The Competition Bureau is hunting for ghosts.
By expanding its investigation into Empire Company Limited—the parent company behind Sobeys, Safeway, and Farm Boy—the regulator is playing a classic game of political theater. They want you to believe that a few sentences tucked into commercial property deeds are the single reason your weekly grocery bill feels like a mortgage payment.
It is a comforting narrative. It gives angry consumers a clear villain: the greedy grocery executive locking up real estate to starve out competition.
It is also completely wrong.
The current crusade against grocery property controls—the restrictive covenants and lease exclusivity clauses used by Sobeys and Loblaw—is based on a profound misunderstanding of how commercial real estate works. Banning these clauses will not bring down the price of milk. It will not suddenly invite a wave of cheap, innovative independent grocers into your neighborhood.
Instead, axing property controls will dry up suburban retail development, increase financing costs for new plazas, and ensure that only the ultra-wealthy, vertically integrated retail giants can afford to build anything at all.
Regulators are pulling the wrong lever. Here is the unvarnished, insider reality of why the property control probe is a dead end.
The Lazy Consensus on Restrictive Covenants
The regulatory argument sounds logical on the surface. When a major grocer leaves a shopping center or sells a piece of land, they often attach a covenant to the property title that prevents any future buyer from opening a competing food market there. Alternatively, when they sign a lease as an anchor tenant in a new development, they demand an exclusivity clause ensuring the landlord will not lease space to a direct rival within the same plaza.
The Competition Bureau claims these mechanisms act as an artificial barrier to entry. They point to examples like Crowsnest Pass, Alberta, where Sobeys held a property control that allegedly kept their IGA store as the sole food retailer in a town of 6,000 residents until the Bureau forced its removal.
The public looks at this and sees a corporate monopoly strangling small towns.
But look closer at the numbers. Independent grocery stores do not fail to open because they cannot find an old Sobeys building to move into. They fail to open because they lack the multi-billion-dollar supply chains, localized logistics networks, and purchasing scale required to survive on two-percent profit margins.
I have spent years analyzing retail lease structures and corporate site selections. Companies do not sink millions into legal engineering just to spite a hypothetical mom-and-pop grocery store that might want to sell organic carrots down the street. They do it to mitigate immense, capital-intensive risk.
The Anchor Tenant Mechanics Regulators Ignore
Imagine a scenario where a developer wants to build a new 100,000-square-foot suburban shopping plaza. The project costs $40 million to build.
The developer cannot get bank financing based on the promise of a trendy boutique, a local bakery, and a dry cleaner. Tier-one lenders demand a credit tenant—a massive, stable corporation that will sign a 20-year lease and guarantee the cash flow needed to service the construction debt.
That credit tenant is almost always a major grocery anchor like Sobeys or Loblaw.
When Sobeys agrees to anchor that development, they are not just renting space. They are investing up to $15 million of their own capital into interior fit-outs, specialized refrigeration systems, loading docks, and supply line setups. They are taking a massive gamble on the long-term population growth of that specific suburb.
In exchange for taking on that structural risk and acting as the financial foundation of the entire plaza, the anchor tenant demands a simple guarantee from the landlord:
"We will fund your development, but you cannot turn around next year and lease the space right next door to our direct competitor."
This is not anti-competitive malice. It is basic capital protection.
If regulators make exclusivity clauses illegal, the risk profile of anchoring a new development skyrockets. Banks will charge higher interest rates to developers because the long-term cash flow from the anchor is no longer insulated. Developers will pass those higher borrowing costs onto every single tenant in the plaza via higher net rents.
The result? The small independent retailers—the very businesses the Competition Bureau claims it wants to protect—get priced out of the market before the foundation is even poured.
Why Banning Covenants Hurts the Little Guy
Let us look at what happens when a grocer vacates an older site. The populist view says that if Sobeys vacates a storefront, an independent ethnic grocer or a regional discount chain should be allowed to step right in and use the existing infrastructure.
If you ban the restrictive covenant that prevents this, you alter the asset value of the real estate portfolio.
When a major retail corporation owns a piece of land, that property sits on their balance sheet. If they decide to close an underperforming store and sell the land, they are faced with a choice under a zero-covenant regime:
- Sell the land to a third-party developer who might lease it to a competitor, actively cannibalizing the market share of another store the grocer operates three miles away.
