Federal Court Orders Compel Grocers to Cooperate with Competition Probe

The Competition Bureau of Canada has taken a significant step forward in its investigation into the country's major grocery chains, obtaining court orders to compel the production of information and records. The probe centers on the use of so-called "property controls" or restrictive covenants in commercial lease agreements, which the Bureau suspects are being used to unlawfully limit competition in the grocery sector.

The orders, granted by the Federal Court of Canada, target some of the biggest names in Canadian retail: Loblaw Companies Limited, Sobeys Inc., and Metro Inc. The Bureau is also examining the practices of real estate companies that work with these grocers. This legal manoeuvre became necessary, according to the Bureau, after the companies failed to provide all the necessary information voluntarily for its ongoing investigation, which was officially launched in early 2023.

Understanding Property Controls

At the heart of the investigation are clauses embedded in commercial real estate contracts that can dictate land use for decades. These property controls can take several forms. A common example is an "exclusivity clause," where a large grocery store, as an anchor tenant in a shopping plaza, insists on a condition in its lease that prevents the landlord from renting any other space in the same development to another supermarket. Another type is a "restrictive covenant," which can be placed on a property deed when a grocer sells a location, preventing that property from being used as a grocery store by the new owner. These restrictions can effectively block competitors—particularly smaller independent grocers or discount chains—from entering a specific neighbourhood or commercial area. The Bureau's concern is that these practices create artificial barriers to entry, reduce consumer choice, and ultimately contribute to higher food prices by insulating established players from competitive pressure.

Escalation of the Investigation

The move to seek court orders signals a new phase of the inquiry. It demonstrates that the Competition Bureau has intensified its scrutiny of these long-standing industry practices. In a statement, the Commissioner of Competition, Matthew Boswell, emphasized the importance of a competitive grocery market for Canadians, especially as they face rising costs of living. The Bureau's actions are aimed at determining whether these property controls violate the Competition Act by substantially preventing or lessening competition.

This is not the first time the issue has been raised. A 2023 study commissioned by the Bureau highlighted the prevalence of these restrictive clauses and their potential negative impact. The study noted that such controls could limit the availability of diverse retail options and contribute to the creation of "food deserts" in some communities, where access to affordable and fresh food is limited. The current investigation seeks to move from academic study to enforcement, gathering the specific evidence needed to assess the legality of these arrangements across the country.

The decision to compel information suggests the Bureau met resistance or incomplete disclosure from the companies involved. By securing these Federal Court orders, the Bureau has now secured the legal authority to demand comprehensive records, including internal communications, lease agreements, and strategic documents related to real estate planning. This trove of information will be critical in building a case if the Bureau concludes the practices are anti-competitive.

Industry Context and Potential Outcomes

Canada's grocery market is one of the most concentrated in the developed world, with Loblaw, Sobeys, and Metro controlling a vast majority of sales. This concentration has been a subject of intense public and political debate, particularly amid recent food price inflation. The grocers have consistently maintained that their real estate practices are standard, legal, and necessary to protect their significant capital investments in new stores. They argue that ensuring a stable commercial environment is a legitimate business objective.

If the Competition Bureau's investigation concludes that these property controls do indeed harm competition, several outcomes are possible. The Bureau could seek a consent agreement with the companies, in which they would agree to cease using such clauses in future leases and potentially modify existing ones. This is often the preferred route as it avoids a lengthy and costly court battle. However, if no agreement can be reached, the Bureau could take the matter to the Competition Tribunal, seeking an order to prohibit the practice. Such a ruling could have a transformative effect on the commercial real estate landscape and open up new opportunities for independent and international grocers looking to expand in Canada.

For now, the focus remains on information gathering. The court orders provide the Bureau with the tools it needs to conduct a thorough and evidence-based inquiry. The findings will be closely watched by consumers, competitors, and policymakers alike, as they could reshape the competitive dynamics of a sector that is fundamental to every Canadian household.