Competition Bureau calls for restrictions on property controls in the food industry
Canada’s competition watchdog is calling for changes to a common real estate practice used by grocers to limit competition.
The practice involves a grocer adding a special clause to a lease or deed — sometimes called a restrictive covenant — to limit the type of store that can be opened on a location after the grocer has vacated the premises.
In a report published Tuesday on the country’s grocery sector, the Competition Bureau said these restrictive clauses restrict competition and make it more difficult for new supermarkets to open.
“Property controls limit how real estate can be used by competing grocers,” the Bureau said. “Such controls can harm competition by making it difficult or even impossible for companies to open new supermarkets.”
The report recommends that governments take measures to limit restrictive covenants in the food industry, including a ban on their use.
“Property controls reduce consumer choice,” the report said. “This is not a theoretical problem – examples of ‘food deserts’ have been documented across Canada.”
Property clauses used by grocers to prevent other food retailers from taking over a location can also be very broad, the company said.
Some Canadian companies told the Bureau that restrictive clauses prevented them from opening stores — even if they don’t compete directly with supermarkets, such as bakeries and other specialty stores, the report said.
The competition watchdog said other countries, including Australia, New Zealand and the United Kingdom, have taken action against ownership controls in the food industry.
Despite the growth of online grocery shopping in recent years, most people continue to rely on brick-and-mortar stores to buy groceries, according to retail expert Bruce Winder.
“Closing several locations to prospective grocers definitely limits competition,” he said. “It can also prevent communities from accessing messages. There is a right to eat here.”
The Center for Public Interest Advocacy has conducted research into the practice of restrictive covenants.
It found that the practice could lead to food deserts, where neighborhoods become geographically isolated from healthy foods, according to the Competition Bureau filing.
Gary Sands, senior vice president of public policy at the Canadian Federation of Independent Grocers, said restrictive covenants are a barrier to entry.
He said it is understandable that grocers would want to include a restrictive clause when moving to a new location and setting up a new store. But Sands said it’s unacceptable for a grocer to leave an area.
“If a grocer opens a new store in a square and they want a restrictive covenant so the landlord can’t put another supermarket next to you, we understand that,” he said. “But you shouldn’t be using these clauses when you leave a location.
“That is what causes a significant problem. There are many in their place and they must end.
This report from The Canadian Press was first published on June 27, 2023.
