Competition Bureau Sues Loblaw and Sobeys to End "Anti-Competitive" Land Controls

Federal Watchdog Takes Aim at Grocery Giants Over Real Estate Tactics

The battle for competition in Canada's grocery sector has moved from the aisle to the courtroom. The federal Competition Bureau has filed an application with the Competition Tribunal against two of the country's largest food retailers, Loblaw Companies Limited and Sobeys' parent company, Empire Company Limited. The Bureau alleges that these grocery giants have for years used restrictive clauses in their lease agreements, known as property controls or restrictive covenants, to illegally limit competition and harm Canadian consumers.

At the heart of the case are contractual terms that prevent landlords from leasing space to other potential grocery store tenants within the same shopping plaza or development. According to the Bureau, these controls can remain in effect for decades, sometimes even after the original grocery anchor has vacated the premises. This practice effectively creates "food deserts" in some areas and insulates the dominant players from competitive pressure, particularly from discount chains and independent grocers who struggle to find viable retail locations.

The Bureau's investigation, which culminated in this legal challenge, found that these property controls are widespread across Canada. They argue that this tactic is a direct violation of the Competition Act, as it substantially prevents or lessens competition in the market. By controlling prime real estate, the major grocers can dictate the terms of the market, leading to higher prices, reduced consumer choice, and less innovation in the grocery industry.

A Culmination of Scrutiny

This legal action did not arise in a vacuum. It is the most significant enforcement step following the Bureau's comprehensive market study on the Canadian grocery industry, published in June 2023. That report identified a severe lack of competition in the sector, which is dominated by a small number of large players. The study explicitly pointed to restrictive property controls as a key "barrier to entry and expansion" for new and smaller businesses. At the time, the Bureau recommended that all levels of government take action to limit their use.

With this lawsuit, the Bureau is now taking direct aim at the practice. The application to the Tribunal seeks an order that would force Loblaw and Sobeys to cease using these restrictive clauses in their leases and to invalidate any such existing clauses across their networks. The Bureau has now escalated its findings into a formal legal challenge, announcing that the Competition Bureau takes legal action to end grocers' restrictive property controls through an application to the Competition Tribunal. This move signals a more aggressive enforcement posture from the federal watchdog, which has faced public criticism for being ineffective in tackling corporate concentration.

Industry Response and Potential Market Impact

The grocery companies involved have maintained that such clauses are a standard and legal part of commercial leasing globally, intended to protect their significant capital investments in establishing a store. They argue that these controls are necessary to ensure a stable business environment that allows them to operate effectively. Both Loblaw and Sobeys have stated they are reviewing the Bureau's application and will respond through the Tribunal's legal process.

However, consumer advocates and smaller grocery operators have long decried the practice. They contend it is a primary reason why Canada's grocery market remains so concentrated and why international discount chains have struggled to gain a significant foothold. If the Competition Bureau is successful, the ruling could unlock hundreds of prime retail locations across the country.

The ultimate objective of this landmark case is to dismantle these barriers, with the Competition Bureau targeting grocers' land controls to foster a more dynamic and competitive marketplace for the benefit of all Canadians. A favourable ruling could pave the way for new entrants, allow independent grocers to expand into new neighbourhoods, and give consumers more options beyond the handful of dominant banners. This, in turn, could exert downward pressure on food prices, a critical issue for Canadians facing a high cost of living.

The Road Ahead: The Competition Tribunal

The case will be heard by the Competition Tribunal, a specialized quasi-judicial body responsible for adjudicating cases brought under the Competition Act. The process is expected to be lengthy and complex, involving detailed legal arguments and extensive economic evidence from both sides. The Tribunal will need to weigh whether these property controls, as a business practice, have the effect of substantially lessening competition, as the Bureau alleges.

The outcome of this case will set a powerful precedent. A victory for the Bureau would not only reshape the grocery landscape but could also have ripple effects across other retail sectors where similar leasing practices are common. It would also affirm the Bureau's authority to challenge established business practices that it deems harmful to a competitive marketplace. Conversely, a loss would be a significant setback for the federal government's efforts to address affordability and competition, potentially prompting calls for even stronger legislative amendments to the Competition Act itself.