Loblaws and Sobeys investigated in Canada

Canada’s Competition Bureau has launched investigations into the parent companies of supermarket chains Loblaws and Sobeys for alleged anti-competitive conduct, court documents reveal, with Sobeys’ owner calling the investigation “illegal.”

Federal Court documents show the Competition Commissioner launched investigations on March 1, saying there is reason to believe the companies’ use of so-called ownership checks limits grocery retail competition.

The commissioner says the controls the food giants have included in leases are designed to restrict other potential tenants and their activities and are hampering competition in the food market.

The Competition Bureau revealed its investigation into the use of ownership controls in the food sector in February.

At the time, Deputy Commissioner Anthony Durocher told a House of Commons committee that ownership controls can be a barrier both to chains and independent grocers looking to expand, and to foreign players looking to enter Canada.

Therefore, in a report last June, the office recommended the government limit its use in the grocery sector to help boost competition and facilitate the opening of new supermarkets.

Industry Minister François-Philippe Champagne has said he is looking for a foreign grocer to bolster competition in the Canadian market.

Loblaw Cos. Ltd. and Empire Co. Ltd., parent of Sobeys, are two of Canada’s three largest grocery companies, each owning several grocery chains across the country.

Details of the investigations are contained in a pair of court requests filed by the commissioner on May 6.

Sobeys owner Empire has rejected the investigation, saying in a separate court filing that the probe gave the commissioner “the appearance of a lack of independence” amid public criticism from federal politicians over grocery prices and the conduct of retailers.

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

“Restrictive covenants are very common in many industries, including retail. They help support investments in real estate development, encouraging new store openings and capital risk taking,” he said.

The commissioner applied to the Federal Court to order Empire and George Weston to hand over real estate records, lease agreements, customer data and other records.

In court documents, the commissioner describes Empire and George Weston’s holdings in real estate investment trusts, or REITs. In both cases, the companies’ own feeder signs are important tenants for real estate companies.

Through a subsidiary, Empire owns a 41.5 percent stake in Crombie Real Estate Investment Trust, and Empire is an anchor tenant in most of Crombie’s properties, the documents say, adding that Empire’s stake in Crombie puts him in a position to exert influence. about the REIT.

George Weston has a 61.7 percent majority stake in Choice Properties Real Estate Investment Trust, and Loblaw accounted for more than half of Choice Properties’ rental income in 2023, documents say, and Choice Properties and Loblaw have an alliance strategic under which The REIT has agreed to “significant restrictions” that limit “its ability to enter into leases with supermarket tenants other than Loblaw.”

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

The documents show investigations are focusing on two types of ownership controls in commercial contracts and leases used by grocery retailers “in many markets across Canada.”

Restrictive covenants in private contracts, the commissioner says, “limit or restrict” how land can be used and can apply even after it changes ownership.

The covenants can “leave restrictions or exclusions on competitors that extend beyond ownership of the land, sometimes for decades,” the applications say.

Investigations are also looking into “exclusivity clauses” in commercial leases that “limit or restrict” who a landlord can lease and what products can be sold by other parties close to other tenants’ businesses.

“According to market participants, ownership controls are widespread in the food retail sector, influencing where and how companies can compete in food retailing,” says the commissioner.

Ownership controls, the commissioner says, can give companies “the ability to exclude actual or potential competitors from the sale of food products within certain geographic areas or to dictate the terms under which they conduct business.”

“This is a novel case,” said Michael Osborne, chair of the Canadian competition practice at law firm Cozen O’Connor.

Previous cases alleging abuse of dominance involved companies with significantly more market power than George Weston or Empire have individually, Osborne said.

Therefore, the Bureau will have to argue that the companies are jointly dominant because they use the same tools and together represent a large portion of the market, he said.

“The Bureau has never before filed a joint dominance case.”

Empire, Sobey’s parent company, claims the commissioner was wrong to launch the investigation because it does not have a “dominant” position in the market.

In a separate application to the Federal Court that has not yet been decided by a judge, the company denies that ownership controls are anti-competitive and says they “are not unique to the grocery sector, but have been used widely for decades in a variety of retail and other sectors throughout the country.

Empire also claims that the investigation was launched for an “inappropriate purpose,” stating that the grocery sector has been the subject of “inordinate” attention from politicians.

The company says the Competition Commissioner must make decisions independently and “free from political interference and direction.”

Empire says the decision to launch an investigation, amid a wave of criticism over rising food prices, raises “at least the appearance of a lack of Commissioner independence”.

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

Competition Bureau spokesperson Sarah Brown confirmed the formal investigations launched on March 1 and said the Bureau had filed a motion to strike out Empire’s judicial review application.

She declined to comment further, citing ongoing court proceedings.

The office is using new tools it gained from recent amendments to the Competition Act that expand the scope of the types of agreements it can examine.

Canada’s major grocers have recently come under public and political pressure as food prices have risen by double digits in just a handful of years.

Shopkeepers have denied accusations of so-called greed inflation, but the government has asked them to take steps to stabilize food prices. Canada’s three major supermarkets have also agreed to participate in an industry-led code of conduct aimed at helping level the playing field for smaller grocery retailers and suppliers.

This report by The Canadian Press was first published May 24, 2024.

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