The Australian Competition and Consumer Commission (ACCC) said on Monday that it would observe closely the moves of supermarket giants Coles and Woolworths, particularly if the two would try to purchase Franklins or other independent grocers.

ACCC Chairman Rod Sims made the warning because of the impact of such a buy-out would have on competition in the sector.

The regulator filed last week an appeal against a Federal Court decision after ACCC sought to prevent the purchase by Metcash of Franklins. Mr Sims said he would prefer to have a group of independent grocery retailers by the Franklin chain to provide Coles and Woolworths more competition.

The regulator pointed out that majority of independent retailers were against the Metcash buy-in of Franklins, but Federal Court Judge Arthur Emmet turned down the grocers' argument that the takeover would lessen competition as pure speculation.

Metcash offered $215 million for Franklins, owned by South African chain Pick n Pay Stores, which tried to negotiate a wholesale supply agreement with Woolsworth as early as 2004.

In April 2011 ACCC lawyer Norman O'Bryan told the court that major retail chains are not in the same market as the Metcash.

"They do not, and it is highly unlikely, will not ever supply to independent supermarkets because it simply does not make economic or financial sense for them<' O'Bryan was quoted by The Sydney Morning Herald.

The ACCC insisted during the April trial that Metcash would have an effective monopoly on grocery wholesaling in New South Wales had the buy-in pushed through. Metcash, in turn, said that any examination of competition issues must focus on the entire retail grocery sector to include the bigger retailers such as Woolsworth and Coles.

Mr Simms said that the regulator appealed the court's decision because if left unchallenged, would cause problems for future mergers.