Canadian Manufacturing

Competition Bureau investigates anticompetitive conduct by Loblaws, Sobeys owners

The Canadian Press
   

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The commissioner claims the controls that the grocery giants have baked into lease agreements are designed to restrict other potential tenants and their activities and are hampering competition in the grocery market.

Canada’s Competition Bureau has launched investigations into the parent companies of grocery chains Loblaws and Sobeys for alleged anticompetitive conduct, court documents reveal, with Sobeys’ owner calling the inquiry “unlawful.”

The Federal Court documents show the Commissioner of Competition launched the probes on March 1, saying there’s reason to believe the firms’ use of so-called property controls limits retail grocery competition.

The commissioner claims the controls that the grocery giants have baked into lease agreements are designed to restrict other potential tenants and their activities and are hampering competition in the grocery market.

The Competition Bureau revealed its investigation into the use of property controls in the grocery sector in February.

At the time, deputy commissioner Anthony Durocher told a House of Commons committee that property controls can be a barrier both for independent grocery stores and chains looking to expand, as well as for foreign players looking to enter Canada.

That’s why in a report last June, the bureau recommended the government limit their use in the grocery sector in order to help boost competition and make it easier for new supermarkets to open.

Industry minister François-Philippe Champagne has said he’s seeking a foreign grocer to strengthen competition in the Canadian market.

Loblaw Cos. Ltd. and Sobeys parent Empire Co. Ltd. are two of the three major Canadian grocery companies and each owns a number of grocery chains across the country.

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

Sobeys owner Empire has pushed back against the investigation, saying in a separate court application that the probe gave the commissioner “the appearance of a lack of independence” amid public criticism from federal politicians over grocery pricing and retailers’ conduct.

Loblaws’ parent company is co-operating with the bureau’s review, said spokeswoman Catherine Thomas on behalf of George Weston Ltd.

“Restrictive covenants are very common in many industries, including retail. They help support property development investments, encouraging opening of new stores and capital risk-taking,” she said.

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

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

Through a subsidiary, Empire holds a 41.5 per cent interest in Crombie Real Estate Investment Trust, and Empire is an anchor tenant in the majority of Crombie’s properties, the documents say, adding that Empire’s ownership interest in Crombie puts it in a position to exercise influence over the REIT.

George Weston has a controlling ownership interest of 61.7 per cent in Choice Properties Real Estate Investment Trust, and Loblaw accounted for more than half of Choice Properties’ rental revenue in 2023, the documents say — and Choice Properties and Loblaw have a strategic alliance under which the REIT has agreed to “significant restrictions” limiting “its ability to enter into leases with supermarket tenants other than Loblaw.”

The grocers have denied allegations of so-called greedflation, but the government has called on them to take action to stabilize food prices. All three major Canadian grocers have also agreed to participate in an industry-led code of conduct meant to help level the playing field for suppliers and smaller grocery retailers.

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