- Hold onto the dark store, pay the property taxes, bulldoze the building, and let the land sit completely vacant as an unutilized asset to ensure no competitor can gain a foothold.
I have seen corporate real estate committees make this exact calculation. When forced to choose between losing market share or absorbing the holding cost of a vacant lot, large corporations with deep pockets will choose the vacant lot every single time.
By banning restrictive covenants, regulators will inadvertently create more food deserts, not fewer. Major grocers will refuse to sell prime commercial real estate to anyone, preferring to mothball properties indefinitely rather than risk handing an active loading dock to a rival.
The Myth of the Waiting Competitor
The biggest flaw in the Competition Bureau’s investigation is the assumption that a line of eager international grocers is waiting at the Canadian border, held back only by lease agreements in Halifax shopping centers.
This is a complete fantasy.
Canada is an incredibly difficult country for food retail logistics. It is a massive, sparsely populated landmass with distinct regional markets and highly concentrated distribution networks. If Aldi or Lidl wanted to enter Canada, they would not be stopped by a restrictive covenant in an Ottawa strip mall. They are stopped by the fact that building a brand-new, coast-to-coast distribution infrastructure to serve a market of only 40 million people is a logistical nightmare with a terribly low return on investment.
Look at the true cost structure of a grocery store.
| Cost Component | Percentage of Revenue | True Driver |
|---|---|---|
| Cost of Goods Sold (COGS) | 75% - 80% | Global commodity prices, supplier concentration |
| Labor & Store Operations | 12% - 15% | Minimum wage laws, domestic energy costs |
| Real Estate & Occupancy | 3% - 5% | Land scarcity, municipal zoning, property tax |
Real estate occupancy costs account for a tiny fraction of a grocer's total revenue. The real squeeze happens at the top of the column: the cost of goods sold.
Canada’s grocery sector is concentrated because our wholesale supply lines are concentrated. The major domestic grocers have spent half a century buying up supply lines, building massive distribution centers, and securing direct relationships with global consumer packaged goods monopolies.
If you eliminate every single property control in Canada tomorrow, a new independent grocer will still have to buy their inventory at a massive disadvantage compared to the wholesale buying power of a company operating 1,600 stores. They will still be forced to charge higher prices just to cover their wholesale acquisition costs.
The Competition Bureau is trying to fix a wholesale supply chain problem by micro-managing commercial real estate leases. It is like trying to fix a broken car engine by polishing the bumper.
The Real Fix Regulators Refuse to Touch
If the government actually wanted to lower grocery prices and invite true competition, they would stop spending millions on prolonged federal court orders for corporate real estate files. Instead, they would dismantle the actual, government-sanctioned barriers that keep food prices artificially high.
First, attack the inter-provincial trade barriers. It is still absurdly complicated to move certain food products across provincial lines due to conflicting regulatory standards, packaging laws, and provincial marketing boards. These internal walls prevent regional independent grocers from scaling up naturally.
Second, fix municipal zoning codes. The real estate bottleneck is not created by Sobeys; it is created by slow, bureaucratic city planning departments. It can take years to get a site rezoned for commercial retail use in a growing Canadian municipality. This artificial scarcity of zoned land gives existing properties immense value and leverage. If cities opened up zoning and permitted mixed-use commercial food retail by right in all high-density residential areas, the corporate covenants would become completely irrelevant overnight.
Third, address the supply management systems that dictate the prices of dairy, poultry, and eggs. These systems explicitly restrict production and impose massive tariffs on imports to keep domestic prices high. You cannot complain about the cost of groceries while actively maintaining a state-enforced price floor on basic household essentials.
The Cost of Populist Policy
The expanded probe into Sobeys is a convenient distraction. It allows politicians to signal to voters that they are taking action against corporate giants without having to do the hard work of restructuring complex agricultural, tax, and zoning policies.
If the Competition Bureau succeeds in retroactively banning property controls, do not expect a price drop at the checkout counter.
Expect to see a chilling effect on new commercial construction. Expect to see developers struggle to secure financing for suburban plazas. Expect to see prime, closed retail locations sit empty and decaying for decades because corporations can no longer sell them safely.
The status quo of the Canadian grocery market is frustrating, but the regulatory remedy being proposed is a economic illusion. By treating a real estate risk-management tool as a criminal conspiracy, the Bureau is ensuring that the structural inefficiencies plaguing Canadian consumers will remain completely untouched.
