Federal Watchdog Takes Aim at Grocers' Property Tactics

Canada's Competition Bureau has initiated legal proceedings against two of the country's largest grocery retailers, Loblaw Companies Limited and Empire Company Limited (the parent company of Sobeys), over their widespread use of restrictive clauses in property agreements. The Bureau alleges these clauses, often called restrictive covenants or property controls, are anti-competitive tactics designed to prevent rival grocers from setting up shop in the same commercial developments or nearby locations.

In an application filed with the Competition Tribunal, the federal watchdog argues that these controls have been systematically used for years to insulate the grocery giants from competition. This practice, according to the Bureau, limits choice for consumers and contributes to Canada's notoriously high food prices by making it difficult for new players, including independent and discount grocers, to enter key markets. The legal action seeks an order from the Tribunal to prohibit the grocers from enforcing these existing clauses and from entering into similar agreements in the future.

The Mechanics of Market Control

Restrictive covenants are clauses written into lease agreements or property deeds that limit how a piece of real estate can be used. In the context of the grocery industry, a dominant retailer leasing a large space in a shopping plaza might insist on a clause that forbids the landlord from leasing any other space in that plaza to another business that sells food. These controls can extend for many years, sometimes decades, and can even apply after the original tenant has left the location.

The Competition Bureau's investigation found that these property controls are prevalent across Canada, effectively creating "food deserts" in some urban areas and preventing competitive friction in many more. For example, if a new discount grocer wants to open in a bustling suburban shopping centre anchored by a Loblaws or Sobeys, they may be legally barred from doing so by a pre-existing agreement between the incumbent grocer and the property owner. The Bureau contends that this is not a defensive business practice but a deliberate strategy to maintain market dominance and pricing power.

This legal filing is the culmination of a lengthy investigation. The Competition Bureau intensified its probe into the grocery sector following widespread public outcry over soaring food inflation and accusations of "greedflation." The study examined the structural issues within the highly concentrated Canadian market, where a handful of companies control the vast majority of sales.

A Shifting Legal and Political Landscape

The legal action comes at a time of significant change for competition law in Canada. The federal government has made tackling affordability and corporate concentration a key political priority. This has resulted in significant amendments to the Competition Act, aimed at giving the Bureau more power to challenge anti-competitive behaviour. The current legal challenge against Loblaw and Sobeys will be a major test of these enhanced powers and the government's resolve.

The recent overhaul of Canada's Competition Act specifically targeted practices that entrench market power and harm consumers. By empowering the Bureau to take on issues like restrictive covenants more directly, the legislative changes set the stage for this kind of direct confrontation. Success in this case could set a powerful precedent, not only for the grocery sector but for other industries where similar property controls are used to limit competition.

Both Loblaw and Empire have stated they are reviewing the Bureau's application. In past statements on the matter, grocery industry representatives have defended such clauses as standard and necessary commercial practice, designed to protect significant capital investments in their stores. They argue that these controls ensure a stable and predictable business environment. The central question for the Competition Tribunal will be to determine where the line falls between a legitimate business practice and an illegal anti-competitive act that harms the public interest.

Potential Impact on Consumers and the Market

Should the Competition Bureau succeed, the implications could be profound. The removal of thousands of restrictive covenants across the country could open the door for a new wave of competition. International discount chains, regional players, and independent grocers who were previously locked out of prime retail locations might find new opportunities to expand. This increased competition could, in theory, exert downward pressure on food prices and increase the variety of products and store formats available to Canadian shoppers.

However, the legal process is expected to be lengthy and complex. The grocery giants are well-resourced and will likely mount a vigorous defence of their long-standing business practices. The case will involve detailed economic analysis and arguments over the interpretation of competition law. The final decision from the Tribunal, and any subsequent appeals, will be closely watched by businesses, consumers, and policymakers alike as a bellwether for the future of competition enforcement in Canada.