Why restrictive lease clauses could be hampering grocery competition in Canada – National | 24CA News
As Canadian customers have more and more soured on the most important grocers, the nation’s competitors watchdog has turned its sights on restrictive clauses in retail leases that it says are hampering competitors within the grocery sector.
Limiting the usage of these clauses may open the door for extra impartial grocers and smaller chains to compete with the massive gamers, giving customers extra alternative and probably even decrease costs, consultants say.
“It would promote some more competition in the marketplace,” mentioned Peter Chapman, founding father of consulting agency SKUFood and a former Loblaw Cos. Ltd. govt.
Grocery costs have elevated by greater than 20 per cent over three years, and the ensuing political strain has seen MPs order grocery executives to take motion. The federal trade minister has mentioned he’s courting overseas grocers within the hope {that a} new entrant would increase competitors.
Meanwhile, the Competition Bureau is wanting into the usage of property controls within the grocery trade.
The bureau says property controls, that are phrases baked into industrial leases that put restrictions on different close by tenants and their actions, will be boundaries to each smaller home firms and overseas entrants.
These clauses may restrict the sorts of shops that may open in a mall, or restrict the type of retailer that may take over a vacated location. They may also restrict different close by shops from promoting sure merchandise.
But consultants say limits on this follow would do extra to spice up home competitors than it will to pave the way in which for a overseas grocer to enter Canada.
“It’s not going to necessarily bring a big international competitor in,” mentioned Michael von Massow, a meals financial system professor on the University of Guelph.
In May, the Competition Bureau launched investigations into the mum or dad firms of grocery chains Loblaws and Sobeys over the usage of property controls.
“According 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,” the commissioner mentioned in courtroom paperwork.
Since giant retailers draw site visitors to malls and plazas, they’ve energy of their negotiations with landlords to ask for restrictive clauses, mentioned Chapman.
“Some landlords would say that having a large retailer as a draw is worth restricting some of the other avenues they can pursue,” he mentioned.
If the grocery store’s mum or dad firm has possession within the landlord, it’s more likely that the retailer will get property controls within the settlement, he added.
In May, the Competition Commissioner utilized within the Federal Court to order Empire Cos. Ltd. and George Weston Ltd. handy over data about actual property holdings, lease agreements, buyer knowledge and extra.
The courtroom paperwork describe Empire’s and George Weston’s holdings in actual property funding trusts, or REITs, which rely the businesses’ personal grocery banners as main tenants.
The REITs have a large attain geographically, and so property controls usually prolong previous one mall or one plaza, mentioned von Massow.
Over time, these clauses have gotten extra particular as firms like Giant Tiger and Dollarama have expanded into meals, mentioned von Massow.
“We’re seeing the introduction of new restrictions, because the nature of the competition has changed,” he mentioned.
If customers have entry to a number of shops promoting meals inside shut proximity to one another, they’re extra prone to go to a number of shops in a single journey, cherry-picking offers, mentioned von Massow. By proscribing which different shops will be close to a big grocer, or what close by shops can promote, the grocers try to be a one-stop store for customers as a substitute, he mentioned.
Sobeys proprietor Empire mentioned in a separate courtroom software that the bureau’s investigation offers the Competition Commissioner “the appearance of a lack of independence” amid political strain and criticism over grocers’ costs, and known as the inquiry “unlawful.” The Competition Bureau has confirmed that it has filed a movement to strike Empire’s software for judicial assessment.
Loblaw beforehand mentioned it’s co-operating with the assessment, however famous that restrictive covenants are frequent in lots of industries together with retail.
“They help support property development investments, encouraging opening of new stores and capital risk-taking,” mentioned spokeswoman Catherine Thomas in an announcement final week.
Though limiting the usage of property controls may promote competitors, Chapman mentioned he doesn’t assume restrictive clauses are one of many high boundaries for potential overseas entrants like those being courted by federal Industry Minister François-Philippe Champagne.
Chapman mentioned the challenges of organising a distribution community, and of constructing an financial mannequin that works inside Canada’s regulatory setting, would pose a lot greater obstacles for firms trying to develop.
If a overseas grocer decides to enter Canada, they’re extra prone to construct their very own areas or accomplice with an investor, somewhat than try to enter buying areas already occupied by an anchor tenant, added von Massow.
But the consultants mentioned limiting property controls will assist impartial shops and smaller chains like Dollarama and Giant Tiger.
If these shops are capable of open extra areas, customers will profit from extra alternative, mentioned von Massow.
With customers higher capable of store at a number of shops in a single journey and search for offers, that might additionally increase native value competitors on some gadgets, he added.
If the usage of property controls is restricted, “it won’t 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,” mentioned von Massow.
— With information from Darryl Greer in Vancouver
