Federal Court Backs Competition Watchdog in Grocery Sector Investigation

In a significant development in the ongoing scrutiny of Canada's concentrated grocery market, the Competition Bureau has obtained a Federal Court order compelling two of the country's largest grocery retailers, Loblaw Companies Limited and Empire Company Limited (the parent company of Sobeys), to produce documents and information related to their use of property controls. This legal maneuver marks a critical escalation in the Bureau's investigation into whether these practices are unlawfully hindering competition and contributing to persistently high food prices for Canadians.

The court order, granted in late 2023 and now being enforced, addresses the use of so-called 'restrictive covenants' in lease and property sale agreements. These clauses, often embedded in real estate contracts, can prevent other potential tenants or property owners from operating a competing grocery store in a specific location, sometimes for many years. The Bureau is concerned that this practice, employed systematically by dominant players, creates artificial barriers to entry for new and independent grocers, thereby reducing consumer choice and keeping prices elevated.

Matthew Boswell, the Commissioner of Competition, has stated that the information is essential for the Bureau to conduct a thorough investigation. "We are using all the tools at our disposal to ensure a complete and rigorous examination of competition in the grocery sector," a statement from the Bureau noted. "This court order is a necessary step to obtain the information we need to determine the facts."

The Heart of the Matter: Property Controls and Competition

Property controls, while a common tool in commercial real estate, have drawn the Bureau's ire due to their potential to foreclose markets. For example, when a major grocery chain closes a store, it might sell the property with a covenant that prohibits the new owner from ever opening a food retail business on that site. Similarly, a grocery giant acting as an anchor tenant in a shopping plaza might have a clause in its lease that prevents the landlord from renting any other space in the plaza to a competing grocer. Critics argue that this effectively creates 'food deserts' in some areas and insulates established players from the competitive pressure that would normally be exerted by new entrants, including international discount chains or local independent markets.

This court victory is a significant step in the Competition Bureau's intensified probe into grocery giants' use of restrictive land controls. The investigation stems from a broader market study on the grocery sector released by the Bureau in June 2023. That report concluded that Canada's grocery industry is highly concentrated and that a lack of competition is a key factor behind rising food costs. It recommended that the government take action to foster a more competitive environment, including by potentially limiting the use of restrictive property controls.

Industry Pushback and Political Pressure

The major grocers have generally defended their real estate practices as standard and necessary for business. They argue that such controls protect their significant investments in store locations and are a normal part of commercial leasing negotiations. The path to securing the court order was not straightforward, indicating a degree of resistance from the companies to voluntarily provide the requested information. The Bureau's decision to seek a court order underscores the challenges it faces in compelling powerful corporations to cooperate fully with its investigations.

The probe is unfolding against a backdrop of intense political and public pressure over the cost of living. Food inflation has been a major concern for Canadian households, leading to parliamentary committee hearings where grocery executives were questioned about their profits. The federal government has publicly called on the grocers to stabilize prices, and the Bureau's actions are seen as a key regulatory response to these widespread concerns. The recent success where the Competition Bureau secured a court order in its probe of grocery giants' land controls marks a critical milestone in this government-wide effort.

What Happens Next?

With the court order in hand, the Bureau will now analyze the extensive records from Loblaw and Sobeys. The investigation will seek to determine if the use of these property controls has had the effect of substantially preventing or lessening competition, which is the threshold for action under the *Competition Act*. If the Bureau concludes that the law has been broken, it could seek a remedy from the Competition Tribunal, such as an order prohibiting the companies from using or enforcing such clauses in the future.

The outcome of this investigation could have profound implications for the structure of Canada's grocery market. A successful challenge to restrictive covenants could open the door for more independent grocers and international chains to find viable locations, increasing competition and potentially leading to lower prices and more innovation in the sector. For now, consumers, independent grocers, and policymakers will be watching closely as the Competition Bureau sifts through the newly obtained evidence in its fight to reshape Canadian grocery retail.