Tesco is set to become the largest operator of neighbourhood shops this year, according to the latest report by Verdict Research.

The report predicts that this year Tesco will move ahead of the Co-op, Spar and Musgrave, which owns the Budgens and Londis chains, by increasing its share of the neighbourhood retailing market by 0.5% from its current 5% share.

In its report Verdict valued neighbourhood retailing at £43.4bn in 2004, of which Tesco had 5% last year, behind Co-op at 5.5%, Spar at 5.4% and Musgrave at 5.3%. Tesco had just 0.9% of this market back in 1999.

Analysts at Verdict noted that the success of Tesco could however be hampered by Baugur if its gets control of Somerfield and merges it with the Big Food Group.

Tesco's growth in this market has been attributed to a combination of acquisitions, store conversions and organic growth. Tesco bought a London-based chain of convenience stores in January 2004, which were trading as Europa, Harts and Cullens.