Competition Bureau Takes on Grocery Giants Over Restrictive Land Controls

Canada's competition watchdog has escalated its fight against the country's major grocery chains, filing a legal application with the Competition Tribunal to challenge the use of so-called 'property controls'. The Competition Bureau alleges that major grocers, including Loblaw Companies Limited and Sobeys' parent company Empire Company Limited, have been using restrictive covenants in lease agreements to block or hinder rival grocers from setting up shop in proximity to their existing stores.

The legal action, announced by the Commissioner of Competition, targets clauses that are common in commercial real estate contracts. These clauses can prevent a landlord from leasing space in the same plaza to another supermarket, or even restrict the sale of certain food items by other tenants. The Bureau argues that while such clauses can sometimes have legitimate commercial purposes, their widespread and systematic use by dominant players has had the effect of substantially preventing or lessening competition in the Canadian grocery market.

This move is the culmination of years of scrutiny and public outcry over rising food prices and the lack of choice in many Canadian communities. The grocery sector is dominated by a few large players, a concentration that has been a focal point for both consumers and policymakers. The Bureau's 2023 market study into the grocery industry highlighted several issues hindering competition, with these property controls being a key area of concern. The study concluded that such restrictions make it more difficult for new and independent grocers to enter markets and expand, ultimately harming consumers through higher prices, lower quality service, and reduced innovation.

In its application to the Tribunal, the Bureau is seeking an order to prohibit the grocers from enforcing these restrictive covenants and from entering into similar agreements in the future. The Bureau contends that these practices are an anti-competitive act under the Competition Act. The legal challenge represents a significant test of the Bureau's powers, particularly following recent amendments to the Act aimed at strengthening its ability to tackle anti-competitive behaviour. Indeed, many see this as a direct result of how recent overhauls to Canada's Competition Act have empowered the agency to take more aggressive action against entrenched market practices.

The grocery giants have maintained that these property controls are a standard and legal part of commercial leasing across many industries, not just grocery. They argue that such clauses are necessary to protect their significant investments in store locations and to ensure a stable business environment. In public statements, representatives have often characterized these as pro-competitive, allowing them to offer a full-service store with confidence, which they claim benefits consumers. They are expected to vigorously defend these practices before the Tribunal, arguing that the Bureau is overreaching and misinterpreting the nature of commercial real estate negotiations.

The outcome of this case could have profound implications for the Canadian retail landscape. If the Competition Bureau is successful, it could unlock thousands of commercial properties currently bound by these restrictions. This would create opportunities for independent grocers and international chains like Aldi or Lidl, which have yet to enter the Canadian market, to find viable locations. Proponents of the Bureau's action believe this would inject much-needed competition into the sector, potentially leading to lower prices and more diverse product offerings for Canadians. The Competition Bureau's lawsuit against grocery giants over these land controls is seen by many as a critical first step toward dismantling the structural barriers that have protected the incumbents for decades.

The proceedings at the Competition Tribunal will be closely watched. The Tribunal, a specialized quasi-judicial body, will hear evidence and arguments from both the Bureau and the grocery companies. It will have to weigh whether the property controls, on balance, harm competition to a substantial degree. This case will not only determine the future of these specific clauses but will also set a precedent for how the Competition Act is applied to business practices in concentrated industries across Canada. For a government facing intense pressure on cost-of-living issues, a victory for the Bureau would be a significant political win, demonstrating tangible action on food affordability.