The British competition authority is to investigate the groceries market amid concerns about the increasing power of the big four supermarket chains.
The decision by the Office of Fair Trade (OFT) - which is headed by former Competition Authority chairman John Fingleton - to refer the groceries market for a detailed study is a policy U-turn resulting from pressure by the small business lobby.
The study is expected to focus on the UK's planning regime, and in particular whether "needs test" acts as a barrier to entry, making it difficult for new stores to open and compete with those already in the market.
Big supermarkets appear to have significant land banks which could, coupled with the planning system, aggravate barriers to entry or otherwise harm consumers in some instances, the OFT said.
"There is also some evidence to suggest that the big supermarkets' buyer power has increased, and that there are aspects of the big supermarkets' pricing behaviour - below-cost selling and price flexing - which could distort competition," Mr Fingleton said.
The British grocery market is evolving rapidly. The four largest supermarkets - Asda, Morrisons, Sainsbury's and Tesco - have consolidated their share of total food retailing since 2000, and some supermarkets have moved into the convenience store sector, competing directly with smaller chains and independent stores.
The OFT had previously turned down requests for an investigation because it felt there was insufficient evidence of alleged abuse by the dominant supermarket chains.
But the new evidence built up by the OFT presents a mixed picture regarding competition in the market. It suggests that prices are falling, with some evidence of increasing choice and improving quality.
"While the number of convenience stores has fallen slightly since 2000, sales per store have risen and symbol groups and co-ops have grown within this sector," Mr Fingleton said.
"Although consumers have benefited from lower prices, the restrictions in the planning system, 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," he added.
"In addition, the convenience sector has changed rapidly, and given our evidence and the importance of this market for consumers, our provisional view is that it would be appropriate for the Competition Commission to investigate how that has affected consumers in local markets," Mr Fingleton said.
Shares in Tesco were down 1.7 per cent at 326-1/2 pence at 12:30pm, having been as low as 323p. Shares in Sainsbury were 0.3 per cent up at 318-1/2 pence, while Morrison stock was up 0.6 per cent at 205-1/2 pence.