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Competition Bureau Releases Grocery Sector Market Study Report

As indicated in our 2022 Competition Law Outlook, on October 24, 2022, the Competition Bureau (the “Bureau”) launched a market study entitled Competition in Canada’s Grocery Sector which examined the state of competition in the grocery industry (and was not aimed at investigating any specific allegations of wrongdoing), with the goal of recommending measures that governments could take to improve competition in the Canadian retail grocery industry.

On June 27, 2023, the Bureau published the findings of its study in a report, Canada Needs More Grocery Competition (the “Report”), which makes four such recommendations to governments:

  1. Develop a Grocery Innovation Strategy to support the emergence of new types of grocery businesses and expand consumer choice. The Bureau finds that supermarkets remain the top destination for Canadians to do their grocery shopping. To encourage new types of grocery businesses, including online grocers, the Bureau suggests that federal, provincial, and territorial governments collaborate to create a Grocery Innovation Strategy focused on helping new grocers enter the industry. The Bureau suggests initiatives such as (i) providing financial support to entrepreneurs and (ii) simplifying regulatory requirements that may pose a barrier to new types of grocery businesses.
  2. Encourage at all levels of government the growth of independent grocers and the entry of international grocers into the Canadian market. According to the Bureau, all levels of government should work together to implement policies that support the growth of independent grocers and encourage international grocers to enter the Canadian market. This recommendation stems from the Bureau’s findings that the Canadian grocery market needs more competitors and broader consumer choice.
  3. Consider introducing accessible and harmonized unit pricing requirements. The findings of the market study indicate that consumers have difficulty comparing prices between different products, package sizes, and grocery stores. The Bureau suggests that provincial and territorial governments develop tools to help Canadians compare prices more easily, such as harmonized unit pricing requirements.
  4. Take measures to limit property controls in the grocery industry, including, if warranted, to ban their use. In a bid to reduce barriers for new grocery businesses, the Bureau suggests that provincial and territorial governments limit restrictive clauses to further promote competition.

To carry out its market study, the Bureau obtained information on a voluntary basis from various grocers, governments, and agencies across Canada and the globe, consulted financial and retail experts, and solicited consumer viewpoints. In addition to shedding light on Canadians’ attitudes and behaviors toward grocery shopping, which suggest that consumers opt for grocery stores close to their home, that the availability of grocery options vary between urban and rural communities, and that the majority of Canadians still buy their groceries from grocery stores, the Bureau made the following findings on which it based its recommendations:

  • The supermarket competitive landscape: The Bureau finds that the Canadian grocery industry is concentrated, though depending on where consumers live, they may have access to other options such as independent grocery stores, including some that may compete head-to-head with larger supermarkets. The Bureau indicates that independent grocers may also compete with larger grocers, for example by supplying different products.
  • Property controls (restrictive covenants): Property controls, also referred to as restrictive covenants, limit how real estate can be used by competing grocers. For example, when selling a grocery store, the seller may provide that a new owner cannot operate a competing grocery store or upon opening a new store, retailers may ask the landlord to restrict the sale of similar products in nearby stores. Landlords may be incentivized to accept such requests because grocery stores tend to attract large amounts of customers. In an industry where location is key to attracting consumers, the Bureau finds that these types of covenants may be a hindrance to competition and make it harder for new grocery stores to open, since only a finite amount of real estate exists to accommodate a grocery store in a given community.
  • Online grocery: In an increasingly technological reality, the Bureau finds that consumers are adapting by turning to online grocery businesses. The Report notes that online grocery businesses provide the opportunity for new competitive alternatives to emerge in the industry. Technological advances and investments into online platforms makes groceries more accessible and convenient for Canadian consumers compared to in-store shopping.
  • Obstacles to entry: Following consultation with international grocers, the Bureau concludes that entering the Canadian market could be proven difficult. Given Canada’s geography and low population density, setting up stores in Canada presents challenges. Certain trends in the Canadian market such as a preference for private labels and multicultural shopping experiences also present unique difficulties for international grocers. While the Bureau has concluded that none of the international grocers they consulted with have publicly announced opening in Canada soon, they do find that their presence would promote competition and increase consumer choice.
  • International perspectives: Realizing that other countries are dealing with similar issues in the grocery industry, the Bureau consulted with international competition agencies to understand their initiatives to increase competition. Initiatives include grocery codes of conduct, buying groups between independent grocers to access lower prices from suppliers, and attracting new businesses in Canada to promote competition.
  • Informing consumers: The Bureau concludes in its Report that consumers need accurate, timely, and complete information to make informed choices about their groceries. Harmonized unit pricing requirements, according to the Bureau, can help improve consumer choice by facilitating their ability to compare products that come in different package sizes.

Next Steps

Looking forward, the Bureau undertook (i) to approach its work in relation to the Canadian grocery industry with increased vigilance and scrutiny while also making investigations of wrongdoing a top priority; (ii) despite not having the ability to enforce a code of conduct itself, to support the implementation of a Canadian grocery code; and (iii) to assess the progress made on the recommendations in its Report in three years.

Finally, the Bureau indicates that its inability to compel information as part of this market study further highlights the need for formal information-gathering powers. The Bureau is advocating that the current lack of formal information-gathering powers in the context of market studies “poses obvious challenges and stands in contrast to similar studies carried out by foreign competition agencies.” It remains to be seen whether the Bureau’s recommendation to benefit from formal market study powers will gain traction as part of the second phase of the Competition Act reform.

For more information, please consult our Competition/Antitrust & Foreign Investment Group.

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