A full-blown inquiry into the UK's #95 billion grocery sector was confirmed yesterday after fears of anti-competitive practices sparked a massive public response.
The Office of Fair Trading has referred the sector to the Competition Commission because evidence suggests some chains are abusing their size by pricing products below cost.
It also believes that super-markets are using large "land banks" to stop rival retailers opening new outlets and said its concerns were shared by the bulk of the 1,200 consumers and businesses who responded to its initial report in March.
John Fingleton, chief executive of the OFT, said: "This reference will allow the Competition Commission to examine in detail all aspects of the grocery sector, ensuring that consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market."
The OFT found that some supermarket chains will only sell off their land to buyers who will not build competing stores on it.
These factors - coupled with local planning rules - are said to make it hard for new stores to open.
The OFT's decision means that the grocery sector could be under the cloud of investigation for as long as two years.
The scope of the inquiry could be extended beyond the points raised in the OFT's referral. If the Commission finds evidence of anticompetitive behaviour it will produce a set of corrective measures, but not introduce fines.
However, some analysts said it was difficult to see what action the Competition Commission could take, and shares in supermarket groups took the widely-expected investigation in their stride.
"It is quite difficult for them (the Competition Commission) to do anything to change the market in a way that wouldn't destroy it," said Teather & Greenwood analyst Sanjay Vidyarthi.
It is the third time in seven years that major supermarkets have been investigated as the Commission looked at the whole sector in 2000 and then examined competition issues that arose from a bid battle for Safeway three years later.
Market leader Tesco said the referral did not come as a surprise and it was confident the Commission would back the view that consumers have benefited from falling prices.
Chief executive Sir Terry Leahy said: "This inquiry gives us an opportunity to address some of the myths surrounding our industry.
Analysts believe Tesco will come under the biggest scrutiny because of its status as the UK's largest grocer and it is thought that it owns more than half of the land that is troubling the OFT.
Organisations representing small shopkeepers welcomed the news, with the Association of Convenience Stores describing it as "a watershed inquiry for our industry".
The Federation of Small Businesses said 7,337 independent retailers went bust between 2000 and 2004 and worried that another two years "may be too late for some small retailers".