Supermarket leverageOFT refers supermarkets to Competition Commission

09 May 2006

Britain's competition watchdog is to probe the UK's GBP 95 billion grocery sector over fears big supermarkets could be using their power to dominate the market.

The Office of Fair Trading (OFT) has referred the sector to the Competition Commission after it received 1,200 responses from businesses and consumers, most of which backed a competition probe.

The OFT's initial report in March found that, since 2000, Asda, Morrisons, Sainsbury's and Tesco have tightened their grip on the 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.

Land banks

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

The watchdog 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.

Tesco, the UK's biggest supermarket, said the referral didn't come as a surprise and it was confident the commission would back the view that consumers have benefited from falling prices.

Tesco 'offers choice'

Chief Executive Sir Terry Leahy said: 'This inquiry gives us an opportunity to address some of the myths surrounding our industry. We will also reiterate that the consumer in every walk of life benefits from the choice, value, quality, convenience, range and service that supermarkets like Tesco provide.'

Organisations representing small shopkeepers welcomed the OFT's decision.