Traders in Pwllheli say they fear the town will soon be sandwiched between two supermarkets.
An image of how the Pwllheli Asda would look (pic: Asda)
Asda is building a store on the former site of a Jewson outlet, while permission already exists for another supermarket on the old Manweb site.
Claire Irvine, for Asda, said it was in competition with other supermarkets, rather than small traders in the town.
The Forum of Private Businesses is backing the town's traders.
A public meeting in the town heard that people were worried about planning issues near the site as well as the effect on local businesses.
Pwllheli Chamber of Trade chairman Paul Brett said he felt the new store would affect people living nearby, including the amount of light reaching their properties and the impact of extra traffic on the area.
"Asda did a traffic study in October, they should have done it over a year to see the volume of traffic in July and August," said Mr Brett.
The effect on the town's established businesses is also being questioned.
"This town is unique, it has nice small shops with plenty of choice, and numerous cafes," said Hywel Jones, who owns a butcher and greengrocer.
Head to head
"People come here to walk around a traditional market town," he added.
Asda wants to build its supermarket on a site which originally had planning permission for a 12,000 sq ft Safeway.
Traders are particularly worried because Asda now wants to expand this to 15,000 sq ft for more warehousing.
They fear that if Asda is allowed to expand, then whoever takes over the planning permission in place at the other end of the town could also want a bigger store.
But Claire Irvine, Asda's property communications manager, said: "Our approach is to go head to head with other supermarkets, we want to work with local people, because they are the people who will come into our store.
"In fact our research has shown that people travel out of the town to do their main shop, so our store would keep people in the area.
"Our message very much is community involvement - in fact each store has an events co-ordinator creating local links.
"This development should be seen as a positive thing for the town," she added.
Felicity Elphick, of the Forum of Private Businesses in north Wales, said: "Our high streets in North Wales are littered with empty shops where once individual and specialised retailers served the local community, giving choice and diversity.
"Local people should use their hardware shop, their butcher and their greengrocer. They'll miss them when they're gone," she added.
Asda's planning application will be discussed on 20 February.
A Gwynedd Council spokesman confirmed planning permission had been granted for a smaller supermarket at the second site, and the applicant has until July 2007 to submit details.