Supermarkets investigatedOFT warns supermarkets over competition probe

09 March 2006

The 'big four' supermarkets are set to face a probe by the competition watchdog over issues including their land ownership and discounts that hit local stores, it was announced today.

The Office of Fair Trading will make a final decision next month on whether to refer the grocery sector to the Competition Commission (CC).

It says that since 2000, Asda, Morrisons, Sainsbury's and Tesco have tightened their grip on the GBP 95 billion grocery sector. This has led to falling prices, and there is also evidence of increasing choice and improving quality, with consumers benefiting from strong competition between supermarkets.

But the OFT has found evidence that the big supermarkets' below-cost selling - also known as 'loss leaders' - and discounting products below prices in local stores could distort competition.

It said some big supermarkets had accrued 'significant' land banks which, when combined with a planning system that makes it difficult for new stores to open, could act as a barrier to their competitors.

Aggressive tactics

The OFT's initial analysis of the UK grocery market is subject to a four-week consultation before it makes a final decision on whether the CC should investigate.

Which? has welcomed the OFT's announcement. Principal Economist Alena Kozakova, said: 'We welcome the OFT's decision and believe their intention to focus their investigation on issues such as planning and land is the correct one, based on solid evidence. We are also looking forward to hearing the Competition Commission's analysis of other issues which affect consumers such as choice, buyer power and pricing behaviour.'

Today's news follows a parliamentary report last month which hit out at the four supermarket chains for aggressive and competitive tactics.

It warned that predatory supermarkets and large chains could drive many small shops out of business over the next decade.

The Federation of Small Businesses has welcomed the OFT's announcement. FSB National Chairman Carol Undy 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.'

Tesco's 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, who have benefited from unprecedented value, innovation and convenience over the past decade, precisely because of high levels of competition. We are confident that once the other observations in the report are explored the regulators will find that they are misplaced.'