Why restrictive lease clauses could be hampering grocery competition in Canada

As Canadian consumers have increasingly soured on the major grocers, the country’s competition watchdog has turned its sights on restrictive clauses in retail leases that it says are hampering competition in the grocery sector.

Limiting the use of these clauses could open the door for more independent grocers and smaller chains to compete with the big players, giving consumers more choice and potentially even lower prices, experts say.

“It would promote some more competition in the marketplace,” said Peter Chapman, founder of consulting firm SKUFood and a former Loblaw Cos. Ltd. executive.

Grocery prices have increased by more than 20 per cent over three years, and the resulting political pressure has seen MPs order grocery executives to take action. The federal industry minister has said he’s courting foreign grocers in the hope that a new entrant would boost competition.

Meanwhile, the Competition Bureau is looking into the use of property controls in the grocery industry.

The bureau says property controls, which are terms baked into commercial leases that put restrictions on other nearby tenants and their activities, can be barriers to both smaller domestic companies and foreign entrants.

These clauses could limit the kinds of stores that can open in a mall, or limit the kind of store that can take over a vacated location. They might also limit other nearby stores from selling certain products.

But experts say limits on this practice would do more to boost domestic competition than it would to pave the way for a foreign grocer to enter Canada.

“It’s not going to necessarily bring a big international competitor in,” said Michael von Massow, a food economy professor at the University of Guelph.

In May, the Competition Bureau