Tesco attacks new attempt to limit grocery over-expansion

But competition test is supported by Sainsbury's, Morrison's and Asda

Tesco has warned the Government against proceeding with the Competition Commission's revised test to prevent UK grocers from gaining a dominant position in certain locations.

After Tesco won an appeal in March against the CC's initial competition test, the commission came back with an amended proposal yesterday and formally recommended that the Department of Communities and Local Government introduce the test in planning decisions on larger grocery stores.

Tesco, which has a 30.9 per cent share of the UK grocery market, has most to lose from the test. The proposal would block a retailer from opening a new store, or extending an existing one that already covers more than 1,000 square metres, if it gave a supermarket chain more than 60 per cent of the grocery selling space in an area where there are fewer than three rivals.

Lucy Neville-Rolfe, Tesco's executive director of corporate and legal affairs, said: "The Government should think very carefully before proceeding with this recommendation and intervening aggressively in what is acknowledged to be a highly competitive industry and deterring investment in these difficult economic times."

But the competition test is supported by Tesco's biggest rivals, including Asda, Sainsbury's, Morrisons, the Co-operative Group and Waitrose. An Asda spokesman said: "Anyone opposing this measure is in effect opposing more competition. Now more than ever, it is essential that consumers have the widest possible choice of supermarkets to do their shopping in."

Tesco had challenged with the Competition Appeals Tribunal the introduction of a competition test and in March CAT ruled in its favour.

Yesterday, the CC's amended final proposal ceded ground by allowing retailers to make small extensions of up to 300 square feet per store, as long as the store in question has not been extended in the previous five years. Tesco said it was studying the findings carefully before taking a view on an appeal.

Sainsbury's said it supported a test for new stores in the planning system. But a spokesman said: "While the CC has modified the test to allow small extensions, we are disappointed that it has not altered its thinking with regards to extensions overall, as we do not believe this will be beneficial for customers."

Peter Freeman, the chairman of the Competition Commission, said: "We expect that the competition test will have the effect we intend by helping to bring in competition where it is lacking and to stop individual retailers consolidating strong positions in local areas to the detriment of consumers."

It is thought that the earliest date that CLG – the devolved administrations in Scotland, Wales and Northern Ireland – may be able implement the competition test is 1 October 2010.

However, if CLG turns its back on the test, responsibility for its introduction would pass to the Department for Business, Innovation and Skills. The department has until 3 November to respond on the CC's other recommendation to introduce an ombudsman to police relationships between supermarkets and suppliers. Bryan Roberts, the global research director at Planet Retail, said: "The test does make a degree of sense. If you look at the so-called 'Tesco towns' some locations would benefit from increased competition." However, he added: "It is at least 15 years too late".