Loblaw willing to eliminate property controls, CEO says

Loblaw Cos. Ltd. chief Per Bank said the grocer is prepared to axe property controls—as long as its competitors follow suit.

Bank penned an op-ed in The Globe and Mail Wednesday (Oct. 30), writing, “We envision a competitive environment in which all new and existing property controls are eliminated. To get to that place would require a level playing field with industry-wide rejection of property controls. We are ready to remove such property controls if others do so.”

Canada’s Competition Bureau launched an investigation into property controls in the grocery sector earlier this year. 

In June, it announced it had obtained court orders to investigate the use of these controls by the parent companies of Loblaws and Sobeys—George Weston Ltd. and Empire Co. Ltd.—in Halifax.

Last week, the federal competition watchdog invited market participants to provide input for its investigation. 

In a statement, Michael Medline, president and CEO of Empire, told Canadian Grocer the company would welcome the elimination of property controls—but that the decision was in the hands of the federal government.

"We operate in an already dynamic and competitive retail environment. Empire would be pleased to see government eliminate real estate exclusivity clauses, across all retail businesses, including those selling food or pharmacy-related products," Medline said.

Bruce Winder, a retail analyst, advisor and speaker based in Ontario, says Bank's statement reflects positively on Loblaw.

"I think this move shows that the company is very serious about offering Canadian consumer value through competition," Winder says. "This will help Loblaw build trust and in return increase marketshare."

Besides getting all grocers to agree to eliminate property controls, Winder says it will take time to alter existing agreements with landlords.

"I think it would be good for consumers if the other grocers followed suit and really, they would have to for this new approach to work. Now that Loblaw has come out with this proposed change, pressure will be on other grocers to follow or else they may not be seen as enabling competition," Winder says.

Restrictive real estate clauses allow retailers to bar competitors from opening nearby stores. They can also prevent a business from opening up at an unoccupied location if that business is in competition with a previous owner. 

Winder says eliminating restrictive real estate clauses benefits both consumers and smaller, independent grocers.

"There will be more local competition within a mall, plaza or neighborhood. Currently, with property controls, major grocers may have exclusive rights to sell groceries within a speciifc mall or plaza. Consumers would enjoy more variety too within their trading area," he says.

"Independent grocers would be able to set up locations in the same mall or plaza as large grocers, thus taking advantage of the traffic large grocers bring to the mall or plaza. This could increase sales and margins of small and independent grocers."

In August, the bureau published a guide for the industry following changes to the Competition Act around anti-competitive controls in retail. The agency said these controls may be justified in some cases, but emphasized that it would take appropriate action against companies that fail to comply with regulations. 

Bank said changes to the Competition Act and the bureau’s draft guidelines were positive for the industry, but asserted that Canada’s grocery sector is one of the most competitive globally. 

“In this country, Loblaw is competing not only against domestic players and local grocers; we are in active competition with global giants. Walmart and Costco, two of the largest retailers in the world, command approximately a third of national grocery market volumes based on Nielsen data,” he wrote in The Globe and Mail.

Metro Inc. CEO  Eric La Flèche made similar comments earlier this year. 

On the grocer’s second quarter earnings call, La Flèche told analysts, “We compete with large global players. We have strong regional and national competitors. We have strong local independents. We have discounters, dollar stores—you name it. Amazon, Walmart, Costco… This is an extremely competitive market.”