Page last updated at 12:28 GMT, Thursday, 9 March 2006

Supermarkets face dominance probe

Supermarket checkout
The OFT wants to know how consumers are affected

Supermarkets are facing a full investigation by the Competition Commission into their dominance of Britain's grocery market.

The inquiry is set to be triggered by the Office of Fair Trading (OFT) after a further one month's consultation.

The OFT had been ordered by a tribunal to review a decision last year, when it decided not to launch an inquiry.

Critics have accused the UK's leading supermarkets of driving local convenience stores out of business.

The OFT said the big four supermarkets - Tesco, Asda, Sainsbury's and Morrisons - had built up their dominance of the food retailing business over the past six years.

But the OFT said prices had been falling and there was some evidence of increasing choice and improving quality, with consumers benefiting from strong competition.

Rapid change

The OFT said there were some features of the grocery market which it suspected may be distorting competition and harming consumers.

In particular, it pointed to:

  • the planning regime, which makes it difficult for new stores to open

  • the big land banks of the largest supermarkets

  • restrictions that some supermarkets put in place when they sell sites to other retailers.

Asda said it approved of proposals to investigate local planning rules.

"In our view, the planning regime needs to be tightened so that choice plays a role in whether planning consent is granted," a spokeswoman said. "The unintended consequence of the present system is that it limits customer choice."

On the crucial issue of whether or not supermarkets were driving out local or convenience store operators, the OFT said it had not yet reached a firm conclusion.

'Good news'

It said the entry of the supermarkets into this line of business has been good for consumers.

The development of the UK grocery market has been good news for consumers ... precisely because of high levels of competition
Lucy Neville-Rolfe, Tesco director

But it also acknowledged that the buying power of the big supermarkets had increased. It added that the way they sold some goods - for instance at below cost - could be unfair to smaller rivals.

The OFT's chief executive John Fingleton said: "The convenience sector has changed rapidly and our provisional view is that it would be appropriate for the Competition Commission to investigate how that has affected consumers in local markets."

The Federation of Small Businesses welcomed the OFT's announcement.

"This inquiry is not a moment too soon," said national chairwoman Carol Undy.

"When supermarkets, convenience stores and branded petrol stations are considered together, there is little doubt that there is a dominant position being taken by the big four supermarkets in the grocery sector."

But Tesco's group corporate and legal affairs director Lucy Neville-Rolfe said the company had nothing to fear from the OFT's decision.

"The development of the UK grocery market has been good news for consumers ... precisely because of high levels of competition," Ms Neville-Rolfe said.

The OFT will consult further over the next four weeks, until 6 April, and then make a final decision on whether to refer the matter to the Competition Commission.

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