Proposed changes to Canada's Competition Act good news for independent grocers, organizations say

If enacted, amendments could 'free up competition within the grocery sector'
10/13/2023
mergers and acquisitions

Groups representing independent grocers and suppliers are saluting proposed changes to Canada’s Competition Act.

Organizations say the amendments could level the playing field for small retailers by subjecting mergers and acquisitions in the grocery industry to more scrutiny.

They include the elimination of the “efficiencies defence,” where companies can make the case that efficiency gains in their operations would offset the drop in industry competition, and new restrictions on “restrictive covenants.”

Among other things, restrictive covenants allow grocers to obtain restrictions that bar competitors from opening nearby stores.

“We’re very supportive of the changes,” says Gary Sands, senior vice-president, public policy and advocacy, Canadian Federation of Independent Grocers (CFIG), noting the federal government is acting on recommendations the association made in a submission on suggested changes to the Competition Act. 

Michael Graydon, CEO of Food, Health & Consumer Products of Canada, says the proposed changes are “way overdue.” 

“There’s a lack of fairness in the current Competition Bureau and bringing an element of fairness back into the equation is very important,” Graydon says.

Sobeys, Metro, Loblaw and the Competition Bureau did not respond to interview requests for this article. The Retail Council of Canada did not comment by deadline, saying it is in the process of reviewing the proposed changes.

READ: Canada's inflation rate reaches 4% in August

The proposed changes were spurred on by a federal government promise last fall to update the Competition Act. The proposed amendments are also part of a package of measures the government says will reduce food prices.

The acquisition of larger independents by major chains in recent years means there are few large independents left.

Independent retailers “are one of the few hopes we have for creating more competition, because I don’t think anybody new is coming to this marketplace,” Graydon says.

“There’s just not a lot to acquire any more,” he adds. “The market is getting smaller and smaller, and they’ve got to do some things that start to free up competition within the grocery sector.”

A report by the law firm Stikeman Elliott concluded the efficiencies defence has had a minimal impact on merger and acquisition (M&A) deals in Canada, having been used to save about five mergers since 2009.  

However, CFIG’s Sands says restrictive covenants represent “a barrier to entry for independent grocers” and create potential food security issues in some communities that are ill-served by grocery stores.  

He says there are situations where restrictive covenants are appropriate. For example, he believes it is understandable that a grocer in a shopping mall would want to negotiate with the owner so that another food retailer can not open in the same mall.

But clauses can be added to a lease that limit the type of store that can open at a location after the grocer leaves the property, Sands says.

“If you're a chain grocery store and you own a property in a plaza or mall and you're not there, you should not have the right to dictate that another grocery store should not go into that community,” he says. 

Eliminating covenants in lease agreements “will add a little bit of competitive value to the marketplace, which is very absent from what we have today,” adds Graydon. 

In another proposed amendment to the Competition Act, the Competition Bureau will be given new information-gathering powers as part of its investigations. 

Among the key takeaways of the Competition Bureau’s grocery market study Canada Needs More Grocery Competition was that “independents face significant barriers in growing to become a competitive threat to the grocery giants” and “without government support, we should not expect independent grocers to significantly expand in Canada in the near future.”

READ: What the grocery report recommends to improve competition

The report also noted there were eight large grocery chains across Canada when the Competition Act was introduced in 1986. Today, the country is down to five large chains.

Graydon says giving the bureau more access to information will enable it to make more informed decisions about the competitiveness of the industry. 

He adds the proposed amendments to the Competition Act will not inhibit the ability of major grocers to grow and could be very positive for independents by giving them an opportunity to grow slightly. 

Given that the government is fast-tracking the proposed amendments, Sands expects them to come into effect early in 2024.

X
This ad will auto-close in 10 seconds