Following a consultation period, the OFT has decided there are enough competition concerns in the sector to warrant a full inquiry. More than 1,200 responses from the public were received during the consultation, most supporting a referral to the Commission.
The OFT said evidence it has compiled suggests that the planning regime and land holdings of the big supermarkets act as significant barriers to entry into the market.
It also found evidence to suggest that the big supermarkets' buying power has increased, and that some aspects of their pricing behaviour - such as below-cost selling - could distort competition.
OFT chief executive John Fingleton said: ''This reference will allow the Competition Commission to examine, in detail, all aspects of the grocery sector, ensuring that consumers are able to benefit from strong competition through even lower prices, improved quality and choice, and continuing innovation in the market.'
Marc Israel, a competition law partner at Macfarlanes, said: 'A big difference between this investigation and the previous one in 2000 will be the focus on planning and land issues. It also appears that the wider implications of competition, such as on smaller shops and other aspects of the supply chain, will play a bigger role than in the previous inquiry.'
The Association of Convenience Stores welcomed the decision. Chief executive David Rae said: 'This is a watershed inquiry for the industry.'
Seymour Pierce nalyst Richard Ratner said: 'One could argue that the larger the entity, the more likely it is to be adversely affected, while some of the smaller players, such as Aldi and Lidl, could do rather well.'
The OFT originally proposed to refer the supermarket sector to the Commission on March 9. It now has up to two years to conclude the investigation from the time the OFT makes a reference.
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