London, April 30 - Britain's supermarkets face tougher scrutiny of expansion plans and relations with their suppliers after the country's competition watchdog announced the outcome of a two-year probe into the sector on Wednesday.
However the Competition Commission rejected calls that Britain's biggest supermarket group, Tesco Plc, should be forced to sell off stores or some of its land bank.
Britain's four top supermarket groups, Tesco, Wal Mart-owned Asda, J Sainsbury and Wm Morrison, account for about 65 percent of the country's 120-billion-pound ($238 billion) a year grocery industry, with Tesco making up by far the largest proportion.
This has led to calls from smaller businesses for the power of the "big four," and Tesco in particular, to be reined in.
But, confirming its provisional recommendations from February, the watchdog said that while it had found a significant number of local areas where competition was limited, there was no systemic problem.
"Whilst we have been sympathetic to those finding themselves under pressure in this market, particularly independent retailers, this does not mean that competition is not working well," Peter Freeman, chairman of the Commission and of the inquiry group, said in a statement.
Tesco was also not singled out for criticism.
"We did not find there to be competition concerns that apply to Tesco over and above those that apply to other grocery retailers," the watchdog said, adding it had assessed more than 700 submissions from retailers, suppliers, consumers, local authorities and others.
The inquiry, the third major investigation of the sector in eight years, is unlikely to end the regulatory uncertainty surrounding Britain's supermarkets, however.
The country's consumer affairs watchdog is investigating alleged price fixing of milk and cigarettes involving major grocers, and last week requested information relating to other products, signalling it may widen its inquiry.
The Commission said it had not found compelling evidence of tacit coordination involving retailers and suppliers, but added that this did not rule out attempts at collusion, which the Office of Fair Trading (OFT) is investigating.
BENIGN
"Overall, it looks like a fairly benign conclusion (for supermarkets)," said Pali International analyst Nick Bubb.
He said attention would now shift to the OFT inquiry and the deteriorating trading conditions facing retailers as indebted Britons curb their spending amid rising mortgage, food and energy costs and a cooler housing market.
A Gfk/NOP survey showed on Wednesday that British consumer confidence in April plunged to its lowest level since 1992, while the Nationwide building society reported the first annual fall in house prices in April for more than 12 years.
To address local shortfalls in competition, the Commission said the government should introduce a "competition test" to assess whether grocers should be allowed to build new stores.
It also announced stricter rules on so-called restricted covenants, or land agreements which supermarkets can use to prevent a competitor from setting up a rival store.
In particular, it called on the supermarkets to drop 30 existing restrictive covenants in areas which it had identified as suffering from insufficient competition.
The Commission also proposed a new, broader code of conduct covering relations between grocers and their suppliers and said this should be overseen by an independent ombudsman.
The Federation of Small Businesses, which represents thousands of independent retailers, said it was disappointed.
"The measures that the Competition Commission are proposing will not prevent the loss of small shops across the country and the knock-on effects to local communities," a spokesman said.
Asda, meanwhile, warned that the Commission's proposed new code of conduct could cost the industry hundreds of millions of pounds and lead to higher prices for customers.
Tesco, Sainsbury and Morrison had no immediate comment.
At 0825 GMT, Tesco shares were up 0.7 percent at 420.75 pence. Sainsbury was up 1 percent at 381 pence and Morrison down 0.5 percent at 287.5 pence.