Supermarkets accused over cigarette prices

Major retailers and two tobacco manufacturers are facing an investigation over allegations of unlawful cigarette pricing practices.

Tobacco giants Imperial Tobacco and Gallaher were named alongside chains including supermarkets Tesco, Sainsbury's and Asda in a "statement of objections" issued by the Office of Fair Trading.

The consumer affairs watchdog has accused the groups of anti-competitive pricing, alleging that firms co-ordinated to link the price of some brands to rival products and separately that some of those named arranged to swap information on future pricing.

Today's probe is the latest sign of the OFT's increasing clampdown on anti-trust activity, coming just a week after it announced a major inquiry into price-fixing in the construction industry.

The OFT said that the tobacco manufacturers and retailers struck deals that "restricted the ability of each of these retailers to determine its selling prices independently" in a period spanning 2000 to 2003.

It added that Gallaher, Imperial Tobacco, Asda, Sainsbury's, Shell, Somerfield and Tesco were involved in the "indirect exchange" of proposed future retail prices between competitors in the years 2001 to 2003.

First Quench, Morrisons and the Co-operative Group are also among those named in the inquiry, which has been ongoing since 2003.

John Fingleton, chief executive of the OFT, said: "For markets to work well for consumers, it is a fundamental principle that pricing decisions should be made independently.

"If we find evidence of anti-competitive activity, we are prepared to use the appropriate powers to punish the companies involved and to deter other businesses from taking part in such behaviour.

"If proven, the alleged practices would amount to a serious breach of the law."

The investigation comes days after the OFT apologised to Morrisons and agreed £100,000 damages after making incorrect accusations against the retailer in a dairy price-fixing probe.

Tesco today said in a statement over the tobacco inquiry: "The OFT's investigation appears to centre on major tobacco companies.

"We do not believe that Tesco has acted in a way that has harmed consumers and we will make this clear to the OFT when we see the details of their allegations."

Imperial Tobacco said it would respond to the allegations in due course, adding: "Imperial Tobacco takes compliance with competition law very seriously and rejects any suggestion that it has acted in any way contrary to the interests of consumers."

Gallaher, which is owned by Japan Tobacco, was not immediately available for comment.

Cigarette brands owned by Imperial include Embassy, John Player Special and Lambert & Butler, while Gallaher have brands such as Benson & Hedges and Silk Cut.

Those named in the inquiry now have around two months to respond to the OFT's statement of objections.

Companies involved in anti-competitive pricing practices can face fines of up to 10% of the relevant annual turnover - tobacco sales in this case - although penalties are generally less if businesses co-operate with an investigation.

The OFT declined to comment today on whether or not any of the firms named have applied for leniency.

Today's investigation follows a string of recent high-profile OFT inquiries, including investigations into housebuilders, the dairy industry, airline sector and most recently the construction market.

On Wednesday, the OFT announced a settlement with Morrisons after the chain took legal action over a press release issued in September by the OFT at the same time as a statement of objections against a number of large supermarkets and dairy processors.

The release wrongly stated that Morrisons was the subject of a provisional finding of infringement in relation to the supply of butter and cheese in 2002 and 2003. It also said the supermarket had previously been warned by the OFT against anti-competitive behaviour, which was not the case.

In fact, the only allegation relating to Morrisons involved liquid milk products in 2002.