Enlarge imageBy Rachel Sanderson
LONDON (Reuters) - Top supermarkets may be forced to sell land to encourage competition but the biggest, Tesco, is not in such a strong position that it stifles rivals, the Competition Commission said on Wednesday.
In a long-awaited report on the 125 billion pound grocery sector, the Commission took a largely benign view, saying retailers were neither colluding nor systematically abusing suppliers.
The watchdog, which has wide powers to act, short of issuing fines and changing the law, also rejected claims that small, local stores are hampered by the growth of supermarkets.
"But action is needed to improve competition in a number of local markets and to address relationships between retailers and their suppliers," it said in a statement.
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One remedy could be to make retailers sell land where competition is weak and to ban the use of restrictive covenants or agreements that helped to shut out rivals, it suggested.
Competition Commission Chairman Peter Freeman told a media briefing forcing supermarkets to sell their land holdings was "a matter of last resort" but the possible penalty had been flagged to highlight the extent of its concerns.
Shares in Tesco, the retailer with most to lose from the findings, bounced nearly 3 percent higher to trade near its all time high as the prospect of stronger punitive measures receded.
"There were no huge surprises and the remedies do not appear heavy handed," Seymour Pierce analyst Andrew Wade said.
The provisional findings from the third inquiry in seven years into Britain’s grocery market also rejected claims that Tesco, with a 31 percent grocery market share, hurt competition.
"Tesco is not in such a strong position that other retailers cannot compete. Expansion by other grocery retailers continues, which suggests Tesco ... is not acting as a barrier," it said.
GENERALLY POSITIVE
The 18-month inquiry has put the spotlight on Tesco and its rivals Asda, part of world leader Wal-Mart Stores, J. Sainsbury and WM Morrison Supermarkets.
Bernstein Research analyst Christopher Hogbin said the findings were generally positive for the food retailers because they suggested limited change to their business operations.
Among its other recommendations, the Commission suggested changes to the planning system that would provide greater opportunities for developments on the edge of town centres, while maintaining constraints on out-of-town developments.
It was also considering changes to the Supermarkets Code of Practice (SCOP), which regulates retailer-supplier relationships, after noting 26 supermarket practices that "transfer excessive risks ... to suppliers".
The National Union of Farmers said the findings showed the need for a tighter code to govern supermarkets’ dealings with suppliers and welcomed the Commission’s suggestion an ombudsman or the Office of Fair Trading regulate their relations.
The Commission’s investigation began in March 2006 after complaints about supermarket groups’ rapid expansion, predatory pricing, relationships with suppliers, and their entry into the convenience sector.
Its final conclusion must be delivered by May 8, 2008.
Morrison welcomed the findings which it said confirmed the industry was broadly competitive.
