Amendments to the Competition Act: Implications for the grocery sector
Competition (or the lack of it) in the grocery sector has been in the news a lot in the past few years. More than 80% of Canadians believe that large grocery chains are engaged in “greedflation.” Whether or not that is correct, the government has responded:
- In June 2023, the House of Commons Standing Committee on Agriculture and Agri-Food published Grocery Affordability: Examining Rising Costs in Canada (the “House of Commons Report”).
- In July 2023, the Competition Bureau published a market study tellingly titled Canada Needs More Grocery Competition (the “Market Study”).
- In September 2023, the government proposed the Affordable Housing and Groceries Act (“Bill C-56”), which includes amendments to the Competition Act. It received royal assent and will come into effect on December 15, 2024.
- In November 2023, the government proposed Bill C-59, which includes more amendments to the Competition Act. It has passed second reading in the House of Commons.
This article (1) summarizes the amendments to the Competition Act in Bill C-56; (2) summarizes the proposed amendments to the Competition Act in Bill C-59; and (3) discusses how these amendments might impact competition in the grocery sector, and possible implications for grocery chains, suppliers, independent grocers, and consumers.
1. Amendments in Bill C-56
Bill C-56 contains five major changes to the Competition Act.
First, Bill C-56 allows the Competition Bureau to compel companies to provide information for market studies (ss 10.1, 11). Currently, it can only compel industry participants to produce information where there are grounds to believe that an entity has committed or will commit an offence. This change appears to have been a response to concern identified in the House of Commons Report and the Market Study that some large grocery chains refused to provide detailed information on their profit margins.
READ: What the grocery report recommends to improve competition
Second, Bill C-56 prohibits any person who substantially controls a class or species of business from “directly or indirectly imposing excessive and unfair selling prices” as a prohibited anti-competitive act (s 78(k)). This might be intended to:
- Eliminate “greedflation” — that would track EU and UK law, which prohibit charging prices that are far above production costs1 or far above prices charged in similar markets with more competition2;
- Reduce “shrinkflation” or to push grocers towards using unit pricing — the Market Study noted that consumers find it hard to recognize shrinkflation, especially without unit pricing, and that “a lot of Canadians expressed concerns about this practice”; and/or
- Reduce fees charged to suppliers — the House of Commons Report raised concerns about large chains charging suppliers fees for shelf space, fees for merchandising costs, late fees, and short fees, or imposing new fees “arbitrarily and without explanation.”
Third, Bill C-56 broadens “abuse of dominant position” (s 79). Under the new rule, the Bureau only has to show that the dominant company (a) engaged in a practice of anti-competitive acts; or (b) their actions are likely to prevent or lessen competition substantially. Currently, the Bureau must show both anti-competitive acts and prevention or lessening of competition substantially.
Fourth, Bill C-56 increases the penalties the Bureau can impose from $15 million ($10 million for first offence) to $35 million ($25 million for first offence) (s 79(3.1)).
Fifth, Bill C-56 allows the Bureau to prohibit agreements whose purpose is to prevent or lessen competition substantially (s 90.1(1.1)). Currently, the Bureau can only prohibit agreements that would have the effect of preventing or lessening competition substantially. This might be intended to respond to the comment in the Market Study that large grocery chains use property controls to deny independent grocers access to prime locations (e.g. leases preventing commercial landlords from leasing their other space to independent grocers).
2. Proposed amendments in Bill C-59
Bill C-59 proposes two major changes to the Competition Act.
First, Bill C-59 would allow private claimants to get monetary remedies from the Competition Tribunal, up to the value of the benefits that the defendant obtained from the wrongful conduct, and those remedies can be distributed to “any other person affected by the conduct” (ss 75(1.2), 76(11.1), 77(3.1), 79(4.1), 90.1(10.1)).
Second, Bill C-59 would lower the standard for private claimants to be allowed to bring claims. Whereas currently they have to show that their entire business is “substantially affected” by the alleged misconduct, the new rule allows claims by businesses affected “in part” by the alleged misconduct. More importantly, it allows claims to be brought if “it is in the public interest to do so”. This might open the door to claims by consumers.
