Two grocery giants are under investigation for allegations of anti-competitive conduct.
The parent companies of Loblaws and Sobeys are being probed by Canada’s Competition Bureau, according to Federal Court documents.
The inquiry, which the owner of Sobeys is calling ‘unlawful,’ was launched Mar. 1 after the Commission of Competition said there was no reason to believe that the firm’s use of property controls limited retail competition.
According to the commissioner, these property controls were baked into the lease agreements by the companies and designed to restrict other potential tenants from activities that could strengthen competition in the grocery market.
The Competition Bureau began investigating the use of property controls in the grocery sector several months ago.
Deputy commissioner Anthony Durocher told a House of Commons committee that they are used as a barrier to entry for both foreign companies looking to enter the Canadian market and independent grocers who want to expand their retail outlets.
The federal government announced it was looking to lure international grocery companies into Canada to help create more competition among domestic food retailers last month.
Industry Minister François-Philippe Champagne said he aimed to bring in retailers from the U.S., Germany, Turkey and Portugal to increase competition.
“A lack of competition in Canada’s grocery sector means Canadians are paying higher prices,” read a section of the federal government’s latest budget.
However, Catherine Thomas, a spokesperson for Loblaws’ parent company George Weston Ltd., claimed that these property controls are commonplace across many industries.
“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,” said Thomas, according to Global News.
An application filed in the Federal Court by the commissioner forced both George Weston Ltd. and Sobeys’ parent company, Empire, to hand over all records regarding their real estate holdings, lease agreements, and customer data, among other records.
The records revealed that both companies have holdings in real estate investment trusts, with their own grocery stores being significant tenants of these properties.
Empire holds a 41.5% interest in Crombie Real Estate Investment Trust, making it a majority tenant of Crombie’s properties. Similarly, George Weston has controlling ownership of 61.7% of Choice Properties Real Estate Investment Trust, with Loblaws accounting for over half of its properties.
According to the court documents, the two have a strategic alliance under which the REIT has agreed to “significant restrictions” that limit “its ability to enter into leases with supermarket tenants other than” Loblaws or Sobeys.
The commissioner said these agreements “limit or restrict” how a piece of land can be used even after ownership changes hands and can even “leave restrictions or exclusions on competitors that extend beyond ownership of the land, sometimes for decades.”
“According to market participants, property controls are widespread in the retail grocery sector, impacting where and how businesses can compete in the retail sale of food products,” the commissioner claims.
The commissioner argues that these property controls allow companies “the ability to exclude actual or potential competitors from selling food products within certain geographic areas or to dictate the terms upon which they carry on business.”
Empire claims that the grocery sector has been subjected to an “inordinate” amount of attention from politicians and that the inquiry was launched for an “improper purpose,” suggesting “at least the appearance of a lack of independence of the Commissioner.”
Canada’s major grocers have been the subject of political and public scrutiny over the past several years as food prices have skyrocketed.
A survey conducted last fall found that 45.5% of Canadians were more concerned with the cost of their groceries than with the importance of their food’s nutritional value in terms of what they purchased.