Why Canada's big grocery stores are under investigation

Amid mounting outrage over high grocery prices, a retail expert says there's a solution to fostering more competition in the country.

Given that only three retailers (Loblaw Companies Limited, Metro Inc., and Sobeys Inc.) dominate 70 per cent of Canada's grocery market, Doug Stephens said the country must look at "all avenues" to raise the competition level in the country and give consumers more choice.

"At the end of the day as much as I love this country, we are small," Stephens, a retail expert from St. Catharines, Ont., told CTV's Your Morning on Monday. "We are about the same population as California, and so it's a difficult job to entice a specialty retailer like a grocer into a country that has a relatively small market that is already dominated by three major incumbents."

One solution is for Canada to create a structure that promotes domestic competition, boosting small- to medium-sized retailers and specialty grocers, he said. This would give them a framework for growing homegrown competition, he explained.

The big grocers say they want to give consumers better prices but blame too many government restrictions that prevent them from offering competitive prices, while the government says it wants to introduce a foreign competitor.

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The dispute over grocery prices between the Canadian government and big grocers has been like a "ping pong match," but the actions of consumers, including the monthlong Loblaws boycott, are making an impact, says Stephens.

"What we're starting to see is consumers actually taking action and shifting their consumption from one retailer to another and in some cases actually looking for options outside of the big three," Stephens said. "So it's this kind of pressure that I believe is bringing companies like Loblaws now to the table to discuss or at least begin these discussions on what they can do to ameliorate the solution."

The Competition Bureau began investigating the owners of grocery chains Loblaws and Sobeys for alleged anticompetitive conduct on March 1, The Canadian Press reported on May 24.

Sobeys' owner called the inquiry "unlawful." The bureau said it's investigating whether the firms' use of so-called property controls limits retail grocery competition.

Stephens believes the Competition Bureau's focus with its investigations is on restrictive covenants, which have existed in retail for decades. This is when a large retailer like a Loblaws or a Sobeys takes space in a commercial property and often builds into its leasing agreement a "restrictive covenant" that tells the landlord that no one else can compete directly or even indirectly with it.

For example, the landlord can't lease out space to a butcher or bakery in the same mall the retailer occupies.

"The position of the Competition Bureau is – and it's a fair position -- is this really does have a dampening effect on competition," Stephens said.

While Sobeys' owner pushed back agains the investigation, calling it "unlawful," Loblaws' parent company George Weston Ltd. is co-operating with the bureau's review.

"Restrictive covenants are very common in many industries, including retail. They help support property development investments, encouraging opening of new stores and capital risk-taking," Sobeys' owner told The Canadian Press.