HOWZAT

The Commission, which publishes its final findings next spring, said that in most areas shoppers had a good choice and benefit from strong competition between retailers. “But action is needed to improve competition in a number of local markets and to address relationships between retailers and their suppliers,” the watchdog said in a statement.

However it threw out suggestions made by supermarket rivals that Tesco, Britain’s largest supermarket group with more than a 30 per cent grocery market share, was hurting competition. “Tesco is not in such a strong position that other retailers cannot compete. Expansion by other grocery retailers continues, which suggests Tesco ... is not acting as a barrier to expansion,” the Commission said.

It also said that small shops were not losing out due to unfair competition from supermarket giants.

Peter Freeman, chairman of the Competition Commission, said: "This is not to say that life is easy for small retailers, but we do not see evidence of unfair distortions in competition between large grocery retailers and small stores."

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The Competition Commission has listed five possible remedies which it is asking all interested parties to comment on. All parties have six months to issue responses.

It is considering demanding that retailers sell land holdings in areas where concentration is weak; it suggests banning supermarket chains from using restrictive covenants or exclusivity arrangements - these typically prevent a rival retailer opening up on land that the group has previously sold - and it recommends changes to the planning system to provide more edge-of-town developments, while maintaining restrictions on out-of-town developments.

The Competition Commission also proposes introducing a competition test that would allow the existing local strength of a retailer to be taken into account in planning decisions.

The Commission also wants more retailers to be brought under the jurisdiction of the Supermarket Code of Practice.

The latest inquiry has put the spotlight on the tense relations between Tesco and its nearest rivals Asda, owned by the US giant Wal-Mart, particularly since the Competition Commission delayed its findings to examine email traffic between Asda and Tesco, suspected of containing information on pricing.

"Our review of emails between Asda and Tesco and their suppliers show that suppliers facilitate the exchange of information on retail prices charged by rival retailers," the report said.

Another area which had given Competition Commission cause for concern was the way that retailers deal with their suppliers. If left unchecked, it said, this could harm consumers. "We are concerned that the transfer of unexpected costs and excessive risk on to suppliers is likely to affect their ability to invest and innvoate, which could then adversely affect product quality and innovation for consumers," it says.

The National Farmers' Union said that given these concerns there was a clear need for a much tighter code of practice to govern supermarkets' relationships with their suppliers. The union believes the code should be enforced, either by the Office of Fair Trading or by some other independent third party such as an adjudicator or ombudsman.

"A tougher code, independently monitored, will provide the basis to dispel the culture of fear in the supermarket food supply chain, and replace conflict and suspicion with transparency and trust, " Peter Kendall, NFU President, said.

Tesco welcomed the Competition Commission's findings and said that they laid to rest the claims that Tesco’s size was a barrier to expansion by other grocery retailers.

“As expected, this provisional report looks at detailed points on suppliers, land and the planning system which we will discuss with the Competition Commission in the coming months. As in other Inquiries, they have set out a wide range of possible remedies. Our job is to make sure that any remedies are justified, have no perverse effects and that the consumer is the winner," Lucy Neville-Rolfe, executive director at Tesco, said.

The inquiry began in March 2006 after complaints about supermarket groups’ rapid expansion, predatory pricing, relationships with suppliers, and their entry into the convenience sector.

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