Planning laws are one of the biggest threats to competition in the £95 billion (€139 billion) a year grocery market, the head of the UK's office of fair trading (OFT) said as he referred the sector to the UK competition commission for the third time in seven years.
Dr John Fingleton, OFT chief executive, yesterday confirmed his intention to launch a full inquiry.
He said the additional evidence collected as part of the consultation process had cemented his view that restrictive planning laws, coupled with evidence that the big supermarkets are building up large landbanks, were the most serious issues to address.
"The ability of new entrants to open up new stores is a crucial issue," Dr Fingleton said. "I don't know whether supermarkets are landbanking because the planning regime is so slow, or there is a bit of gaming the system to stop competitors getting in. In either case, there is a cost to consumers."
The decision means the sector will be under investigation for up to two years, costing supermarkets chains Tesco, Asda, J Sainsbury and Wm Morrison about £20 million in total.
Tesco chief executive Sir Terry Leahy said he hoped an inquiry would offer supermarkets a chance to "address some of the myths surrounding our industry".
Asda said the referral was "unnecessary", but added that it shared concerns over planning laws. The chain has consistently said in the past few years that restrictive planning rules were hampering its growth.
The competition commission now has more powers to enforce findings in this area.
Dr Fingleton also reiterated concerns over the impact that supermarkets' buying power could have on consumer choice, if it forces competitors out of the market. He added that aspects of supermarket pricing, such as below-cost selling, could also be distorting the market.
However, lawyers and the supermarket groups agreed that the commission was unlikely to take any action on pricing.
Dr Fingleton recommended that the inquiry should focus on the grocery market, rather than the supermarkets' push into non-food goods and fuel.
