Canada’s biggest grocery giants — including Loblaws, Sobeys and Metro — are using property law to control how other grocery stores, dollar stores, pharmacies and gas stations can compete with them, an investigation by CBC’s Marketplace has found.
Property controls are deals made between a land owner and a retailer that restrict what other kinds of businesses can operate on the property and what the competitors are able to sell. The terms are negotiated to incentivize the retailer to open their store on the land.
Known in legal terms as restrictive covenants or exclusivity clauses, property controls are common across industries. In a plaza, for example, they could limit the number of veterinary offices or dental practices. While they aren’t unusual, there is criticism about their use in the grocery sector.
“These are not mom-and-pop shops,” said Jim Stanford, an economist and grocery industry critic. “They are not subject to the same competitive constraints as firms in other industries.”
Marketplace obtained legal documents for dozens of properties across Canada — locked behind opaque systems and paywalls — and found several property controls buried in lease agreements or even registered directly on property titles. The scope of the terms negotiated by grocery giants varied significantly from property to property.
While some contracts stipulate the giants cannot “unreasonably” withhold permission for competitors to open up or to sell food, others explicitly grant them any and all discretion.
The property control attached to a Sobeys in Winnipeg states no one can sell food on the same developer’s adjacent land unless Sobeys says so, and that permission can be withheld “unreasonably and arbitrarily.”
Meanwhile, a Metro property control in Waterloo, Ont., restricts what food products a Shoppers Drug Mart can sell in the same plaza and prohibits restaurants with a 50-seat capacity or more from opening within 61 metres of Metro’s store.
Metro and Sobeys have both denied that property controls are a barrier to competition, while Loblaws acknowledged last year that property controls restrict competition, but wouldn’t agree to eliminate all of them unless other major grocery retailers do the same.
“From the property owner’s perspective, it’s a good way to attract major anchor clients to their property,” said Stanford. “From the retailer’s perspective … it’s a good way to limit how much competition they would face once they set up there.
“It’s a kind of mutual back-scratching arrangement that these companies invented, but unfortunately consumers were the ones who paid the price.”
When developers own larger tracts of land, Marketplace found property controls that indicate a radius of up to five kilometres within which no retailer is allowed to sell fresh food on the land.
That’s the case for the grocery stores Teresa Petrie shops at in Picton, Ont., about 80 kilometres west of Kingston.
Petrie has been noticing a steep increase in the cost of groceries in her hometown. After learning that both the No Frills and the Foodland she shops at have property controls banning anyone in their respective plazas from selling fresh food, she is concerned that a lack of competition is affecting her prices.
“It’s not right.” said Petrie. “Our society’s allowed this to happen and now everybody is paying for it.”
Petrie’s local Foodland controls not only who sells food near it, but also what food they can sell.
The restrictive covenant states that the neighbouring dollar store cannot sell “fresh or frozen food, including meats, fruits, vegetables, fish, poultry, bakery, pre-packaged bread, delicatessen, bulk food or dairy products.”
It allows them to sell soft drinks and non-perishable food items, but also states that if they plan to sell big, national brands, they are not allowed to use those products as “loss leaders,” meaning they can’t sell them below cost to lure in customers.
A Foodland in Picton, Ont., has a contract with the land developer banning nearby competitors from selling fresh food and preventing deep price drops for big brand non-perishables.
A Loblaws in Halifax has a similar deal with its land developer preventing a dollar store next door from selling big brands as loss leaders. It also states that if Loblaws decides the dollar store is selling national brands like Coca-Cola, Evian or Kraft at too low a cost, it reserves the right to retract permission to sell the brands at all.
Property controls ‘particularly egregious’
Grocery prices have been rising faster than inflation since the pandemic, and it has experts and governments alike questioning whether Canada has a competition problem.
Years of mergers and acquisitions mean Loblaw, Empire and Metro own nearly 60 per cent of the Canadian market share according to numbers published by the Retail Council of Canada.
For economist Jim Stanford, property controls are yet another way grocery giants exploit their shoppers.
“Property controls are not the only factor behind the unique market power that major grocery chains have,” said Stanford, “but they are clearly, I think, a particularly egregious and incremental way that companies have taken advantage of consumers.”
