According to reports, Asda, the UK retailer owned by US giant Wal-Mart, has started to lobby the British government to relax planning laws. This would enable the embattled chain to compete more effectively with the market leader, Tesco, but could ultimately lead to less choice for consumers as competition intensifies.

Asda representatives have been pressing the UK government for changes in the competition laws that govern planning authorization for new supermarkets, according to The Observer. Asda has been losing market share to the market leader, Tesco, and hopes that a relaxation of the planning laws will enable it to compete more effectively with its rival.

The main problem from Asda’s point of view is that of ‘first mover advantage’. What this means is that, in practice, once a large supermarket has been built in a particular area, no further planning permission is given in that area. Because of this, in many locations there is only a single large Tesco outlet and Asda cannot open a rival store.

Planning decisions for large supermarkets are made on the basis of a test for ‘adequate provision’. Before planning permission is granted, the authorities must decide whether or not the area needs such an outlet, and what effects its opening could have on local businesses. Asda’s representatives want this changed to a test for ‘adequate competition’.

However, building new stores is not the only way to compete with Tesco. All of the major supermarket chains have been pursuing growth in their market share through the acquisition of existing outlets. At the beginning of June, for example, the Office of Fair Trading approved the purchase by Asda of a dozen Safeway stores in Northern Ireland.

The scale of the retail industry’s consolidation and the ensuing price competition brought about by both acquisitions and new store openings may not only have potentially negative effects on smaller outlets such as corner shops, but could also turn out to be a mixed blessing for consumers. One of the effects of this competitive environment is that the much-vaunted choice of products that supermarkets claim to offer can, in fact, be reduced to only the most popular or cost-effective items. Thus, whether a change in the planning laws to allow the further proliferation of large supermarkets is desirable for consumers is debatable.

(c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.