Will a takeover see prices cut?

In a letter to the four supermarket groups vying to take over Safeway, the competition watchdog said on Thursday it may take into account the likely impact of each takeover on internet grocery sales, and on the market for non-food products.

It added that it would also consider whether Safeway would be able to compete effectively with its rivals if it carried on as an independent retailer.

The Commission confirmed that it would weigh up the effect of each possible takeover on consumer prices, its impact on suppliers' bargaining power, and on local grocery stores.

The Commission's 33-point letter highlights the complexity of the Safeway acquisition battle, with a takeover by any of its competitors deemed likely to shift the delicate balance of power between supermarkets, consumers, suppliers, and small shops.

Five-way fight

Safeway is being pursued by the UK's three top retailers - Tesco, J Sainsbury and Asda - as well as fifth-ranked Morrisons.

A fifth potential buyer, retail entrepreneur Philip Green, was exempted from Competition Commission scrutiny on the grounds that he is not involved in the supermarket business.

Many analysts had expected that Morrisons - smaller than the other three trade bidders, and with market leadership only in parts of northern England - would also be excluded from the watchdog's remit.

At an open meeting held by the Competition Commission last week, the four supermarket bidders said their bids, if successful, would lead to lower prices and new jobs.

But farmers' groups and representatives of smaller retailers protested that a takeover by any of the larger supermarket groups would lead to excessive concentration of power in the retail sector.

The Competition Commission is not expected to reach a final decision until August.