The federal government held committee hearings in 2023 that were meant to get to the bottom of rising grocery prices. Grocery giant CEOs were called to Parliament to explain.
“I can assure you, we are doing everything we can to contain price increases,” said Michael Medline, president and CEO of Empire Company Limited — the parent company of Sobeys — during the hearings. “We’re doing it on paper-thin profit margins of 2.5 per cent.”
Meanwhile, the messaging from company executives to shareholders at the time of the hearings had a different tone.
Sobeys told investors in the last quarter of 2022 that its “consistently solid results in these challenging times” demonstrate the “strengthening earnings power of our business,” while Metro said its company passed “for the first time” the $1-billion mark for net earnings.
Around the same time, during a conference call with stakeholders, Loblaw said “our businesses continue to perform well … on the full year, revenue came in at just under $60 billion and we generated earnings in excess of $2 billion.”
Still, a Loblaw spokesperson told Marketplace in a statement that “grocery profit margins are among the lowest when compared to all other economic sectors.”
Stanford, who also testified at the hearings, argues that although grocery margins sound low compared to some other industries, they are not low compared to other retail industries that don’t manufacture their products, but rather, buy items to store and resell.
“This argument that they’re not very profitable is nonsense,” said Stanford. “They say exactly the opposite every time they’re talking to financial analysts and investors — they boast about how profitable they are.”
Competition Bureau investigating
The rapid rise in grocery prices has raised alarm bells for the Competition Bureau, which is investigating grocery stores’ use of property controls to manipulate competition.
In June 2024, it obtained court orders to advance its ongoing investigations into the use of property controls by the parent companies of Sobeys and Loblaws.
It has since negotiated with Loblaw and Empire (Sobeys) to remove or at least modify property controls in Crowsnest Pass, Alta., and in Halifax.
Anthony Durocher, acting senior deputy commissioner at the Competition Bureau, told Marketplace in an interview that property controls “can deny consumers the benefits of competition including lower prices, greater choice and increased innovation.”
He said the use of the restrictions in the grocery sector is particularly problematic because of the consolidation we’ve already seen between brands, and because people shop at grocery stores every day.
Manitoba intervenes
The Manitoba government introduced the Property Controls for Grocery Stores and Supermarkets Act last year — the first of its kind in Canada. It required grocery companies to register their property controls with the province by November of last year or else consider them invalid.
“I don’t think one grocery store should be able to prevent another one from opening up shop,” Manitoba Premier Wab Kinew said in an interview with Marketplace. He said the newly registered controls will soon be reviewed by the government, and decisions will be made on an individual basis about whether they hold up.
He said while he’s willing to hear the grocery stores’ arguments, it is his expectation that all of their property controls will be cancelled in time
A Manitoba government source told CBC that at least 23 of the existing property controls were never registered and are therefore cancelled, including some belonging to Loblaw. Empire, however, requested exemptions for 43 of its stores across the province.
“I think regardless of where you are on the political spectrum, this policy idea of knocking down property controls and having more competition has to be a way that across all sides of the aisle we can help people out there,” said Kinew.
Loblaws said in a statement to Marketplace that eliminating property controls across the industry would “mean more stores, more discount options and a more competitive market for Canadians.”
It said it has already “released” 150 property controls across Canada and is prepared to eliminate more when “other grocery retailers agree to do the same.”
Metro declined to comment, while Empire (Sobeys) did not respond to repeated requests for an interview.
Shoppers like Teresa Petrie want to see government step in to stop grocery giants from using property controls.
“What we need for living shouldn’t be in people’s portfolios,” she said. “There should be a law against that.”
Federal Industry Minister Melanie Joly told Marketplace in a statement the government would continue monitoring to ensure competition in the grocery industry. Meanwhile, the competition bureau’s investigations continue.
“We really encourage all grocers to seriously consider their use of property controls and to review their practices to ensure that they are complying with the Competition Act,” said Durocher, adding that the federal government has granted the bureau expanded power to enforce the act, and is “very much prioritizing” putting those tools to use.
