The competition watchdog may block Woolworths from taking over the Hawker Supa IGA in Canberra's north.
The Australian Competition and Consumer Commission (ACCC) has released the initial findings of its The Hawker Supa IGA is the only full-line independent supermarket in the local market and is the only Supa IGA in north Canberra.
The commission says a take over by Woolworths would substantially reduce competition in the area.
It says that would be hard to fix due to high costs and regulatory barriers faced by any future competitors.
"Market inquiries have indicated that the Hawker Supa IGA differentiates its offerings from its competitors in terms of price, product range and service," ACCC chairman Rod Sims said.
"This differentiation represents a competitive response to the offer of rival supermarkets, providing additional choice to consumers." A group of residents has applauded the ACCC's initial findings.
Robyn Coghlan from Friends of Hawker Village says they are pleased that the ACCC has agreed with them.
"It was what I expected would be the most logical outcome of their inquiries," she said.
"A supermarket of such a major chain would inevitably compromise the viability of the smaller shops that exist at the Hawker centre.
"It would completely change the nature of the Hawker Shopping Centre." Woolworths says it will continue to engage with the ACCC on the matter and will review its statement before responding.
The statement of issues is open for comment until January 17.
A final decision is now expected to be made by February 7.