The Office of Fair Trading (OFT) has ruled out a market review of the grocery industry, stating that the market is “competitive” and works in the interests of consumers.

The ruling means that the authorities see no competition issues arising from multiple supermarkets’ incursion into neighbourhood retailing and is a major setback for those organisations trying to curb the power of the big chains.

The OFT made its announcement at the conclusion of its audit of the supermarkets’ Code of Conduct. It gave supermarkets a clean bill of health, saying that there is no evidence that the Code needs to be amended, and that there are no grounds to refer the market as a whole to the Competition Commission or to launch a new market study. The statement added that wider concerns such as the diversity of the high street and the state of the rural economy were not within its remit to investigate.

The OFT’s Bob MacDowell told C-Store: “We have received a lot of material and have done a lot of work on this, but the fact is that the UK market for groceries is competitive, with more choice and lower prices for consumers.

“There is a lot of structural change in the industry with supermarkets moving into neighbourhood retailing, but there has been no harm to consumers. All retailers are out to compete and if supermarkets see there is an opening then that is what competition is all about. Organic growth is not market abuse.

“Currently Tesco and Sainsbury’s only have an 11% share of the convenience store market and, while we would look at any future acquisition on a case by case basis, we don’t have any supermarket in a dominant position here.”

The Association of Convenience Stores (ACS) said that the ruling had “failed thousands of retailers and suppliers, and millions of consumers.”

The ACS had submitted reams of evidence, market research and examples of the damage caused by below-cost selling in the fuel and Easter egg markets, as well as aggressive voucher activities by multiple supermarkets opening in new locations. The organisation vowed to continue to press for change through the Parliamentary Small Shops Group, which is conducting a market enquiry of its own.

ACS public affairs manager James Lowman said: “Ultimately, what happens to the grocery market now will be a political decision.

“The Small Shops Group will be able to make recommendations and get the relevant ministers to a hearing.”

Other organisations including the Federation of Wholesale Distributors and Friends of the Earth condemned the OFT decision. However, the British Retail Consortium’s director general Kevin Hawkins welcomed the ruling, adding: “We welcome the confirmation that consumers are benefiting from competition in grocery retailing.”

The OFT has highlighted 14 areas where Somerfield’s bid to buy 115 stores from Morrison’s would ‘reduce competition’ locally. The stores, which include a c-store in Filey, North Yorkshire, will probably be sold off to a third party.