Competition Bureau Intensifies Probe into Grocery Giants' Use of Restrictive Land Controls

Federal Watchdog Targets Property Clauses

Canada's competition watchdog is tightening its scrutiny of the nation's dominant grocery chains, focusing on long-standing real estate practices that may be illegally hindering competition and keeping food prices high. The Competition Bureau of Canada has confirmed it is formally investigating Loblaw Companies Limited, Sobeys' parent company Empire Company Limited, and Metro Inc. for their use of so-called 'property controls' or 'restrictive covenants'.

These clauses, often embedded in lease agreements or property deeds, can restrict how a piece of commercial real estate is used long after a tenant leaves. In the grocery sector, this can mean a major chain closes a store but legally prevents another supermarket from ever opening in that same location. The Bureau is concerned that this practice is being used systematically to create 'food deserts' in some areas and to insulate established players from new competitors, including independent and international grocers looking to enter the Canadian market.

Court Orders Issued Amid Delays

The investigation, which began earlier this year, recently reached a critical juncture. According to the Bureau, the grocery giants were not forthcoming with the information requested for the inquiry. This prompted the agency to seek legal intervention. In a significant move, the Competition Bureau secured a court order to advance its probe, compelling the companies to produce all relevant documents and records pertaining to their real estate practices.

These orders, granted by the Federal Court of Canada, legally require the companies to comply with the investigation. The Bureau's Commissioner of Competition, Matthew Boswell, has emphasized the importance of these tools in ensuring thorough and effective investigations. The move signals the seriousness of the inquiry and the Bureau's determination to uncover the full extent of these practices and their impact on the market.

The Mechanics of Anti-Competitive Controls

Restrictive covenants are not new, but their application in the highly concentrated Canadian grocery market has drawn sharp criticism. The practice was a key finding in the Bureau's comprehensive 2023 retail grocery market study. That report concluded that Canada's grocery industry needs more competition and identified these property controls as a major barrier to entry for new players.

The core issue is how these controls limit the availability of viable real estate for potential competitors. For example:

• A large grocer might sell a property but include a covenant in the deed that prohibits the buyer, and any future buyers, from leasing it to another grocery business.
• When a supermarket's lease in a shopping plaza expires, the landlord might be restricted by a clause in that original lease from renting the space to a rival grocer for a specified period, which can be years or even decades.

Critics argue that these tactics go beyond normal competitive business strategy and amount to a deliberate effort to control markets and limit consumer choice. By locking up prime retail locations, the dominant players make it exceedingly difficult for smaller, independent grocers or new international chains to establish a foothold.

Broader Context: Food Affordability and Market Concentration

This investigation does not exist in a vacuum. It is part of a wider, politically charged conversation about food affordability in Canada. For years, consumers have faced soaring grocery bills, and the profits of the major chains have come under intense public and political scrutiny. The federal government has been under pressure to take action, leading to hearings in Parliament and public calls for greater regulation.

The Competition Bureau's probe into these anti-competitive property controls is one of the most concrete regulatory actions taken to address the structural issues within the sector. While the grocers have often attributed rising prices to global supply chain issues and inflation, the Bureau's focus suggests that a lack of domestic competition may be a significant contributing factor. Canada's grocery market is one of the most concentrated in the developed world, with the top three companies controlling a vast majority of sales.

If the Bureau finds sufficient evidence that these property controls have substantially lessened or prevented competition, it could take further legal action. This could include seeking an order from the Competition Tribunal to prohibit the companies from continuing the practice. The findings could also fuel calls for legislative changes at both the federal and provincial levels to explicitly ban such restrictive covenants in the grocery sector, a move that some jurisdictions in the United States and the United Kingdom have already taken.

The outcome of this investigation could have profound implications for the landscape of the Canadian grocery industry, potentially opening the door for new competitors and offering beleaguered consumers the hope of more choice and fairer prices.