Supermarkets facing competition investigation

The increasing dominance of supermarkets in Britain's grocery market may be investigated, it has been revealed.

The Office of Fair Trading has announced that it is planning to refer the issue to the Competition Commission for more detailed investigation.

The OFT said that the grocery market - defined as food, pet food, drinks, cleaning products, toiletries and household goods - was "evolving rapidly", accounting for nearly half of all retail sales.

The four largest supermarkets - Tesco, Asda, Sainsbury's and Morrison's - have all consolidated their share of total food retailing since 2000, with some supermarkets also moving into the convenience store sector, competing directly with smaller chains and independent stores.

Total grocery sales in 2005 were around £95 billion, representing around 13% of all household spending in the UK.

The OFT said that their evidence suggested a "mixed picture" of competition in the grocery market. It suggested that prices were falling, with some evidence of increasing choice and improving quality, and also suggested that consumers had benefited from strong competition between supermarkets, as well as the entry of supermarkets into the convenience store sector.

However, the OFT also found that there were factors which "could reasonably be suspected to distort competition and harm consumers". These included: the planning regime, which makes it difficult for new stores to open; the significant land banks of big supermarkets, which could also aggravate barriers to entry; and the restrictive covenants which some supermarkets have included when they sell sites.

The OFT said that there was also evidence to suggest that the buying power of large supermarkets had increased and that aspects of their pricing behaviour - such as below-cost selling and price flexing - could distort competition.

John Fingleton, Chief Executive of the OFT, said: "This has been a genuinely fresh look at the sector and we have built up substantial new evidence and knowledge about this sector in the past four months.

"Although consumers have benefited from lower prices, the restrictions in the planning system and the possible incentives those restrictions create for retailers to distort competition, may harm consumers and mean that competition in the market is less than it might otherwise be.

"In addition, the convenience has changed rapidly and given our evidence and the importance of this market for consumers, our provisional view is that it would be appropriate for the Competition Commission to investigate how that has affected consumers in local markets in terms of product variety and choice of fascia."

The Federation of Small Businesses welcomed the announcement, Carol Undy, FSB Chairman, said: "This inquiry is not a moment too soon. 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."

The supermarket groups have said that they had nothing to fear from the OFT's decision.

The OFT will hold further consultations on the matter for the next four weeks, before making the final decision on referring the matter to the Competition Commission on April 6.

(KMcA/GB)