Walmart Canada axing some property controls amid grocery competition scrutiny

Walmart Canada says it’s getting rid of property controls relating to retail competition across the country.

The move comes as Canada’s competition watchdog is investigating the use of the restrictive real estate covenants, and as two major grocers have indicated they would be open to eliminating them.

The grocery industry’s use of property controls, which are terms baked into commercial leases that put restrictions on other tenants and their activities, has recently come under scrutiny.

Walmart said Friday it decided to “unilaterally waive any competitive retail restrictions” and is in the process of notifying its landlords and other landowners of the change.

The Competition Bureau is investigating the use of property controls by the parent companies of Loblaw and Sobeys, and has said they are hampering competition in the grocery sector.

Property controls are widely used not just in the grocery industry, but in retail and other sectors. These controls could be used to prevent another grocer from entering a shopping plaza, for example, or to prevent another retailer from selling certain items. They could also be used to limit the kinds of businesses that can take over a store location after a company leaves.

In October, Loblaw said it would eliminate its use of commercial property controls if other grocers did the same.

Property controls have been around for decades across industries with the intent to incentivize development, Loblaw spokeswoman Catherine Thomas said in a statement at the time.

“That said, in some circumstances, they might reduce options for customers.”

At the time, Sobeys owner Empire said it would like to see the government eliminate the use of the clauses across retail.

On Friday, Thomas said Loblaw welcomes the decision by Walmart.

“We have taken a strong position in favour of eliminating property controls and encourage all grocers to do the same,” she said in a statement.

Empire said its position hasn’t changed.

Walmart Canada spokeswoman Sarah Kennedy said the company made the decision “in light of recent changes in Canada.”

The company did not elaborate on the changes in question.

But recent amendments to the Competition Act have given the bureau more tools to protect and promote competition.

One of these amendments, which comes into force mid-December, allows the bureau to take action against agreements or arrangements between two parties that seek to prevent or lessen competition. Before this amendment, the bureau could only take action on such arrangements if they were between two competitors, meaning a grocer and its landlord would be exempt.

Deputy commissioner Anthony Durocher previously said property controls can be a barrier both for independent grocery stores and larger chains, as well as for foreign grocers looking to enter the Canadian market.

“The Bureau is committed to using the new tools made available through these amendments wherever necessary to protect competition,” Durocher told a House of Commons committee in February as he announced the bureau’s investigation.

In a study on the grocery market prior to the Competition Act amendments, the bureau recommended that provincial and territorial governments take measures to limit the use of property controls in the grocery industry, including potential bans.

Industry Minister Francois-Philippe Champagne previously said he’s courting foreign grocers to come to Canada as a way of boosting competition amid scrutiny over food inflation and concentration in the grocery industry.

The Competition Bureau said Friday it’s aware of Walmart’s announcement but can’t comment due to the confidentiality of its work.

“Generally, we welcome any steps taken to comply with the Competition Act,” said spokeswoman Marie-Christine Vézina in a statement.

“The Competition Bureau has been clear that property controls are an important issue impacting competition in Canada.”

She noted that in August, the bureau released a guide for businesses to navigate how the changes to the Competition Act will affect its approach to property controls.

This report by The Canadian Press was first published Nov. 22, 2024.

Companies in this story: (TSX:L, TSX:EMP.A)

Rosa Saba, The Canadian Press