THE third inquiry into the grocery sector in six years is expected to cost leading supermarkets a combined £25 million after the Office of Fair Trading yesterday confirmed plans to call in the competition watchdog.

The wide-ranging investigation into the entire grocery market by the Competition Commission is expected to take two years. Industry observers believe that it could be the most costly investigation so far because of the Commission’s remit to examine competition in local areas across the UK.

As expected, the main areas of investigation suggested by the OFT were: restrictions on competition in local areas as a result of the planning system; supermarkets’ land holdings; the buying power of supermarkets; and pricing issues, such as below-cost selling and the flexing of prices up and down in certain localities.

The hopes of smaller supermarket groups to be excluded from the investigation were dashed, but analysts said that Tesco, Britain’s largest supermarket chain with the biggest pool of undeveloped land, was likely to have the most to lose from any “remedies”. Despite this, shares in all four big supermarkets held up yesterday as there were few surprises in the OFT’s referral document.

Sir Terry Leahy, Tesco’s chief executive, said: “Millions of consumers vote with their feet when they go shopping. They have a choice and it is one they exercise every day. But we know that some people have concerns and this inquiry gives us an opportunity to listen to those and address some of the industry myths.”

The OFT reiterated its suggestions on ways that issues in the grocery market could be tackled, such as forcing supermarkets to sell off land, imposing time limits on how long land could be held before planning permission is sought and action to control below-cost selling.

One new area of emphasis in the referral was the possibility of changes to the Supermarkets Code of Practice, a voluntary agreement introduced after the 2000 competition inquiry into the grocery sector in an effort to provide supplier protection.

The OFT admitted that it had been wrong to conclude in a review last year that there were no grounds to believe that a revision of the code could address concerns about the buying power of the supermarkets.

Suggested alterations include the inclusion of all supermarkets — the code refers only to the big four of Asda, Tesco, J Sainsbury and Wm Morrison — an anonymity clause to protect suppliers wanting to complain and the inclusion of farmers, not just direct suppliers to supermarkets.

CHECKOUT

2000

Competition Inquiry into grocery market launched amid accusations of “rip-off Britain” saying that supermarkets were profiteering and charging more than European rivals

Findings: Supermarkets cleared of profiteering and higher prices explained by currency fluctuations and higher costs of land. Some concern about below-cost selling and price-flexing expressed, but no remedies proposed. Identified that buying power of five major supermarkets could adversely affect competitiveness of some suppliers and distort competition. Supermarket code of conduct introduced to provide supplier protection

How received: A bit of a damp squib. An investigation last year into the voluntary supplier code of conduct found that it was working, but admitted that suppliers were too nervous to come forward with evidence of breaches

2003

Wm Morrison’s plan to buy Safeway followed by interest from rivals Tesco, Asda and J Sainsbury leads to a full market merger inquiry

Findings: Only Wm Morrison is cleared to take over Safeway and it is forced to sell off more than 50 stores, with strict limits imposed on which of the big four supermarkets can take them up. The other supermarkets were blocked because of fears over reduced competition. No conclusive evidence of price- flexing but it was suggested it would be easy for stores to switch to local pricing

How received: Seen as an expensive waste of time, as it was obvious that only Wm Morrison would be cleared. Maintained the status quo on the question of supermarkets’ encroachment into the convenience store sector and dealings with suppliers

2006

Concerns about competition in local areas leads to an investigation into how the planning system affects competition by limiting local market entry. Other areas for concern include the land holdings, pricing behaviour and increasing buying power of the large supermarkets

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