Amazon's UK groceries activities will now be monitored by the Competition and Markets Authority (CMA), which on 9 February 2022 designated Amazon.com, Incorporated as a "Designated Retailer" under the Groceries (Supply Chain Practices) Market Investigation Order 2009 (the Order). Interestingly, the CMA designated Amazon's US TopCo in its order, rather than its UK subsidiaries.
The Order was introduced in 2010 to address concerns over buyer power in the UK grocery industry. It targeted retailers with an annual UK retail groceries turnover of £1bn or more. The CMA's predecessor found that buyer power was leading to supply chain practices that transferred unexpected costs and excessive risks to suppliers. The Groceries Supply Code of Practice (the Code) was introduced to remedy this imbalance, by requiring Designated Retailers to follow a “principle of fair dealing”, and in particular:
- to conduct trading relationships in good faith, without duress and in recognition of suppliers' need for certainty as regards the risks and costs of trading, particularly in relation to production, delivery, and payment;
- not to retrospectively vary terms of supply;
- not to require payments as a condition of stocking goods, for superior positioning in stores, or to predominantly fund the costs of promotions;
- to restrict retailers' ability to de-list suppliers; and
- to give reasonable notice to suppliers and not to apply more than any ordinary commercial pressures to the supplier.
Amazon has two subsidiaries active in the supply of groceries in the UK; Amazon EU Sarl, and Fresh & Wild Limited. However, rather than focusing on those entities individually, the CMA chose to designate the corporate group, on the basis that Amazon is able to control the strategic policy and operations of each of its wholly owned subsidiaries. In the near team, this ensures that Fresh & Wild Limited (which has less than £100m turnover in the UK) is caught by the designation. Looking forwards, it presumably also brings into scope any new UK-focused grocery retailing venture in the Amazon group, no matter how small their turnover.
What does this mean for Amazon?
This development will entail additional compliance costs for Amazon, who will be subject to a variety of requirements as regards its activities in the UK grocery sector, including to:
- hold written copies of its supply agreements (which must incorporate the Code) and ensuring its suppliers also have copies;
- include a cover letter to supply agreements which highlight certain aspects of the agreement to the attention of suppliers;
- provide information to the CMA for the purpose of its monitoring and review of Amazon's compliance;
- train employees to act in compliance with the Code; and
- report to the CMA on an annual basis, detailing and describing compliance with the Code, and summarising this for inclusion in Amazon's annual report.
Compliance with the Code is supported by oversight from the Groceries Code Adjudicator, who has the power to arbitrate disputes with suppliers, publish recommendations to Designated Retailers, and to impose financial penalties.
Whether or not this will require any material adaptation to Amazon's UK business model, the designation will certainly add further complexity to Amazon's activities in the UK. This increased regulatory oversight is also likely to be supplemented with broader oversight of tech firms through the introduction of the Digital Markets Act in the EU, and the potential for more regulation of its conduct overseen by the Digital Markets Unit at the CMA.
More generally, the groceries sector continues to be an area of scrutiny for the CMA, following the CMA's 2019 prohibition of the merger of Sainbury's and Asda and its Phase I merger investigation into the completed acquisition by private equity firm Clayton, Dubilier & Rice Holdings LLC of Wm Morrisons Supermarkets Limited.