The dramatic action follows last week's figures from market research group AGB which showed that the big four supermarket chains - Tesco, Sainsbury, Safeway and Asda - increased their share of the packaged goods market by a full percentage point between August and September. They now control almost two-thirds of the market between them.
The OFT, which keeps the power of the big supermarkets under constant review, decided to widen the scope of its inquiry following a formal complaint from the National Association of Master Bakers. The association had complained that the supermarket groups have cut the price of a loaf of bread to just 19p in some cases, lower than the loaves cost to produce.
Although the OFT has not yet launched an official investigation, the files on the issue of supermarket dominance have been reopened.
John Bridgeman, the director-general of fair trading, said: "Clearly the major supermarkets are increasingly significant players in the food and drink sector; they are able to negotiate favourable terms and conditions from many manufacturers and they are able to price their lines aggressively and selectively in the quest for bigger sales.
"While the majority of consumers would appear to have benefited from the growth of the supermarkets - after all, they are under no obligation to patronise them - some manufacturers or some retailers may be disadvantaged."
Mr Bridgeman said it was not his intention to protect companies from the rigours of competition. "But it seems that when powerful buyers emerge in the supply chain, the competition between them, which I would wish to encourage, may have distorting effects elsewhere in the system which are less appealing."
Mr Bridgeman wrote to the Association of Master Bakers last month, saying: "My officials have been considering the difficult issues raised by the impact of the large supermarket chains on small competing chains such as your members." He said this was "a complex area which is being given careful consideration".
According to the retail consultants Verdict Research, the supermarkets have succeeded in grabbing market share from a range of specialist retailers. Between 1987 and 1994 butchers' sales fell by 32 per cent, greengrocers' by 32 per cent, off-licences' by 10 per cent and bakers' by 5 per cent.
The supermarkets have been the subject of a string of investigations by the competition authorities. The Monopolies and Mergers Commission examined the ability of the major retailers to be supplied at favourable discounts but concluded that UK law gave adequate protection to smaller competitors.
If the OFT elects to mount a full-scale investigation, it would be the third time the watchdog has examined the issue of supermarket dominance. It investigated the industry in 1985 and again in 1993-94 but found the market to be working competitively to the benefit of consumers.Reuse content