What’s at stake in the GCA’s investigation into Amazon?

After years of poor performance in supplier surveys, Amazon is finally being taken to task.

The online giant is facing an investigation by the Groceries Code Adjudicator (GCA) over delays in payments to suppliers – which could result in a fine of up to 1% of its UK turnover.

Even for a company that this week announced a £40bn investment in warehouses and staff in the UK over the next three years, it’s a big threat.

The stakes are also high for Adjudicator Mark White, as he seeks to show his value to a cost-conscious government – which has lauded Amazon as an example of the UK’s industrial strategy in action.

So why has White decided to take the plunge and investigate Amazon? And what does this week’s latest supplier survey tell us about Amazon’s efforts to clean up its act?

Overall improvement

The 12th survey since the GCA was set up shows an overall improvement in compliance by the 14 major retailers policed under the Groceries Supply Code of Practice (GSCOP).

But the Adjudicator says he has “reasonable grounds” to suspect Amazon has breached paragraph five, which covers delays in paying suppliers. He has compiled evidence from “a range of sources”.

He is now appealing for direct suppliers and other stakeholders to come forward with more evidence by 8 August, promising it will form part of a confidential dossier he is building against the retailer.

For many, this has been a long time coming.

It’s no surprise to anyone who has followed GCA survey results. Since falling under the code in 2022, Amazon has had a dire record of perceived compliance. It posted the “worst-ever performance” in the Adjudicator’s 2023 supplier league table – only to get worse last year, when its score fell from 59% to 47%.

At the time, White warned he would launch an investigation unless he saw “swift and comprehensive action”.

It is his first investigation since taking over as Adjudicator in 2020, and the third since the GCA was formed in 2013. No company has yet been fined.

The decision comes amid mixed results for Amazon in this week’s survey. Overall, it suggests treatment of suppliers has improved.

However, Amazon remains the lowest-ranked retailer. A third of its suppliers said it ‘rarely’ or ‘never’ complied with the code. That’s well behind Lidl, second from bottom, for whom 9% said the same (see table, right).

The survey also indicated 13% of Amazon’s suppliers had raised an issue with it in the past year – far more than any other retailer. The closest was Sainsbury’s, where just 3% of suppliers raised an issue.

The investigation will focus on payment issues in particular. It will probe the “nature, extent and impact of practices which may have resulted in delays, including Amazon’s receipt of goods and payment processes”.

Accusers say Amazon’s automated technology for these processes is highly sophisticated, yet lacks checks at the point of delivery – the norm for GSCOP-policed retailers.

Plus, suppliers have complained barcode changes in Amazon’s systems have resulted in the deduction of huge sums owed to suppliers. Most worryingly, suppliers claim Amazon has failed to tackle the cause.

“For those suppliers who raise a case and pursue the dispute, further monies can often be recovered, but only after significant investigative effort and typically long after the payment was due,” says Jonathan Kittow, MD of Simply Supply Chain, who has been spearheading the case against Amazon.

Kittow is leading a group of 12 fmcg companies with turnover ranging from £50m to £300m, several of which claim they are owed more than £1m by the online giant. He became involved after being invited by Amazon’s former code compliance officer Alex Simpson to work with the company on its supplier issues.

Kittow says that relationship soured, and when he and a group of Amazon’s suppliers were taken on a fulfilment centre visit by Amazon recently to try to discuss solutions to the flaws, the company was “defensive and non co-operative”.

“I don’t understand why they haven’t explained what the issue is and done something to change it,” he adds.

“I guess it’s because for them they are a global organisation, and they don’t have to do it for any other country.”

Kittow claims Amazon’s automated processes at point of receipt mean its practices are 4,000 times less accurate than other GSCOP-regulated retailers.

“We’ve been feeding the regulator the results of our claims data to expose where the flaws are,” he says. “What’s happening is a scandal. If you think of the thousands of suppliers, and not necessarily just big suppliers, but smaller suppliers being told they’ve only sent in X versus Y but have no means to challenge. They have just been accepting these deductions.

“I’m delighted the Adjudicator has announced his decision to investigate and that he’s bared his teeth for the first time,” Kittow adds. “We’ve had three years of Amazon basically sticking two fingers up against the market and suppliers, now we will see if they really wish to work with the adjudicator and stay within the law.”

The industrial scale of delays to payments, says Martin Heubel, director & founder, Consulterce Ltd, make the investigation “long overdue.”

