The Competition Commission has said in its final grocery report that the UK’s biggest supermarkets should be subject to a competition test on planning applications and give up restrictive covenants that stop rival building stores close to their sites.

After a two-year inquiry into the£130 billion grocery sector, the Commission has advised that a new code of practice should be established to regulate relationships between supermarkets and suppliers.

The Commission also said that an independent ombudsman needs to be set up to enforce the code, in an effort to make “it more robust and proactive in tackling those practices, which can damage investment by suppliers”.

Asda chief executive Andy Bond said: “The CC’s proposals on the new code and an ombudsman could cost the industry hundreds of millions, leading to higher prices for customers which will hit families hard at a time when they are already feeling the pinch.

“We strongly believe that the ombudsman should act as a mediator to resolve disputes rather than diving straight into binding arbitration and should remain focused on the interests of the consumer.”

Competition Commission chairman Peter Freeman said: “In many important respects, consumers are receiving the benefits of competition, such as value, choice, innovation and convenience, but we need to take appropriate action to address those areas where they could be served better and where their interests could be damaged in future.

“We have been very careful to ensure that our actions match the scale of the problems we have identified. Some aspects of the way retailers deal with their suppliers could, if left unchecked, also harm consumers.”

On planning, UK government bodies need to take steps to ensure that the Office of Fair Trading is a statutory consultant to local planning authorities for all applications for the development of a grocery store with a net sales area in excess of 1,000 sq m.

Large grocery retailers will be required to release the 30 existing restrictive covenants, which prevent rival grocers from building stores on those sites, in areas of high-local concentration within six months of the report. The big supermarkets will also not be allowed to enforce certain exclusivity agreements after five years of the actual store opening.

Bernstein senior analyst Chris Hogbin said: “Even in the worst case scenario of a competitor opening a store everywhere where there was previously a restriction, we estimate that the valuation loss would be less than£250 million for each of the retailers.”

The final report is a bitter blow for small independent retailers, which will be grasping at straws to put any positive spin on its findings. Freeman said: “Competing with large retailers is difficult, but our evidence does not show that independent retailers or the wholesalers that supply them are in terminal decline. It is not impossible for them to compete and in the current economic climate the benefits of vigorous competition are as relevant as ever.”

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