Owners of Loblaws and Sobeys under investigation by Competition Bureau for alleged anti-competitive conduct

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, with the owner of Sobeys calling the investigation “unlawful.”

Federal Court documents show the Competition Commissioner launched the investigations on March 1, saying there was reason to believe the use of so-called ownership controls by companies was limiting competition in the sector of food retail.

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.

Empire filed a notice on April 12 asking the Federal Court to review the Competition Bureau's complaint, alleging the complaint is “invalid and illegal,” and asking that it be quashed or quashed, according to court documents obtained by CBC News.

The Competition Bureau unveiled its investigation into the use of real estate inspections in the grocery sector in February.

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 looking to expand, as well as foreign actors seeking to enter Canada.

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

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

Ownership Controls in Contracts

Loblaw Cos. Ltd. and Empire Co. Ltd., 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 George Weston Ltd.

“Covenants are very common in many industries, including retail. They help support real estate investments, encourage new store openings and capital risk-taking,” she said.

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 percent 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 in Crombie allows him to exert influence. on the FPI.

George Weston owns a 61.7 percent majority stake in Choice Properties REIT, and Loblaw accounted for more than half of Choice Properties' rental revenue in 2023, filings show – and 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.

Commission wants government to tackle high profits

The Competition Bureau's investigation comes as a House of Commons committee recommends that the federal government consider policies to combat “excessive net profits” in the food industry.

In a report, the food prices committee detailed its research into the causes of food inflation and food insecurity in Canada, including high-profile testimony it gathered from grocery store executives.

The report lists a number of recommendations ranging from lowering barriers to entry for new businesses in Canada to making legislative changes to strengthen competition law regarding mergers.

The committee also recommends that the government discuss legislation with the provinces and territories to make the code of conduct for grocery stores mandatory.

Review restrictions and “exclusivity clauses”

Federal Court documents show the investigations are focusing on two types of ownership controls in commercial contracts and leases used by food 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,” the applications state.

Investigators are also looking into “exclusivity clauses” in commercial lease agreements that “limit or restrict” who a landowner can lease to and what products can be sold by other parties close to the rental business. another 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.”

The Empire denies any “dominant” position

“This is a new case,” said Michael Osborne, chair of the Canadian competition department at law firm Cozen O'Connor.

Previous cases alleging abuse of dominance involved companies with significantly greater market power than that of George Weston or Empire 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 part of the market, he said.

Empire, Sobeys' parent company, says the commissioner was wrong to open the investigation because it does not have a “dominant” position in the market.

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

Empire also claims the investigation was launched for an “inappropriate purpose,” saying the grocery industry has received “excessive” attention from politicians.

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.

A Loblaw spokesperson said in a statement to CBC News that the company is cooperating with the bureau's review.

“Covenants are very common in many sectors, including retail. They help support real estate investments, encourage new store openings and capital risk-taking,” the spokesperson said.

CBC News contacted Empire for further comment and did not receive a response by deadline.