Supermarkets will come under intense scrutiny after the Office of Fair Trading said it was minded to call for a full scale probe into the grocery market.

The consumer watchdog said that there were significant concerns over retailers’ impact on shoppers, and is likely to refer the case to the Competition Commission for a full investigation.

Its reasoning will go out for consultation for four weeks, before a final decision on referral is made.

Tesco’s group corporate and legal affairs director, Lucy Neville-Rolfe welcomed the announcement.

“We are confident that once the other observations in the report are explored the regulators will find that they are misplaced.”

But the Association of Convenience Stores saw the news in a different light. Chief executive David Rae said it vindicated his group’s legal challenge to last year’s OFT decision on compeition in the grocery market.

Though it is undoubtedly good news for independent stores, no mention was made of the devastating effect that retail price wars are having on farmers and small suppliers.

The fact that food prices have largely fallen over recent years was heralded by the OFT as a positive thing for consumers.

And the entry of big chains like Tesco and Sainsbury’s into the convenience retailing sector was also seen as good for competition.

Instead, concerns focused on planning issues and the large land banks that supermarkets have amassed, making it difficult for competitors to establish themselves.

The referral also says that below-cost selling and price flexing could distort competition.