The Director of Consumer Affairs, Ms Carmel Foley, has set up an investigation into claims that a promotion by Dunnes Stores breaches a prohibition on below-cost selling.
The director has warned that she may take a court injunction against the supermarket giant if she concludes it is breaking the law.
In the wake of warnings by the independent grocer lobby that aggressive discounting by Dunnes could spark a damaging price war between the major multiples, Ms Foley said she was examining whether the chain is flouting the Groceries Order. Dunnes has cut the price of frozen foods by 61 per cent.
Inspectors from the Office of the Director were last night looking at Dunnes Stores records, although it may take several weeks before a finding is made. Their intervention comes less than a month after Dunnes was accused of selling baby foods below cost.
Permitting Dunnes to drop its prices so drastically could push many smaller stores to the brink of ruin, costing hundreds of jobs, said RGDATA, the organisation representing smaller retailers.
Suppliers to Dunnes also risk running up heavy losses as Dunnes demands lower wholesale prices for discounted products, according to RGDATA director Ms Ailish Forde.
Recent lay-offs in the supply sector will "pale into significance" against the number of redundancies that can be expected if Dunnes and its rivals descend into a lengthy price war, she said.
Industry sources think Dunnes may be testing the waters to gauge the depth of Government commitment to the Groceries Order, which was introduced in 1987, and effectively bans below-cost selling. It was brought in after the H Williams chain collapsed following a price war.
"Price cuts will be popular with customers. The order may become politically unenforceable because of consumer sensitivities about price," one insider said.
RGDATA asked customers not to embrace price cuts as a consequence-free bargain. Ms Forde said: "Consumers win through competitive activity in the marketplace. However, deep discounting by large multiples is a short-term tactic, that is designed to increase market share.
She added: "There is nothing competitive about trying to squeeze out choice and eliminate competition. That is what the current price war is all about."
In the long term, selective discounting benefits stores not consumers, added Ms Rosemary Garth, assistant director of the Irish Food and Drink Federation.
Dunnes declined to comment last night.
The Director's suspicion of heavy discounting by the major multiples is well-known. Earlier this week, she told a retailer convention of her disapproval of in-store promotions. Ms Foley favours keener across the board pricing, believing it offers better overall value to shoppers.
Ms Foley added that, under the Groceries Order, third parties who believe Dunnes is engaging in below-cost selling can seek an injunction against the company.
