Loblaw says it wants to eliminate commercial property controls in the grocery industry, amid a Competition Bureau investigation into the practice — and it’s calling on other grocers to do the same.
But the chief executive of Sobeys owner Empire said it’s on the government to step in.
“Empire would be pleased to see government eliminate real estate exclusivity clauses, across all retail businesses, including those selling food or pharmacy-related products,” said Michael Medline in a statement.
Loblaw Companies Ltd. spokeswoman Catherine Thomas said Wednesday that the company is willing to stop using the covenants, which are terms baked into commercial leases that put restrictions on other tenants and their activities, but that the entire industry should make the same move.
“Property controls have been around for decades across industries, with an intent to incentive development. That said, in some circumstances, they might reduce options for customers,” Thomas said in a statement.
Metro Inc. did not respond to a request for comment.
The Competition Bureau is investigating the use of property controls by Loblaw and Sobeys in the grocery sector, and has said these controls are hampering competition.
The bureau revealed its investigation in February, with deputy commissioner Anthony Durocher saying property controls can be a barrier both for independent grocery stores and larger chains, as well as for foreign grocers looking to enter the Canadian market.
However, Gary Sands of the Canadian Federation of Independent Grocers said he doesn’t think wiping out property controls entirely is a good idea for the industry.
“We believe there are reasonable circumstances for restrictive covenants,” said Sands, senior vice-president at the organization.
“But there’s others where they’re completely unreasonable and they’re not necessary, and they’re not good for the industry, and they’re not good for competition, and they’re not good for the consumer.”
The covenants are a widespread practice across not just grocery, but retail and food service as well, especially in shopping centres, said Lisa Hutcheson, a retail strategist with J.C. Williams Group.
Property controls can help businesses be successful and stand out, she said.
“I think it makes for a more interesting tenant mix and merchandise offering,” she said. “You know, if everybody sold the same thing, it would … be boring.”
With a lot of scrutiny right now on grocers, Hutcheson said it’s not a bad thing to examine the use of property controls — but even if they were eliminated she’s not sure it would have a dramatic effect on the landscape. Companies would continue to choose their locations carefully, she said, trying to avoid oversaturated areas.
But the grocers’ new tack may be “what the customer wants to hear,” said Hutcheson.
“It’s sort of the right thing to say.”
Often property controls are used to restrict what other businesses are in the same shopping plaza — for example, a grocer moving in to a plaza might ask for a covenant preventing another grocer from moving in nearby.
Sands thinks this is a reasonable use of property controls. In contrast, he doesn’t support covenants that limit which kinds of businesses can move in to a property after it’s been vacated.
Sands said his organization previously advocated for the Competition Bureau to look into property controls, as it’s doing now.
“We support the bureau looking at this issue, we advocated that they do, but we don’t support a blanket ban,” he said.
“If the investigation prompts a discussion or a review within the industry … that’s a healthy development.”
In a June 2023 report on the grocery industry, the Competition Bureau recommended the government limit the use of property controls in the grocery sector to help boost competition and make it easier for new supermarkets to open.
Earlier this year, the competition commissioner obtained two court orders requiring the parent companies of Loblaws and Sobeys to hand over information related to its investigation. The bureau has said there is no conclusion of wrongdoing at this time.
Empire previously pushed back on the investigation, denying that property controls are anticompetitive and saying in a court application that the probe gives the commissioner “the appearance of a lack of independence.”
This report by The Canadian Press was first published Oct. 30, 2024.
Companies in this story: (TSX:L, TSX:EMP.A, TSX:MRU)
