As Canadian consumers have increasingly soured on the major grocers, the country91裸聊视频檚 competition watchdog has turned its sights on restrictive clauses in retail leases that it says are hampering competition in the grocery sector.
Limiting the use of these clauses could open the door for more independent grocers and smaller chains to compete with the big players, giving consumers more choice and potentially even lower prices, experts say.
91裸聊视频淚t would promote some more competition in the marketplace,91裸聊视频� said Peter Chapman, founder of consulting firm SKUFood and a former Loblaw Cos. Ltd. executive.
Grocery prices have increased by more than 20 per cent over three years, and the resulting political pressure has seen MPs order grocery executives to take action. The federal industry minister has said he91裸聊视频檚 courting foreign grocers in the hope that a new entrant would boost competition.
Meanwhile, the Competition Bureau is looking into the use of property controls in the grocery industry.
The bureau says property controls, which are terms baked into commercial leases that put restrictions on other nearby tenants and their activities, can be barriers to both smaller domestic companies and foreign entrants.
These clauses could limit the kinds of stores that can open in a mall, or limit the kind of store that can take over a vacated location. They might also limit other nearby stores from selling certain products.
But experts say limits on this practice would do more to boost domestic competition than it would to pave the way for a foreign grocer to enter Canada.
91裸聊视频淚t91裸聊视频檚 not going to necessarily bring a big international competitor in,91裸聊视频� said Michael von Massow, a food economy professor at the University of Guelph.
In May, the Competition Bureau launched investigations into the parent companies of grocery chains Loblaws and Sobeys over the use of property controls.
91裸聊视频淎ccording to market participants, property controls are widespread in the retail grocery sector, impacting where and how businesses can compete in the retail sale of food products,91裸聊视频� the commissioner said in court documents.
Since large retailers draw traffic to malls and plazas, they have power in their negotiations with landlords to ask for restrictive clauses, said Chapman.
91裸聊视频淪ome landlords would say that having a large retailer as a draw is worth restricting some of the other avenues they can pursue,91裸聊视频� he said.
If the grocer91裸聊视频檚 parent company has ownership in the landlord, it91裸聊视频檚 much more likely that the retailer will get property controls in the agreement, he added.
In May, the Competition Commissioner applied in the Federal Court to order Empire Cos. Ltd. and George Weston Ltd. to hand over records about real estate holdings, lease agreements, customer data and more.
The court documents describe Empire91裸聊视频檚 and George Weston91裸聊视频檚 holdings in real estate investment trusts, or REITs, which count the companies91裸聊视频� own grocery banners as major tenants.
The REITs have a wide reach geographically, and so property controls often extend past one mall or one plaza, said von Massow.
Over time, these clauses are becoming more specific as companies like Giant Tiger and Dollarama have expanded into food, said von Massow.
91裸聊视频淲e91裸聊视频檙e seeing the introduction of new restrictions, because the nature of the competition has changed,91裸聊视频� he said.
If consumers have access to several stores selling food within close proximity to each other, they are more likely to go to multiple stores in one trip, cherry-picking deals, said von Massow. By restricting which other stores can be near a large grocer, or what nearby stores can sell, the grocers are trying to be a one-stop shop for consumers instead, he said.
Sobeys owner Empire said in a separate court application that the bureau91裸聊视频檚 investigation gives the Competition Commissioner 91裸聊视频渢he appearance of a lack of independence91裸聊视频� amid political pressure and criticism over grocers91裸聊视频� prices, and called the inquiry 91裸聊视频渦nlawful.91裸聊视频� The Competition Bureau has confirmed that it has filed a motion to strike Empire91裸聊视频檚 application for judicial review.
Loblaw previously said it91裸聊视频檚 co-operating with the review, but noted that restrictive covenants are common in many industries including retail.
91裸聊视频淭hey help support property development investments, encouraging opening of new stores and capital risk-taking,91裸聊视频� said spokeswoman Catherine Thomas in a statement last week.
Though limiting the use of property controls could promote competition, Chapman said he doesn91裸聊视频檛 think restrictive clauses are one of the top barriers for potential foreign entrants like the ones being courted by federal Industry Minister Fran莽ois-Philippe Champagne.
Chapman said the challenges of setting up a distribution network, and of building an economic model that works within Canada91裸聊视频檚 regulatory environment, would pose much bigger obstacles for companies looking to expand.
If a foreign grocer decides to enter Canada, they91裸聊视频檙e more likely to build their own locations or partner with an investor, rather than try and enter shopping areas already occupied by an anchor tenant, added von Massow.
But the experts said limiting property controls will help independent stores and smaller chains like Dollarama and Giant Tiger.
If those stores are able to open more locations, consumers will benefit from more choice, said von Massow.
With consumers better able to shop at multiple stores in one trip and look for deals, that could also boost local price competition on some items, he added.
If the use of property controls is restricted, 91裸聊视频渋t won91裸聊视频檛 necessarily bring a Lidl or an Aldi in, but it will make it easier for a dollar store to go in and provide a choice for people who are willing to shop around,91裸聊视频� said von Massow.
READ ALSO:
READ ALSO:
