In a prior blog, we discussed the initial steps that the Competition Bureau (the “Bureau”) was taking to challenge anti-competitive practices in the grocery industry, including in regards to property controls in commercial leases. On June 4, 2025, the Bureau released an update to their enforcement guidelines, in an attempt to clarify how businesses can comply with the Competition Act (the “Act”) and how the Bureau will approach anti-competitive controls in commercial leases.

This blog briefly summarizes certain of the main updates to the enforcement guidelines.

Justified Property Controls

In their updated enforcement guidelines, the Bureau has identified certain situations where property controls may be justified. These are limited to situations where the property control in question increases competition and consumer choice, including situations where “no retailer would otherwise make the necessary investments to become a key tenant in a new shopping plaza. Without the exclusivity clause there may be no retailers of a particular type in the shopping plaza, and so the clause increased competition”.

When assessing whether a property control is justified or otherwise anti-competitive, the Bureau has clarified that they will consider three factors:

1. Timeframe – Competitor property control should only last as long as necessary to protect incentives for entry or investment.
2. Geographic area – Competitor property controls should cover the smallest geographic area necessary.
3. Products and services – Competitor property controls should not limit competitors more than necessary in the products or services that they cover.

With respect to all of these criteria, the broader the scope imposed as part of a property control, the less likely the property control is to be justified or defensible under Bureau scrutiny.

Effect of Property Controls

When assessing how a property control will impact competition, including with respect to the criterion above, the Bureau will consider whether the property controls gives one firm in the market too much power or whether it would make it easier for such firm to consolidate its power. The Bureau will consider the following questions:

• Are there other competitors already in the market?
• How effective are competitors?
• Are there other feasible options for commercial real estate available to competitors?
• Would competitors be less effective if they used other commercial real estate?
• Does a competitor need to establish several stores in an area to be effective?
• Are there other barriers to entry or expansion that already exist, that may compound the effects of the competitor property control?

Enforcement Under Abuse of Dominance

As part of the update, the enforcement guidelines include an overview of how the abuse of dominance provisions in the Act will apply to competitor property controls.
In assessing whether a firm is deemed “dominant” for the purposes of enforcement, the Bureau will consider the following factors:

• The ability to restrict competitors or competition;
• The presence of effective competitors, which may be heavily weighed based on market share;
• Barriers to entry in the market, including barriers to entry created by the competitor property control;
• The position of the firm in the broader industry; and
• Evidence of bargaining leverage, including the ability to seek the competitor property control.

In certain instances, the property control itself can create dominance, especially when there are not already strong competitors in the market and the restriction makes it even more difficult for others to enter.

It is expected that the Bureau’s first course of action in situations where a dominant firm implements a property control would be for the Bureau to seek an order prohibiting its use or enforcement. However, if the restriction is both an anti-competitive practice and demonstrably harms competition, the Bureau may take further steps that include seeking administrative monetary penalties.

Enforcement Under Anti-Competitive Collaboration Provisions

In their enforcement guidelines, the Bureau also spoke to how competitor property controls can be reviewed under Section 90.1 (anti-competitive collaborations) of the Act. Section 90.1 applies to agreements that either (a) involve at least two competitors, or (b) do not involve competitors if a significant purpose of any part of the agreement is to prevent or lessen competition in the market.

For a property control to raise concerns under Section 90.1, it must have the effect of substantially harming competition.

While the Bureau acknowledges that competitor property controls are usually not formed between competitors, Section 90.1 can still apply if (a) a significant purpose of any part of the agreement is to harm competition in a market, and (b) the agreement has the actual effect of harming competition.

It is also worth noting that the Bureau has made it clear that:

“When assessing an agreement that contains a competitor property controls, we focus on if the agreement has the effect of harming competition. If so, we expect that the agreement will raise issues under section 90.1. This is because if the agreement has the effect of harming competition it will likely also have a significant purpose to do so.”

The remedies that the Bureau may seek when a property control raises issues under Section 90.1 include:

• Prohibiting the terms of the competitor property control and their enforcement;
• Requiring other measures to restore competition where necessary; or
• Seeking administrative monetary penalties.

