British supermarkets' stranglehold on the high street was officially under threat today after the Office of Fair Trading said it was preparing to refer the country's £95 billion grocery market to the Competition Commission for a full-blown investigation.

In a humiliating public reversal of its ruling last year, the OFT said it would be asking the Commission to examine whether the "buying power" of the big supermarket retailers distorted competition and acted to the detriment of consumers.

The inquiry could lastnearly a year, and the supermarkets have expressed fears that the move could cost them millions in lost revenue.

Although fierce rivalry among the top supermarkets - Tesco, Asda, J Sainsbury and Morrisons - has driven down prices for customers, the OFT said it had been unable to reach a "firm conclusion" about whether product choice had actually increased for shoppers.

The consumer body said it also wanted a formal probe into the planning system to see whether it inherently acted as a barrier to entry for newcomers and made it harder for potential rivals to open stores.

It said it feared that, in combination with the huge land banks owned by the supermarkets, the system might also harm consumers. Some supermarkets attach restrictive covenants to the sales of their store sites.

John Fingleton, the chief executive of the OFT, said: "Although consumers have benefited from lower prices, the restrictions in the planning sytem, and the possible incentives those restrictions create for retailers to distort competition, may harm consumers and mean that competition in the market is less than it might otherwise be."

The OFT will consult the industry over the next four weeks before deciding on a formal referral on April 6. An investigation by the Commission could last a further nine months after that.

But today's move marks the completion of a hugely embarassing volte face by the consumer body, which only last August ruled that there was no need to investigate the grocery market.

Amid intense pressure from consumers and lobby groups such as the Association of Convenience Stores - and growing resentment among shoppers and suppliers - the OFT changed its mind in October and reopened its investigation into a sector that represents 13 per cent of all UK household spending.

A formal probe by the Commission would also represent the second time in five years that it has been asked to investigate the potentially abusive dominance of the supermarket groups.

Its investigation five years ago found no evidence of anti-competitive practices by the retailers.

However, the landscape of the sector has dramatically changed since then, following the acquisition of Safeway by Wm Morrison at the end of 2004. Sainsbury's, which was nearly brought to its knees two years ago amid tumbling profits and a lack of direction, has also found itself reinvigorated under chief executive Justin King.

Most of the supermarkets have also moved back into the high street, opening small convenience stores that compete even more fiercely with local shopowners.

Groceries, defined by the OFT as food, pet food, drinks, cleaning products, toiletries and household goods, account for nearly half of all retail sales.

Total grocery sales last year reached nearly £95 billion, accounting for 13 per cent of all household spending in the UK.

Today's move represents a big potential challenge to Tesco, by far the most dominant supermarket group with a 30.4 per share of the market, according to the latest figures from TNS, the market research firm.

Asda and Sainsbury's each have about 16 per cent of the market, with Morrisons following with about 11.2 per cent.

ACS today welcomed the OFT's decision, which it described as a "landmark ruling".

David Rae, the chief executive, said: "Buying power, below cost selling, price flexing, and the decline in choice caused by the closure of many independent shops are all identified in the OFT’s decision, and these are issues that the Competition Commission needs to address

"The grocery industry is one that all of us use and rely on in everyday life, and it is absolutely right that the authorities take a long hard look at these issues."

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