Competition Bureau Challenges Grocers' Property Controls in Bid to Boost Supermarket Competition

Introduction: A Challenge to the Status Quo

In a significant move aimed at reshaping Canada's grocery landscape, the federal Competition Bureau has filed a legal application with the Competition Tribunal to challenge the use of so-called "property controls" by some of the country's largest supermarket chains. The action specifically targets Loblaw Companies Limited and Sobeys' parent company, Empire Company Limited, arguing that their long-standing practice of embedding restrictive covenants in lease agreements stifles competition, limits consumer choice, and ultimately contributes to the high cost of food for Canadians.

Understanding Property Controls

At the heart of the Bureau's case are restrictive covenants, a common but controversial tool in commercial real estate. These are clauses written into property leases or deeds that dictate how a piece of land can be used by future tenants. In the context of the grocery sector, a supermarket chain might include a clause that prohibits another grocery store from operating on that same property, or even within the same shopping plaza, for an extended period—often lasting for decades. These restrictions can remain in effect even long after the original grocery tenant has vacated the premises, effectively locking up prime retail locations and creating what the Bureau calls "supermarket deserts" where competitors are legally barred from entry.

The Bureau's Argument: An Anti-Competitive Barrier

According to Matthew Boswell, the Commissioner of Competition, these property controls are a key structural barrier that prevents new and independent players from entering the market and competing effectively. The Bureau's investigation concluded that these restrictive clauses are widespread across Canada, making it difficult for new grocery stores to open and for existing independent grocers to expand. The legal application argues that this practice lessens competition by raising barriers to entry and expansion, which in turn can lead to fewer choices for consumers, reduced quality of service, and higher prices for essential goods. The Bureau is asking the Competition Tribunal to strike down these restrictive covenants and prevent the grocers from enforcing or entering into similar agreements in the future. This legal action is one of the most direct challenges to the structural underpinnings of the Canadian grocery oligopoly in recent history.

A Highly Concentrated Market

The Bureau's action occurs against the backdrop of a grocery market that is one of the most concentrated in the developed world. A small number of companies, led by Loblaw, Sobeys, and Metro, control the vast majority of the market share. This concentration has been a subject of intense public and political scrutiny, particularly as food price inflation has outpaced the general inflation rate. Critics argue that this lack of competition allows the major players to maintain high prices and profit margins without significant pressure from rivals. The legal challenge over property controls is a direct attempt to dismantle one of the alleged mechanisms that perpetuates this market structure. The ongoing scrutiny of this sector is intense, as detailed in the recent Competition Bureau Takes Legal Action Against Loblaw and Sobeys Over Alleged Anti-Competitive Land Controls report, which highlights the depth of the issue.

The Grocers' Perspective

While the major grocers have yet to issue detailed public responses to the Tribunal application, their defence will likely center on the argument that such property controls are a standard and legal commercial practice. From their perspective, these clauses protect significant capital investments. Opening a large supermarket involves substantial upfront costs for construction, equipment, and supply chain logistics. Companies argue that they need assurance that a direct competitor will not immediately open next door, thereby jeopardizing the viability of their investment. They may also contend that these agreements are freely negotiated with landlords and are a necessary component of long-term business planning and risk management in the competitive commercial real estate market.

Potential for Market Disruption

Should the Competition Bureau succeed, the implications could be profound. A ruling that invalidates these property controls would unlock a significant number of commercially zoned properties across the country. This could dramatically lower the barrier to entry for international discount chains, such as Aldi or Lidl, which have so far been hesitant to undertake a large-scale expansion into Canada, partly due to the difficulty of securing suitable real estate. It could also empower existing independent grocers and new entrepreneurs to find viable locations, fostering a more diverse and competitive marketplace. The Canadian market is showing an appetite for new competitive landscapes. Just as new ventures are proving commercially viable in unexpected sectors, such as the commercial rise of professional women's sports in Canada, a similar disruption in the grocery sector could unlock significant consumer value by introducing new business models and pricing strategies.

The Path Forward

The case is now before the Competition Tribunal, a quasi-judicial body that adjudicates cases brought forward by the Bureau. The process is expected to be lengthy and complex, likely involving extensive evidence, expert testimony, and potential appeals from either side. The outcome is far from certain. However, the very act of filing this challenge sends a powerful message to the industry that the Bureau is willing to use its legal tools to address not just behavioural issues like price-fixing, but also the structural elements that it believes harm competition. This legal battle will be closely watched by consumers, industry analysts, and policymakers as a key test of Canada's ability to foster a more competitive and affordable marketplace for essential goods.