Tesco now has a 5.4 per cent share of the “neighbourhood stores” market, according to Verdict, the market research firm, and is the fastest-growing chain in the sector.

The market leader, Spar, has 5.6 per cent while Musgrave, the Irish firm that controls the Budgens and Londis chains, is level with Tesco.

Nick Gladding, retail analyst at Verdict, said: “Current market leader Spar is predominantly a franchise operation with limited control over individual stores making it harder to deliver sales growth iniatives.

“With Tesco’s formidable track record of growth it is hard not to see Spar being forced to reliquish its crown during 2006.”

James Lowman, a spokesman for the Association of Convenience stores, which represents 32,000 small shopkeepers, said he was not surprised by Verdict’s findings.

He said: “While 5 per cent is a relatively small market share it is all subsidised by buying and the brand power generated by large supermarkets.”

He called on the OFT to re-examine the regulatory two-market definition of the grocery market which has allowed Tesco to expand into smaller stores.

The regulator has allowed Tesco to buy up small stores despite holding more than 25 per cent of the grocery market because it defines top-up shopping in convenience stores as a separate market from supermarkets, where large weekly one-stop shopping is carried out.

A spokesman for the Forum for Private Business said:

“Tesco should never have been allowed to go into convenience store market and now it is ripping up a whirlwind.”

He said that small shops were being forced to close because of Tesco and J Sainsbury’s expansion into small stores, and the impact on the high street was not good news for small businesses, local jobs or communities.

“The Office of Fair Trading need to order another inquity to get a grip on Tesco’s inexorable growth,” the spokesman said.

A parliamentary inquiry, carried out by an all-party group of MPs led by Jim Dowd, Labour MP for Lewisham West. is expected to back small retailers’ calls for the OFT to recommend a full Competition Commission inquiry into the power of the supermarkets when it reports in January.

Publication of the MPs’ report has been put back from next week until the end of January as they have been inundated with information on the power of the supermarkets and the difficulties faced by small stores.

Mr Dowd said that he was not surprised by Verdict’s findings.

He said: “This is good news for Tesco shareholders but is it good news for the best interests of consumers?” However, Verdict also found that the supermarkets’ expansion into neighbourhood stores had enhanced ranges and made prices more competitive.

Mr Gladding said: “Existing convenience store operators have been forced to fight back by increasing their own standards in order to remain competitive.”

He said independent stores had opportunites to fight back by developing stronger customer service.

TIMETABLE

• The OFT is considering whether to recommend a Competition Commission inquiry into the dominance of supermarkets
• Interested parties are being asked to submit evidence to the Office of Fair Trading
• Any measures suggested by the Commission could take a year to implement

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