Federal Watchdog Takes Aim at Grocery Giants' Land Use Tactics

In a significant move targeting Canada's highly concentrated grocery sector, the Competition Bureau has initiated legal proceedings against two of the country's largest food retailers, Loblaw Companies Limited and Empire Company Limited. The federal watchdog filed an application with the Competition Tribunal seeking to end the companies' use of restrictive covenants in leasing agreements, which the Bureau argues unlawfully suppress competition and harm consumers.

The core of the Bureau's case centres on so-called "property controls." These are clauses embedded in lease agreements for retail space, often within shopping centres and commercial plazas. These clauses can grant a major tenant, like a Loblaw-owned Loblaws or an Empire-owned Sobeys, the power to prevent the landlord from leasing space to another potential tenant that would compete with them. In effect, this practice can block a rival grocery store—whether an independent, a discount chain, or another major banner—from opening in the same commercial complex or even within a certain radius.

According to the Bureau, this practice has been widespread for years, creating "commercial real estate blockades" that insulate the dominant players from competitive pressure. Matthew Boswell, the Commissioner of Competition, stated that such restrictions make it difficult, and in some cases impossible, for new grocery stores to open. "This behaviour restricts consumer choice and is a key barrier to entry for new and independent grocers trying to compete and offer lower prices," the Bureau noted in a public statement. The Competition Bureau's legal action aims to invalidate these existing restrictive clauses and prohibit the companies from entering into similar agreements in the future.

A Long-Standing Practice Under Scrutiny

Restrictive covenants are not new or unique to the grocery industry. They have long been a feature of commercial real estate, often justified by anchor tenants as a way to protect their significant investment in a location. A major supermarket argues it needs assurance that the landlord won't dilute its customer base by bringing in a direct competitor next door, which could jeopardize the viability of its store and the shopping centre as a whole. Proponents argue these clauses provide stability and predictability, encouraging large-scale investment.

However, the Competition Bureau's application contends that in a concentrated market like Canadian groceries, these private contractual arrangements have a broader, public anti-competitive effect. With a handful of companies controlling the vast majority of the market, their ability to control real estate effectively becomes a tool to manage and limit competition, rather than simply a standard business practice. This move is part of a wider effort, as the Competition Bureau takes on grocery giants on multiple fronts, including market studies and advocacy for policy changes.

The legal action comes at a time of intense public and political pressure on the grocery industry. Canadians have faced years of soaring food inflation, leading to parliamentary hearings and widespread calls for greater accountability and competition. While the grocers have maintained that their profit margins on food are thin and that inflation is driven by global supply chain issues and supplier cost increases, the perception of an uncompetitive market has persisted.

The Path Forward: The Competition Tribunal

The Bureau's application will be heard by the Competition Tribunal, a specialized quasi-judicial body that adjudicates cases under the Competition Act. The Bureau is not seeking financial penalties but is asking the Tribunal for an order that would force Loblaw and Empire to eliminate the restrictive clauses from their existing leases and to cease the practice going forward. The case will likely involve extensive evidence from real estate experts, economists, and industry participants.

In response to the lawsuit, both Loblaw and Empire have stated they are reviewing the application. In past statements on the matter, grocery representatives have defended property controls as a standard and legal tool used across the retail sector. They are expected to argue that the Canadian grocery market remains fiercely competitive and that these clauses do not prevent new entrants, pointing to the expansion of international players like Walmart and Costco in the grocery space.

The outcome of this case could have profound implications. If the Tribunal sides with the Competition Bureau, it could unlock significant retail space across the country, paving the way for independent grocers and international chains to expand into markets they were previously shut out of. This could, in theory, lead to more choice, innovation, and downward pressure on prices for consumers. It would also set a major precedent for the use of property controls in other retail sectors in Canada.