THE dominance of Tesco, Britain’s biggest supermarket chain, came under threat yesterday when the Office of Fair Trading threw a lifeline to small retailers by admitting that it had made mistakes in an 18-month inquiry.

The OFT said that it would reconsider whether to recommend another competition inquiry into the grocery market. Such an inquiry is likely to concentrate on the role of Tesco, which controls 30.3 per cent of the £80 billion UK supermarket grocery market.

The regulator has dramatically backed down from its August decision in which it ruled out a full market review. That decision came after a group of independent retailers launched a lawsuit against the OFT’s decision not to ask the Competition Commission to review the dominance of supermarkets.

Last Tuesday, the regulator was due to appear at the first hearing of the retailers’ case at the Competition Appeals Tribunal. However, on Thursday the OFT wrote to the the Association of Convenience Stores (ACS), which represents 32,000 small shopkeepers, indicating that it wanted to reconsider its decision on the grounds that it had displayed “insufficient reasoning.”

If the OFT decides a full review is necessary it would refer the investigation to the Competition Commission, which could put forward new restraints on the big supermarkets and might even force the sale of parts of their businesses.

The OFT said that it would would not contest the ACS’s case, which was led by Edwin Coe, the group litigation specialists who also represented the 50,000 Railtrack shareholders in their case against Stephen Byers, the former Transport Secretary, The regulator said it would pay ACS’s costs of about £50,000.

David Rae, chief executive of ACS said: “We are delighted that the OFT has decided to reconsider its previous decision. There are real problems in the UK grocery market that are undermining fairness and working against consumers’ interests. It is vital that the OFT gives full and detailed consideration to the concerns raised.”

The ACS applied for a full market review during the OFT’s inquiry into the code of conduct that governs supermarkets’ relations with their suppliers.

It argued that supermarkets used behind-the-scenes negotiations with suppliers and sharp practices such as selling goods at less than cost or flexing prices — temporarily lowering them to force out small stores.

Lucy Neville-Rolfe, corporate and legal affairs director for Tesco, said yesterday that dynamism and rivalry helped the consumer.“The regulators have concluded on a number of occasions that the way the market is working is in the consumers’ interest.”

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