An investigation into how big grocery stores use real estate deals to squeeze out competitors could result in more competition in the industry and lower prices for consumers.
Competition Bureau of Canada, the nation’s competition watchdog and regulator, told a House of Commons committee in February that it is investigating leasing deals that allow big grocers to freeze out potential rivals from setting up shop. That investigation comes on the heels of a 2023 bureau report on the grocery industry that urged Canada’s provinces to place restrictions on these controls.
In particular, the bureau said property controls are preventing international grocers from establishing themselves.
“The successful entry of international grocers into the Canadian industry may be the best option to bring about lower prices, greater choice, and increased levels of innovation for the benefit of all Canadians,” the report said.
The details of the Competition Bureau investigation are being kept secret for now, but the probe is part of a broader regulatory effort to open more competition in the nation’s grocery sector.
“We recognize that food price inflation remains a significant issue for Canadians and that we need to approach our work in the grocery industry with heightened vigilance and scrutiny to ensure that Canadians benefit from greater choice and more affordable groceries,” Anthony Durocher, the Competition Bureau Canada’s deputy commissioner told the House of Commons standing committee on agriculture during a February 8 hearing. “To that end, we are actively pursuing an enforcement investigation in the grocery sector relating to the use of property controls.”
Those controls, also known as restrictive covenants, can block competitors from operating within the same retail complex. Even a convenience store can be blocked from selling a limited variety of food in the same complex.
Breaking these property controls could help new grocers enter the marketplace, but the impact on prices may not be as great as regulators hope.
Michael Von Massow, a professor of food agriculture and resource economics at the University of Guelph said a large chain can get into the real estate business themselves, allowing them to get around any limit or ban on those property controls.
“We need to be careful that we get what we want. You could say by breaking these covenants, Dollarama (located in the same complex as Sobey’s) could sell bread,” Von Massow said. “But it might also mean Dollarama won’t be able to locate there because the landlord, Sobey’s, might just say ‘We’re not interested in having that store this close to one of ours, so instead of restricting what they sell, we will restrict that they can sell here at all.'”
The landlord of a shopping mall complex may build a large facility designed specifically for a grocery store. That store, in turn, will insist on a lease agreement that forbids another store in the mall from selling groceries.
In other jurisdictions, including the European Union and Australia, these property controls are limited or banned outright.
“I was in a retail building in southern Germany. On one side was a mid-level grocery store. On the other side, literally across the hall, was a discount grocery store. We don’t see that to the same degree here in Canada,” Von Massow said.
In the September 2023 introduction of Competition Act reforms, the government sought to “empower the Bureau to block collaborations that stifle competition and consumer choice, particularly in situations where large grocers prevent smaller competitors from establishing operations nearby.”
Durocher told the committee the bureau will use the tools in the Act “wherever necessary to protect competition,” but the details of the ongoing investigation are not public.