Competition Bureau investigates owners of Loblaws and Sobeys

Canada’s Competition Bureau has launched an investigation into the parent companies of grocery chains Loblaws and Sobeys for alleged anti-competitive conduct, court documents reveal.

Federal Court documents show the Competition Commissioner launched investigations on 1^er March, saying there is reason to believe that companies’ use of ownership checks limits competition in the food retail sector.

The commissioner says the controls that grocery giants have built into lease agreements are intended to restrict other potential tenants and their operations and hinder competition in the grocery market.

The Competition Bureau indicated in February that it was investigating the use of restrictive real estate covenants in the grocery sector.

At the time, Deputy Commissioner Anthony Durocher told a House of Commons committee that ownership controls can pose a barrier to both independent grocery stores and chains wanting to expand, as well as players foreigners seeking to enter Canada.

This is why, in a report last June, the Bureau recommended that the government limit their use in the grocery sector in order to help stimulate competition and facilitate the opening of new supermarkets.

The Minister of Industry, François-Philippe Champagne, has already stated that he was looking for a foreign grocer to strengthen competition in the Canadian market.

Companies Loblaw And Empireparent company of Sobeysare two of the three largest Canadian grocery companies and each own a number of grocery chains across the country.

Details of the investigations are contained in two court motions filed by the commissioner on May 6.

Empireowner of Sobeysopposed the investigation, saying in a separate court petition that the investigation gave the commissioner the appearance of a lack of independence amid public criticism from federal politicians over food prices and retailer conduct.

The parent company of Loblaws is cooperating with the bureau’s review, spokeswoman Catherine Thomas said on behalf of the conglomerate George Weston.

Restrictive covenants are very common in many industries, including retail. They help support real estate investments, encourage the opening of new stores and the taking of capital risksshe argued.

The participations of the two companies

The Commissioner asked the Federal Court to order Empire and to George Weston to hand over records regarding real estate, rental agreements, customer data and other records.

In court documents, the commissioner describes the holdings ofEmpire and of George Weston in real estate investment trusts, or REITs. In both cases, the companies’ own grocery brands are important tenants for the real estate companies.

Through a subsidiary, Empire holds a 41.5% stake in Crombie Real Estate Investment Trust. And Empire is a main tenant of the majority of properties in Crombieindicate the documents, adding that the participation ofEmpire In Crombie allows him to exercise influence on the REIT.

George Weston holds a majority stake of 61.7% in the Properties de Choix real estate investment fund, and Loblaw accounted for more than half of Choice Properties’ rental revenue in 2023, according to the documents. Properties of Choice and Loblaw have a strategic alliance under which the REIT accepted significant restrictions limiting its ability to enter into leases with supermarket tenants other than Loblaw.

The commissioner’s investigation focuses on business activities in Halifax, but also across the country.

Documents show investigations focus on two types of ownership controls in commercial contracts and leases used by grocery retailers in many markets in Canada.

According to the commissioner, restrictive clauses contained in private contracts limit or restrict how land can be used and can apply even after a change of ownership.

Agreements can imposing restrictions or exclusions on competitors that extend beyond ownership of the land, sometimes for decadesaccording to the documents.

The surveys also cover exclusivity clauses in commercial lease contracts which limit or restrict who a landowner can rent to and what products can be sold by other parties close to another owner’s business.

Ownership checks could give companies the ability to prevent their actual or potential competitors from selling food products in certain geographic areas or dictating the conditions under which they operate.

Empire contests the investigation

In the past, cases alleging abuse of dominance have involved companies with significantly greater market power than that of George Weston orEmpire individually, according to Michael Osbornepresident of the Canadian competition department of the law firm Cozen O’Connor.

Therefore, the Competition Bureau will have to argue that the companies are jointly dominant because they use the same tools and together represent a large part of the market, says Mr. Osborne.

The Bureau has never brought a prosecution for joint dominance beforehe said.

In a separate application in Federal Court that has not yet been decided by a judge, Empire denies that real estate controls are anti-competitive and asserts that they are not unique to the grocery industry, but have been widely used for decades in a range of retail and other sectors across the country.

Empire claims that the commissioner was wrong to open the investigation because she does not occupy a position dominant on the market.

She also maintains that the investigation was launched in a inappropriate objectivesaying the grocery sector has received an unusually high amount of attention from politicians.

The company argues that the competition commissioner must make decisions independently and without interference or political direction.

Empire mentions that the decision to open an investigation, amid a wave of criticism regarding rising food prices, raises at least the appearance of a lack of independence on the part of the commissioner.

The company’s lawyer declined to comment since the matter is still before the courts.

The spokesperson for the Competition Bureau, Sarah Brownconfirmed the formal investigations launched on 1^er March. She said the Bureau filed a motion to quash Empire’s request for judicial review.

She declined to comment further, citing ongoing legal proceedings.

The Bureau is using the new tools it has acquired through recent amendments to the Competition Act, which expand the scope of the types of agreements it can examine.

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