On 1 March 2022, Amazon became the latest retailer to be designated as subject to the Groceries Supply Code of Practice ("the Code"), and to the oversight of the Groceries Code Adjudicator ("GCA").The designation follows the growth in Amazon's presence in the British grocery market, a growth which accelerated during the COVID-19 pandemic. This designation places a number of additional responsibilities on Amazon, and gives new rights to its suppliers of grocery products.

The groceries covered by the Code are food, pet food, drinks, cleaning products, toiletries and household goods (with some specified exceptions).

What obligations does the Code impose on retailers?

The Code regulates retailers' relationships with their suppliers in a variety of ways. The key obligations include:

  • dealing fairly and lawfully with suppliers (paragraph 2);
  • not varying supply agreements retrospectively (paragraph 3);
  • not delaying payments (paragraph 5);
  • not requiring contributions to marketing costs (paragraph 6);
  • not requiring the supplier to bear the predominant cost of a promotion (paragraph 13);
  • avoiding unjustified charges for consumer complaints about a product (paragraph 15); and
  • only de-listing for commercial reasons, and on reasonable notice (paragraph 16).

Many of the requirements were designed with brick-and-mortar retail in mind so may not be a neat fit with Amazon's primarily online model. However, the GCA is likely to expect obligations to be read across into the online space as far as possible.

How is the Code enforced?

The GCA is responsible for enforcing the Code. The GCA may carry out an investigation if he has reasonable grounds to suspect that a retailer subject to his jurisdiction has broken the Code or has failed to follow a recommendation made following a previous investigation by his office.

The GCA operates a confidential "Tell the GCA" tool that suppliers can use to anonymously report possible breaches of the Code.

If the GCA finds that a breach of the Code has occurred, he is able to take enforcement action against the relevant retailer. Under his enforcement powers, the GCA can: (i) make recommendations to the relevant retailer, (ii) require the relevant retailer to publish information, and/or (iii) impose a financial penalty on the retailer. The permitted maximum financial penalty is 1% of the relevant retailer’s UK turnover for the business year preceding the date of the financial penalty notice.

The Competition & Markets Authority ("CMA") has parallel regulatory functions in relation to retailers it has designated as subject to the Code. Those functions relate to compliance systems that have to be implemented by retailers (rather than the day-to-day compliance with the Code that is a matter for the GCA). The CMA will of course also remain the appropriate regulator for any allegations that a designated retailer has breached competition law, in relation to groceries or otherwise.

In practice the CMA and GCA will coordinate their enforcement activity, so if a supplier raises an issue with the 'wrong' enforcement body they should be directed to the right place, and if either regulator sees an issue that falls within the other's remit they can be expected to share that.

What will be the impact of the designation on Amazon?

Amazon opposed the CMA's proposal to designate it as subject to the Code. Notwithstanding that, the CMA considered designation was an appropriate step having regard to the scale of Amazon's groceries operations in the UK.

The significance of the designation for Amazon's day-to-day operations remains to be seen, but at an organisational level Amazon will need to implement a significant amount of bureaucracy, including:

  • incorporating the Code into all its grocery supply agreements;
  • giving certain notices to its suppliers pre-contract;
  • putting all agreement terms in writing and retaining copies of those;
  • appointing a Code Compliance Officer;
  • providing regular training on the Code's requirements to its buying team;
  • implementing specific dispute resolution processes; and
  • producing annual compliance reports.

Amazon will also need to start paying a levy to help fund the GCA.

The extent to which the designation affects how Amazon deals with its suppliers will depend on how different the Code's requirements are from how Amazon has treated its suppliers to date – the Code has applied to major food retailers for over a decade now, so should have produced broader cultural changes that may have affected even non-designated retailers. Only Amazon's suppliers will really be in a position to know whether it has been using any of the now-prohibited practices, but if so those will need to stop – and if they continue suppliers will be able to escalate the issue to the GCA.

Compliance tips for suppliers

Suppliers can take the following steps to make the most of their rights under the Code:

  1. Be aware of the rules – make sure all staff who deal with the large retailers are aware of the Code’s terms, and the obligations it places on retailers. Using the Code proactively in negotiations with retailers could secure a considerably better deal, particularly where the supplier's representatives can refer to the Code confidently and accurately.
  2. Check agreements – review agreements with large retailers (whether the agreement is based on standard Ts & Cs or something more bespoke) to ensure they reflect the Code obligations, including by being clear, transparent and entirely in writing. Obtain and retain copies of all retailer agreements.
  3. Monitor performance against agreements – retailers should be dealing in accordance with the terms of the agreement.
  4. Monitor performance against the Code – keep a good record of any developments in supplier-retailer relationships, including any retailer requests that seem to be contrary to the Code.
  5. Raise issues with retailers – the proactive compliance obligations, the GCA’s powers and the examples of previous decisions mean retailers should take any references to the Code seriously. Each designated retailer has a Code Compliance Officer who is independent of the buying team and available to deal with supplier concerns. Suppliers should know who the Code Compliance Officers are in their partner retailers and, if concerns are not resolved with the buyer team, be prepared to contact the Compliance Officer.
  6. Consider escalating issues – there is a formal dispute resolution process available in respect of the Code, which can be activated if discussions do not resolve the issue.
  7. Consider contacting the GCA – the GCA has a legal duty to safeguard the confidentiality of supplier complaints and discussions, and can consider issues raised informally by email, telephone or in person. The GCA particularly values hearing from small suppliers.
  8. Organise training – tailored, practical and commercially-focused training on the Code can help suppliers make the most of it when dealing with retailer partners.
  9. Take advice – any groceries supplier who is unsure about any of its contract terms with a designated retailer, or is unclear on the obligations the Code places on retailers and/or the rights it confers on suppliers, or wants to review whether dealings with a retailer are Code-compliant, can seek independent legal advice.

For more information, please contact Charles Livingstone or your usual Brodies contact.