Response from COBS Bread to the consultation on the Market study of retail grocery

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The following documents contain the written responses from organizations received by the Competition Bureau as part of its consultation on the Retail Grocery Market Study, which took place between October 14, 2022 and December 16, 2022. All organization submissions received as part of this consultation exercise are available to the public, except where confidentiality is specifically requested.

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December 14, 2022

Market Study Notice: Competition in Canada’s Grocery Sector - Competition Bureau Will Find Stifled Competition in Canada’s Retail Grocery Sector

As a specialized grocery retail franchise, with over 150 stores across Canada, COBS Bread is submitting the following request to the Canadian Competition Bureau in order to define the issues for examination in the Market Study: Competition in Canada’s Grocery Sector.

As outlined in the Notice, and identified as a focal point of the Study, “the Bureau hopes to examine how governments could act to combat grocery price increases by way of greater competition in this industry.”

Established in 2003, COBS Bread has been subjected to competition hurdles from the beginning that have both affected our ability to offer convenient store locations and to provide consumers with a level playing field.

Many of us in the consumer retail sector benefit by association. Bringing retailers together in a single location, such as a shopping centre or strip mall, provide consumers with one-stop shopping. Consumers and retailers both win.

Standing in the way of this truly being an open competitive marketplace are exclusivity clauses or restrictive covenants. With few exceptions, these are controlled by anchor tenants, who quite often are grocery store outlets. Bakeries, butchers and produce outlets are the targets of their restrictions. Loblaws, Sobeys and Metro, identified in the Market Study Notice as being the three dominant grocery companies, bar smaller specialty shops from the retail centre where they serve as the anchor. We estimate this to be at least 70% of their locations across Canada.

Outlined below are two examples, from the UK and Australia where active measures have been taken to eliminate the stifling of competition in the grocery retail space – both around 2010. Also, New Zealand has passed laws earlier this year to address this important issue.

United Kingdom

In the United Kingdom, the UK Competition Commission (UKCC) addressed the issue in a published report in 2008.

During the course of the Investigation, the UKCC identified a number of Restrictive Covenants which were found to prevent, restrict or distort competition. Those Restrictive Covenants are listed in Schedule 2(a), Article 4 which requires the Large Grocery Retailers which benefit from these Restrictive Covenants to use their best endeavours to release them.

Article 5 of the Order prohibits Large Grocery Retailers from entering into any Restrictive Covenant that may restrict grocery retailing or have equivalent effect or enter into any agreement which has equivalent effect. A Restrictive Covenant that may restrict grocery retailing or have equivalent effect is any Restrictive Covenant which prevents land from being used for grocery retailing.

The full Explanatory note to accompany the Groceries Market Investigation (Controlled Land) Order 2010 is listed here.

Australia

In Australia, the Australian Competition and Consumer Commission (ACCC) held an inquiry on the practice of restrictive leases by grocery stores in 2008, and received 700+ submissions. This led to the following directive:

the ACCC has been committed to phasing out restrictive provisions in supermarket leases since it carried out the Grocery Inquiry in 2008.

Subsequently, starting in 2010/11, the ACCC has been able to get ALL major grocery store chains in the country to back out of enforcing such provisions.

For example, here is the press release the ACCC issued when they reached an agreement to remove restrictive provisions with the Coles Group and Woolsworth Limited.; and here is the press release outlining its agreement with Supabarn Supermarkets Pty Ltd.

New Zealand

Most recently, in June 2022, New Zealand Minister of Commerce and Consumer Affairs, Hon. David Clark, on behalf of his government introduced The Commerce (Grocery Sector Covenants) Amendment Bill to update the Commerce Act 1986, by banning restrictive covenants on land, and exclusive covenants on leases. It also makes existing covenants unenforceable.

This is designed to end the anti-competitive land wars which have been silently hampering competition in the grocery sector for years. This law will stop major supermarkets from dictating the terms of leases to block opposition retailers from getting a foothold in an area.

Conclusion

The purpose of this submission is to identify the issues for examination with a goal of promoting competition in Canada’s retail grocery sector. Banning these restrictive clauses will open the competition to all retailers, benefitting both consumers and businesses. This review and analysis will be welcomed in the stakeholder engagement phase of the study and COBS Bread welcomes the opportunity to present at that time.