Competition Bureau Takes Legal Action Against Loblaw and Sobeys Over Alleged Anti-Competitive Land Controls

Introduction: A Challenge to Market Control

Canada's Competition Bureau has launched a significant legal challenge against two of the country's largest grocery retailers, Loblaw Companies Limited and Sobeys' parent company, Empire Company Limited. In an application filed with the Competition Tribunal, the federal watchdog alleges that the companies are using restrictive covenants in their lease agreements to unlawfully limit competition in the grocery sector. These clauses, often referred to as property controls, can prevent other potential grocery tenants from opening stores in the same shopping plazas or on land formerly occupied by one of the giants, effectively locking out rivals and limiting consumer choice.

The Core of the Allegations

At the heart of the Bureau's case is the argument that these property controls are not standard business practice but a deliberate strategy to maintain market dominance. According to the Bureau, these restrictive covenants can remain in effect for long periods, sometimes decades, even after a grocer has left a location. This creates what the Bureau calls "grocery deserts" in some communities, where consumers have few, if any, alternatives for their shopping needs. The Commissioner of Competition, Matthew Boswell, stated that such practices make it more difficult for new and independent grocery stores to open and compete, ultimately leading to higher prices and less innovation in the market.

The Bureau's investigation identified numerous examples across Canada. For instance, a case highlighted in Halifax involves a Sobeys location where the property controls allegedly prevent any other grocery store from operating in the same retail development. Similar instances were cited in Alberta and other parts of the country, painting a picture of a widespread practice that systematically disadvantages smaller players and new entrants. The Bureau argues that this conduct constitutes an anti-competitive practice under the Competition Act, specifically that it substantially lessens or prevents competition.

Industry Response and Defence

Both Loblaw and Empire have responded to the allegations, defending their use of property controls as a common and legitimate aspect of commercial real estate and retail business. In public statements, representatives for the companies have argued that such clauses are standard practice globally and are necessary to protect their significant investments in store locations and infrastructure. They contend that these controls allow them to plan for the long term and ensure a stable operating environment. Furthermore, they dispute the claim that these practices are the primary driver of high food prices, pointing instead to global supply chain issues, inflation, and government policies.

Loblaw stated that restrictive covenants are a "long-standing, normal and necessary feature of the retail landscape" and that the Bureau's focus is misplaced. Similarly, Empire has expressed its disagreement with the Bureau's conclusions, indicating it will defend its position before the Tribunal. The companies maintain that the Canadian grocery market remains highly competitive and that they are committed to providing value to consumers.

Broader Context: Food Inflation and Market Concentration

This legal action does not occur in a vacuum. It comes at a time of intense public and political pressure over the cost of living, with grocery prices being a major point of concern for Canadian households. The country's grocery market is one of the most concentrated in the developed world, with Loblaw, Sobeys, and Metro controlling a vast majority of sales. This concentration has led to accusations of "greedflation" and calls for greater government oversight. This move is the latest in a series of government and regulatory scrutinies into the grocery sector, as the Competition Bureau takes legal action against Loblaws and Sobeys over restrictive land controls. The federal government has also been actively involved, summoning grocery executives to Ottawa to demand a plan to stabilize prices.

Consumer advocates and smaller grocery operators have long complained about the structural barriers that make it nearly impossible to compete with the dominant players. They argue that access to suitable real estate is one of the most significant hurdles. Therefore, consumer advocates argue that the Competition Bureau's challenge to grocery giants over these land controls is a critical step toward dismantling structural barriers to entry and fostering a more dynamic marketplace.

The Path Forward: The Competition Tribunal

The case will now be heard by the Competition Tribunal, a specialized quasi-judicial body that adjudicates cases brought under the Competition Act. The Bureau is not seeking financial penalties against the companies. Instead, its primary goal is to obtain an order from the Tribunal that would prohibit Loblaw and Sobeys from enforcing existing restrictive covenants and from entering into new ones. To succeed, the Bureau's lawyers will need to prove that the use of these property controls has had, or is likely to have, the effect of substantially preventing or lessening competition in the relevant markets.

The legal proceedings are expected to be lengthy and complex, involving detailed economic analysis and testimony from industry experts. The outcome will set a major precedent for the use of such clauses in Canada, not only in the grocery sector but potentially in other retail industries as well. If the Tribunal rules in the Bureau's favour, it could unlock hundreds of retail locations across the country, paving the way for increased competition from independent grocers and international chains that have so far struggled to gain a foothold in Canada.