the survey and there are further improvements in the pipeline which we will be communicating to suppliers in the coming months.

“We remain committed to building strong, long-term relationships with our suppliers, and continue to create opportunities for suppliers of all sizes to reach millions of customers in the UK and around the world.”

Even for a company with pockets as deep as Amazon’s, the issue will surely be high on the agenda as the Adjudicator ponders his next move.