(Vancouver) 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 1er March, saying there is reason to believe that companies’ use of “ownership controls” limits competition in the grocery 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 clauses 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.
PHOTO PATRICK DOYLE, REUTERS ARCHIVES
Federal Minister of Industry, François-Philippe Champagne
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.
Loblaw Companies and Empire Companies, parent company of Sobeys, are 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.
Empire, owner of Sobeys, opposed 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 the food prices and retailer conduct.
Loblaws’ parent company is cooperating with the bureau’s review, spokeswoman Catherine Thomas said on behalf of the George Weston conglomerate.
“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 risks,” she argued.
The participations of the two companies
The commissioner asked the Federal Court to order Empire and George Weston to hand over records relating to real estate, leases, 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 grocery brands are important tenants for the real estate companies.
Through a subsidiary, Empire owns a 41.5% interest in Crombie Real Estate Investment Trust. And Empire is an anchor tenant of the majority of Crombie’s properties, the documents show, adding that Empire’s ownership interest in Crombie allows it to exert influence over the REIT.
George Weston owns a 61.7% majority stake in Choice Properties real estate investment trust, and Loblaw accounted for more than half of Choice Properties’ rental revenue in 2023, according to the documents. Choice Properties and Loblaw have a strategic alliance under which the REIT agreed to “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.
The documents show the investigations focus on two types of ownership controls in commercial contracts and leases used by grocery retailers “in many markets across Canada.”
According to the commissioner, restrictive covenants in private contracts “limit or restrict” how land can be used and can apply even after a change of ownership.
The agreements can “impose restrictions or exclusions on competitors that extend beyond ownership of the land, sometimes for decades,” according to the documents.
The investigations also focus on “exclusivity clauses” in commercial lease agreements that “limit or restrict” to whom a landowner can lease and what products can be sold by other parties close to a landowner’s business. other owner.
According to the commissioner, ownership controls could give companies “the ability to prevent actual or potential competitors from selling food products in certain geographic areas or dictating the conditions under which they operate.”
Empire disputes investigation
In the past, cases alleging abuse of dominance have involved companies with significantly greater market power than that of George Weston or Empire individually, according to Michael Osborne, chair of the Canadian competition department at the law firm. Cozen O’Connor lawyers.
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 joint dominance action before,” he says.
In a separate application in Federal Court that has not yet been decided by a judge, Empire denies that the real estate controls are anti-competitive and says they “are not unique to the grocery industry, but are widely used for decades in a range of retail and other sectors across the country.”
Empire claims the commissioner was wrong to open the investigation because it does not occupy a “dominant” position in the market.
She also contends the investigation was launched for an “inappropriate purpose,” saying the grocery industry has received an unusually high amount of attention from politicians.
The company argues that the competition commissioner must make decisions independently and “without political interference or direction”.
Empire says the decision to open an investigation, amid a wave of criticism over 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.
Competition Bureau spokesperson Sarah Brown confirmed the formal investigations launched on 1er 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.