Page last updated at 12:27 GMT, Wednesday, 30 April 2008 13:27 UK

Report tackles supermarket powers

Morrisons, Asda, Sainsbury's and Tesco stores
The grocery sector was referred to the Competition Commission in May 2006

Measures designed to curb the power of major supermarkets and improve choice for consumers have been announced by the Competition Commission.

Recommended changes to the planning system will make it harder for one chain to dominate a local area.

And a new independent ombudsman will resolve any disputes between suppliers and retailers.

But supermarkets are arguing that consumers could end up paying the cost of running the ombudsman scheme.

The measures come at the end of a two-year investigation into the UK's supermarket sector.

'Strong competition'

"Although, in many areas, there is good choice and strong competition between retailers, there are also a significant number of local areas where larger grocery stores face limited competition and local shoppers lose out," the Competition Commission said.

Retailers with good practices and relationships should have nothing to fear
Competition Commission

As a result, under the new proposals, the Office of Fair Trading (OFT) would have to be consulted on all planning applications to build new larger supermarkets or extend existing ones and would apply a "competition test".

Applications from retailers that do not already have a store in the area or where consumers have a choice of four or more different chains, will pass that test, the Competition Commission said.

Campaigners have argued that some of the larger grocery retailers were holding onto undeveloped land to prevent rivals entering that local market.

Retailers will not be required to sell any undeveloped land they own, but they will not be able to enforce any restrictions on what can or cannot be built on any land they sell.

The UK's biggest retailer, Tesco, which has faced accusations of hoarding land, said it was happy to work within the new rules on restrictive covenants.

However, the competition test "would make the planning process even slower and jeopardise job-creating regeneration schemes", said Tesco chief executive Sir Terry Leahy.

Protecting suppliers

A new supermarket ombudsman will oversee a stronger code of practice that will cover all grocery retailers with a turnover greater than 1bn.

The commission has done nothing to recreate vibrant shopping communities for local people
Sandra Bell, Friends of the Earth

It will investigate any complaints made by suppliers against supermarkets, and the Competition Commission recommends that it could have the power to "levy significant financial penalties" on retailers if they do not comply with the ombudsman's findings.

Crucially for suppliers, it will accept confidential information about retailers, to try to encourage suppliers and producers to come forward with complaints.

"Retailers with good practices and relationships should have nothing to fear," the regulator said.

But the boss of one major retailer expressed concern about the cost of setting up and running the ombudsman scheme - a cost, he warned, that could be passed onto the consumer.

"The commission's proposals on the new code and an ombudsman could cost the industry hundreds of millions, leading to higher prices for customers which will hit families hard at a time when they are already feeling the pinch," Asda chief executive Andy Bond, said.

'Vibrant communities'

There are no proposals to address the concerns of independent retailers that they are being squeezed out by the larger supermarket chains.

Consumers were benefitting from the intense rivalry between stores, the report concluded, and smaller shops were "not in terminal decline".

"It is not impossible for them to compete and in the current economic climate the benefits of vigorous competition are as relevant as ever," the report said.

But Friends of the Earth said the regulator had "missed the opportunity" to support local shops.

"The commission has done nothing to recreate vibrant shopping communities for local people," said Sandra Bell, supermarkets campaigner from Friends of the Earth.

The Competition Commission began its inquiry in May 2006. During the course of its investigation it received 700 submissions from retailers, suppliers, consumers and local authorities and held 81 hearings across the UK.

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