READ: Canada’s grocery market is ‘extremely competitive,’ Metro chief says
We are not suggesting that these changes will substantially increase the number of claims brought in the short term. There is considerable uncertainty. To name just a few issues:
- Whose claims are “in the public interest”?
- What “other persons” are entitled to share in distributions?
- Are monetary remedies meant to be compensatory, restitutionary, or punitive?
- Are contingency fee agreements allowed?
- Can either party recover costs?
- Can the Competition Tribunal stay overlapping claims (i.e. award carriage)?
- If a settlement is reached, does it bind anyone other than the claimant and the defendant?
It will probably take years to resolve all this uncertainty. But once the confusion is resolved, private claims may become a viable way to enforce the new prohibitions in Bill C-56.
3. Implications for the grocery sector
Overall, these amendments raise three possible issues for the grocery sector, on prices, supplier fees, and property controls.
Prices: The Competition Bureau could demand information on margins, identify products with especially high margins or recent decreases in size, and then bring an application for abuse of dominant position on the basis that these are “excessive and unfair” prices.
This is unlikely. The Competition Bureau rarely exercises its enforcement powers, and it is even less likely to conduct another market study since it just finished the Market Study.
Still, if grocery chains want to further limit this risk, they should consider adding unit prices on items (e.g. $1.00/kg or $1.00/L). In the Market Study, the Competition Bureau suggested that unit prices would limit or obviate concerns about pricing.
Supplier Fees: Suppliers could challenge fees for shelf space, fees for merchandising costs, late fees, and short fees as “excessive and unfair”, especially if those fees are (1) higher than fees in comparable markets; and/or (2) imposed “arbitrarily and without explanation”.
If Bill C-59 passes, this is somewhat likely. However, the fact that suppliers have to continue working with grocery chains after a claim will make such claims relatively rare.
Suppliers interested in bringing claims should check fee schedules of different chains and in comparable markets — e.g. grocery chains in other jurisdictions, or non-grocery distributors of similar products — and compare those to the fees they are being charged.
If grocery chains want to limit this risk, they should also check fee schedules of competitors and in comparable markets3, and make sure that all fees charged to suppliers are disclosed in advance with a written explanation.
Property Controls: The Competition Bureau is investigating Loblaws and Sobeys relating to property controls. If it chooses not to proceed, then after these amendments, independent grocers could challenge clauses in leases between grocery chains and commercial landlords preventing the latter from leasing to an independent grocer.
If Bill C-59 passes, this is likely. Independent grocers have the most to gain from the amendments, as collectively they give independent grocers a basis to challenge exclusion, a procedural means to bring that claim, and a lower leave standard for doing so.
If grocery chains want to limit this risk, they should review their property controls and attempt to identify purposes for those clauses other than excluding a competitor from the market. If they are unable to do so, they should reconsider those clauses.
Finally, what does all of this mean for consumers? In the short term, probably not much. These amendments are unlikely to reduce retail grocery prices or increase competition. In the longer term, if Bill C-59 passes and once independent grocers start bringing claims, competition might increase a bit, but probably not enough to meaningfully bring down grocery bills. If that was the government’s goal, then it needs to try harder.
At Sotos LLP, our team of experts possesses an unrivalled understanding of the business structure of today’s grocery sector. Whether you wish to understand the implications of Bill C-56 and Bill C-59, assistance in negotiating improved supplier relationships, or strategic advice to enhance your market position, we are here to support you. If you would like to discuss how we can help your business thrive in this highly challenging environment, please contact us.
This article is provided for general information only and may not be relied upon as legal advice.
1. See United Brands Company v Commission of the European Union, EU document 61976CJ0027; Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK, case CE/9742-13.
2. See Bodson v SA Pompes funèbres des régions libérées, EU document 61987CJ0030; Latvijas Autoru apvienība v Konkurences padome, EU document 62016CJ0177.
3. To be clear, this does not mean that grocery chains can coordinate their fees with competitors. That is still a criminal offence that can result in jail time.
John Sotos is the founding partner of Sotos LLP and a dean of the franchising, licensing and distribution bar. John has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached at 416.977.9806 or [email protected] if you would like to discuss this or any other topic relating to the operation of your business.
Adil Abdulla is an associate with Sotos LLP in Toronto. He can be reached at 416.572.7325 or [email protected].
