Competition Bureau Probes Grocery Giants Over Anti-Competitive Property Controls

Federal Watchdog Targets Restrictive Real Estate Practices

The Competition Bureau of Canada has intensified its scrutiny of the nation's highly concentrated grocery sector, launching a formal investigation into Loblaw Companies Ltd., Sobeys Inc., and Metro Inc. The probe centers on the companies' widespread use of so-called "property controls" or "restrictive covenants" in their real estate agreements, which the Bureau alleges may be stifling competition and harming consumers.

These controls are clauses embedded in lease agreements with landlords or in deeds of sale that effectively prohibit a competing grocery store from operating in the same shopping centre or on a specific parcel of land. These restrictions can remain in effect for many years, sometimes decades, effectively creating local monopolies and limiting where Canadians can shop for groceries. The Bureau's concern is that this practice entrenches the market power of the dominant players, makes it difficult for new or independent grocers to enter the market, and ultimately contributes to the high food prices that have become a major concern for households across the country.

Escalating Actions and Court Involvement

This investigation represents a significant step beyond the Bureau's 2023 market study on the grocery industry, which identified a lack of competition as a key problem. In a clear sign of the investigation's seriousness, the Competition Bureau has sought court orders from the Federal Court of Canada. This legal measure aims to compel the grocery giants and other real estate players to produce documents and information relevant to the probe. Such a move typically indicates that the Bureau has not received the level of voluntary cooperation it requires, or that it is seeking to formalize the information-gathering process for potential future legal action.

The investigation will examine the prevalence and impact of these restrictive clauses. For example, a dominant grocer might sell a location it is vacating with a covenant on the deed that prevents the new owner from ever leasing it to another supermarket. Similarly, as an anchor tenant in a shopping plaza, a major chain might insist on a clause in its lease that gives it veto power over any other potential tenant, which it can use to block a rival. The Bureau argues that such practices go beyond legitimate business interests and serve to illegally lessen competition.

Broader Context of Competition Reform

The Competition Bureau's escalating investigation does not exist in a vacuum. It aligns with a broader push from the federal government to strengthen competition law and enforcement in Canada. Public and political pressure over soaring food inflation has put the grocery sector under an intense spotlight. The government has recently passed amendments to the *Competition Act* designed to give the Bureau more authority to tackle anti-competitive practices, including those that do not fit neatly into traditional price-fixing or conspiracy frameworks.

This probe into property controls can be seen as a direct test of the Bureau's expanded mandate and its willingness to challenge established business practices that may harm the market. The outcome could set a major precedent for commercial real estate practices not only in the grocery sector but across the entire retail landscape in Canada.

Industry Position and Potential Outcomes

The grocery companies have largely maintained that such property controls are a standard and legal part of commercial real estate negotiations. They argue that these clauses are necessary to protect their significant capital investments in opening a new store. Without the assurance that a direct competitor will not open next door, they contend, they would be less willing to serve as anchor tenants, which could in turn hinder the development of new shopping centres. The companies have publicly stated they are cooperating with the Bureau's inquiry.

If the Bureau's investigation uncovers sufficient evidence that these property controls substantially prevent or lessen competition, it could take several actions. The most significant would be to bring an application before the Competition Tribunal, a specialized quasi-judicial body. The Tribunal has the power to issue orders prohibiting companies from continuing the practice and can impose substantial administrative monetary penalties. Even short of a full tribunal hearing, the investigation itself may pressure the companies to voluntarily abandon or modify their use of restrictive covenants. The Bureau could also use its findings to recommend further legislative changes to the government to explicitly outlaw such practices in the future.