A major inquiry into the grocery sector said today that it was looking at whether Tesco and other supermarkets stifled competition by creating strangleholds in local communities.

Outlining its "emerging thinking", the Competition Commission said it was "concerned with whether Tesco, or any other supermarket, can get into such a strong position, either nationally or locally, that no other retailer can compete effectively."

The Commission said it needed to look at the choices shoppers have in particular areas and how competition works between retailers of different sizes.

Inquiry chairman Peter Freeman said: "It would be a cause for concern if supermarkets, either individually or collectively, were in a position to increase prices or lower their offer in any particular locality or region because of lack of effective competition."

The commission has been investigating the power of supermarket chains Tesco, Asda, Sainsbury's and Morrisons, who, between them, are believed to control about 75 per cent of the grocery market and own 1,540 supermarkets.

Tesco, the UK's number one supermarket has the biggest share and now takes £1 of every £8 spent by consumers in the UK and £1 of every £3 spent in the grocery market.

Today’s progress report stopped short of drawing any conclusions about practices in the sector. Having gathered a large amount of evidence, the review panel will now look at matters in detail before publishing its provisional findings.

The Commission did say that evidence gathered so far suggested there were not widespread problems in the relationship between grocery retailers and their suppliers.

Mr Freeman said: "We have found that bigger buyers do not always appear to get better terms from suppliers, and food and drink manufacturers and processors, as well as wholesalers, seem to be in reasonable shape."

The Office of Fair Trading (OFT) referred the grocery sector to the Commission in May after evidence suggested some supermarket chains were abusing their size to stifle competition by pricing products below costs. The OFT found evidence to suggest some supermarket chains were using large so-called land banks - unused property - to stop rival retailers opening new outlets.

Although concerns have been raised about the environmental impact of supermarkets on the supply chain, the high street and communities, the Commission has said these were not issues it could rule on.

The Commission said today that it was aware of the extent of retailers’ land holdings, but said it was important to find out more about how they are used at a local level. It pointed out that Tesco held the most land, but that other retailers were actively increasing their holdings also.

This is the third time in seven years that major supermarkets have been investigated after 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.

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