CEO of Loblaws, Per Bank, at a store in Mississauga, on Jan. 30.Christopher Katsarov/The Globe and Mail
The chief executive officer of Loblaw Cos. Ltd. L-T is committing to eliminate exclusivity clauses in store leases that prevent competitors from setting up shop nearby – if other grocery retailers agree to do the same.
The move comes as the federal Competition Bureau is preparing to enforce new limits on the practice, and as Canada’s largest grocer seeks to rebuild trust with Canadians after coming under fire for not doing enough to curb soaring food inflation in recent years.
“We’re looking to take the lead here because we would of course like to improve our reputation, to be seen as those who give most value back to Canadians,” Loblaw CEO Per Bank told The Globe and Mail in an exclusive interview on Tuesday.
Mr. Bank said that if other retailers agree, Loblaw would retroactively give up all exclusivity arrangements in existing leases, as well as future ones. This “will lead to more stores and more discount stores in general for Canadians. So, they will get a better offer, and we will have a more competitive landscape,” Mr. Bank said.
Such clauses are common across the retail industry, not just in the grocery sector. Retailers often negotiate with landlords to guarantee that a competitor selling the same category of products cannot lease space within the same property – such as a strip mall or a big-box complex – or in any nearby property controlled by the same landlord. In the grocery sector, restricted competitors could include large rival grocers, but also smaller stores selling similar products, such as bakeries.
These lease agreements do not restrict other landlords within the vicinity from leasing out their space, however, and competing stores often operate close to each other. (Shopping mall landlords may also decline to provide exclusivity for certain categories, such as clothing or footwear, to protect their ability to offer a variety of merchandise that will attract shoppers.)
In August, in response to recent changes to the Competition Act, the federal competition watchdog published guidance to the industry, warning that it will take action when these arrangements raise legal issues. The Competition Bureau also stated, however, that such controls are sometimes acceptable, such as when protections are needed to encourage a business to invest – for example, to open a new store and compete in that market. Other countries, such as the United Kingdom and New Zealand, already have limits on large grocers’ use of property controls.
The bureau is also currently investigating Loblaw parent George Weston Ltd. and its competitor, Sobeys parent Empire Co. Ltd., for their use of real estate restrictions. That investigation is focused on the Halifax area. Last week, the bureau called for information on the use of property controls, which it said would inform those investigations.
Mr. Bank said Loblaw’s willingness to eliminate those controls in its leases “has nothing to do with that investigation,” but is part of a larger effort to rebuild consumers’ trust and encourage competition in Canada’s grocery market.
“I’m sure there will be a lot of our competitors that will want to be close to one of our stores that they’re not allowed to today,” he said. “So trust me, that will happen, and it will give competition to the country, and will give more choice to our customers.”
If Loblaw and other major grocers move forward with such a move, it could have a significant impact on the industry. Even with recent legislative changes, it is not yet clear how far the bureau will go in its new enforcement approach, said Brian Parker, a partner with Daoust Vukovich LLP, a Toronto-based law firm that specializes in commercial leasing.
“Once the law comes into force, it gives the tribunal authority to make an order, but it doesn’t say all exclusives are invalid,” Mr. Parker said. “... What it will actually look like in practice, nobody really knows yet.”
The bureau issued a report last year saying that Canada’s grocery industry is too concentrated to provide customers with enough choice. Scrutiny of the sector has ramped up in the past three years as grocery prices spiked by more than 20 per cent since 2021. And while food inflation has slowed significantly in recent months – meaning prices are not rising as quickly – Canadians are still left with significantly higher grocery bills.
Loblaw and other grocers have emphasized that food inflation is a global issue, and that retailers are also paying more to suppliers for those products.
“We are just a receiver of higher prices from all the big ones. So we are small fish,” Mr. Bank said. “When we negotiate with Unilever and P&G [Procter & Gamble] and the like, then we are small. And our ability to really get them to lower their prices, it’s next to nothing.”
Asked if he was suggesting that Loblaw does not have the market power to push back against price increases, Mr. Bank said the company does so “all the time,” and is “keeping costs as low as possible.” He also pointed out that Loblaw has introduced initiatives such as deeply discounted “Hit of the Month” products, eliminating multibuy requirements for promotional prices at some stores and experimenting with new No Name discount locations.
“We are seeing now that our reputation is recovering since we declined a bit in May,” Mr. Bank said. “It’s getting much, much better. And we just want to continue to earn that trust with our customers.”