Heubel says Amazon’s tactics have also single-handedly seen an entire ecosystem of service providers, names like Baros Solution and Chargeguard, emerge to focus solely on revenue recovery for invoice shortages and pricing claims with Amazon.

“Incorrect case pack or pack size attributes in Amazon’s catalogue, caused by either algorithmic or manual updates from both vendors or Amazon, can lead to shortages, where Amazon withholds payment if their systems believe fewer units were delivered than invoiced,” he says.

“This creates an immediate cashflow impact and a long-winded dispute process that is overwhelming for most brands and often requires dedicated headcount to manage in line with Amazon’s strict dispute requirements.

“Additionally, Amazon is known to use an accounting practice called “provision for receivables,” where it withholds any payment if a vendor owes Amazon more than Amazon owes them, putting further strain on cash flow.”

Amazon’s response

Amazon claims it has made significant efforts to improve its compliance and points to this week’s results as evidence they are paying off.

In December, The Grocer revealed it had carried out a major overhaul of its rules of engagement in a bid to ward off GCA action, including relaunching a supplier dashboard dealing with disputes over “shipment variances”.

Furthermore, Amazon points out its survey scores have improved in 20 of the 30 ‘supplier terms’ categories, with another eight remaining the same. The improvement is the second-largest single year-on-year increase for a retailer since the first annual survey was carried out in 2014, it adds.

“We know there is much more to do, and we will continue to work collaboratively with our grocery suppliers and the Groceries Code Adjudicator as we roll out further improvements,” says a spokesman. He adds Amazon is proud of the opportunities it creates for suppliers of all sizes in the UK.

But John Noble, director of the British Brands Group, says Amazon’s improved score in no way lessens the case for the GCA investigation.

“Amazon is still by far the worst-performing retailer and this reinforces the need for an investigation,” he says. “It’s very much an outlier in the proportion of its suppliers who have raised an issue.

“The adjudicator has given them more than ample time and held off much longer than might have been the case.”

Another source goes further, claiming the adjudicator has “dragged his feet significantly”.

It’s a view backed up by David Sables, CEO of Sentinel Management Consultants. “There is a sudden surge of activity coming from the GCA that I like, and I want to see more of it,” he says.

“I think it will breathe trust into what was a gradual progression of the code that seemed to have stalled.

“We have seen a disengaging of suppliers because of the lack of perceived activity and lack of high profile intervention from the adjudicator.

“Amazon may have improved but nothing like enough and this investigation is fully merited and overdue.

“I think it would be extremely flawed thinking for Amazon to fight tooth and nail on this.

“In fact I actually think they should be fined and I think it would be good for the groceries code adjudicator to be seen to be fine them.”

But perhaps even more than for Amazon, the investigation has massive implications for the future of the adjudicator, following growing criticism of late from those who have sought to portray the office as an “impotent bystander” to the power of the big retailers.”

Adjudicator criticism

It is a timely line in the sand, after MPs in the House of Commons called out the Adjudicator’s lack of power to stop retailers bullying farmers earlier this month.

“If the GCA cannot investigate and robustly intervene to protect suppliers, producers and consumers… what’s the point of the GCA?” asked Labour MP Rebecca Long-Bailey.

The BBC’s Tom Heap went further, describing the Adjudicator as an “impotent umpire”.

The criticism comes amid a statutory review into the GCA’s effectiveness by the Department for Business & Trade. Ministers in charge of the review questioned White’s ability to bring Amazon into line at the outset of the process.

But White’s launch of the Amazon probe is not the only recent reminder of his bite.

Just two days earlier, The Grocer revealed White would also be advising on evidence in a landmark High Court dispute between Aldi and its former sprout and brassica suppliers, John Clappison and Matthew Rawson.

They are suing the discounter for £3.7m, claiming they were forced out of business when it pulled the rug on its orders with insufficient notice.

A judge has ruled White should be allowed to advise on the evidence.

While Aldi strenuously denies the claims, legal experts say the move has the potential to influence future action by suppliers. Plus, it could potentially create a new precedent for the Adjudicator to influence how the code is interpreted.

“For those who are saying GSCOP doesn’t have teeth, recent events are proving them wrong”, says Ged Futter, founder of the Retail Mind.

“I think the adjudicator’s biggest tests are Amazon and the court case against Aldi.

“For me the court case could be one of the biggest things that happens since the code came into being.”

One thing is for sure: while he’s busy preparing case files involving not just one, but two of the world’s biggest retailers, no one can accuse former lawyer White of shirking a challenge any more.