Inquiry to target Tesco land bank

The Competition Commission is to investigate in more detail whether Tesco and its rivals are keeping hold of land banks to stamp out competition in local areas.

The watchdog rejected claims made by Sainsbury's and Friends of the Earth yesterday that Tesco could use its land bank to control nearly half of the national grocery retailing market by 2010. However, it said a closer examination at the local level was needed to find out the effect of land banks on competition. The commission also warned that a "climate of fear" was hampering its inquiry into the £125bn grocery market sector and called on farmers to come forward to give evidence.

The report, following an 18-month investigation by the commission after the sector was referred by the Office of Fair Trading, was not overly critical of the Big Four. It said there was little evidence that supermarket suppliers as a group were being squeezed, or that larger grocers systematically obtained lower prices than smaller players.

The City felt the commission's initial findings could have been much tougher on the sector. Richard Ratner, at Seymour Pierce, said the commission was making it clear it did not intend to penalise success. "The only issue we believe is strongly flagged is Tesco's land bank," he said. "The final report could outlaw any restrictive covenants to prevent other supermarkets using land being disposed of."

Shares in the sector rose slightly as the City breathed a sigh of relief that the report had not been more hard-hitting. Tesco added 1.5p to 415.25p; Sainsbury's rose 3.5p to 438p.

The chief executive of Tesco, Sir Terry Leahy, was upbeat and said the commission goes some way to "dispelling the myths surrounding our industry, particularly in their early work on suppliers where they have found no problems with the economic viability of manufacturers, processors or wholesalers".

Kevin Hawkins, of the British Retail Consortium, added a voice of support. "This is the third investigation in seven years which has found no evidence to support claims that retailers are unfairly putting the squeeze on their suppliers," he said. "I think it is time we put the issue to bed.

"Unlike utilities, council tax and fuel, food is the only regularly purchased household item which costs less now than it did eight years ago," he added. "It is competition between retailers which has made that happen."

The chair of the inquiry, Peter Freeman, said: "We are not here to punish success or individual retailers, but we are 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 commissions's main concern is to focus on the "competition between retailers at the local level", he said.

The Forum of Private Business is among several organisations calling on land banks to be more closely monitored. Victoria Carson, of the FPB, said: "There must be limits set on how much land is held by retailers and for how long," she said. "It is up to the supermarkets to prove that their plans are beneficial to the areas they are locating in, as well as their own bank balance."

The commission will release further findings in June, and its final report is due in November. Analysts have expressed concern that the level of research the commission says it will conduct at the local level could take considerably longer.