Conclusion and Key Considerations

With its updated enforcement guidelines, the Bureau appears to be taking a more flexible stance on competitor property controls, acknowledging the need for a case-by-case approach. At the same time, the Bureau’s recent update and continued investigation into Loblaw shows their continued commitment to eliminating property controls in Canada, with a special focus on the grocery industry.

Looking to the future, enforcement in this area will likely remain highly fact-specific. Whether a particular property control clause violates the Act will depend on the market context, the intent and effect of the restriction, and any underlying justification.

If you have any questions or concerns relating to property controls, Sotos LLP can assist. Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your grocery sector needs.

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With the imposition of the new U.S. administration’s tariffs on imported materials and goods, more Canadians are choosing to support local products and producers. Businesses often attempt to make this choice easier for consumers by including wording such as “Made in Canada” or “Product of Canada” (collectively referred to as “Canadian Origin Claims”) on their labels. Although this can be a powerful marketing tool, there are strict regulations concerning their use and serious legal consequences for incorrectly or deceptively marketing a product using these claims.

Understanding Canadian Origin Claims

In Canada, there is no obligation to make “Made in Canada” or “Product of Canada” claims in regards to a product; rather these claims are voluntary. However, if a business chooses to make such a claim, it must be accurate and comply with all applicable regulations.

Canadian Origin Claims are primarily enforced by the Competition Bureau (the “Bureau”), through the Competition Act, R.S.C, 1985, c. C-34, which directly prohibits false or misleading representations (including Section 52 and Section 74.01). The Consumer Packaging and Labelling Act, R.S.C., 1985, c. C-38 (Section 7) and the Textile Labelling Act, R.S.C., 1985, c. T-10 (Section 5), also contain provisions which prohibit false or misleading representations regarding specific product types.

With respect to food-products, the Canadian Food Inspection Agency (the “CFIA”) is responsible for enforcing the rules under the Food and Drugs Act and the Safe Food for Canadians Act, S.C. 2012, c. 24.

What are the key difference between “Made in Canada” and “Product of Canada”?

The primary difference between these two claims is primarily the amount of Canadian content a product contains.

“Product of Canada”

“Product of Canada” claims require at least 98% of the total direct costs of production to have been incurred in Canada. This means that all, or virtually all of the direct costs were incurred in Canada.

“Made in Canada”

The “Made in Canada” claim has a lower threshold than the “Product of Canada” claim, meaning that only at least 51% of direct costs must have been spent in Canada. If you choose to use a “Made in Canada” claim, you must determine whether a qualifying statement is required to ensure clarity and precision. If it is required, the qualifying statement must be tailored to accurately reflect the specific details of the content that is imported. For example, “Made in Canada with imported parts” or “Made in Canada from domestic and imported ingredients”.

While businesses are encouraged by the Bureau to include clear and specific qualifying details, businesses should be cautious of using broad terms like “produced” or “manufactured” without necessary precision as these terms may be interpreted by consumers as equivalent to a “Made in Canada” claim.

Direct costs refer to the expenses that are directly incurred in producing or manufacturing goods. According to the Bureau’s guidance, these costs include:

1. expenditures on materials incurred by the producer/manufacturer in the production or manufacturing of the goods; and
2. expenditures on labour incurred by the producer/manufacturer that relate to the production or manufacturing of the goods and can reasonably be allocated to the production or manufacturing of the goods.

What factors will the Bureau consider?

When assessing whether a Canadian Origin Claim is accurate or misleading, the Bureau will look at several key factors, including the overall message the claim conveys to consumers, where the product underwent its final “substantial transformation”, and where the majority of direct production costs were incurred.

The term “substantial transformation” has been defined by the CFIA to refer to a significant change in the form, appearance, or nature of a product as a result of processing or manufacturing, such that it becomes a new product with a different identity that is commonly recognized as distinct by consumers.

Ultimately, the Bureau will consider the general impression that is being conveyed by a representation. As described in the Bureau’s enforcement guidelines, this means that the Bureau will consider “the general impression conveyed through a combination of words, visual elements, illustrations and overall layout that may alter the plain meaning of a representation”.

What about food products?

As discussed above, the CFIA is responsible for enforcing claims as they relate to food products sold in Canada. Similar to the guidelines under the Competition Act, a business is not obligated to make a Canadian Origin Claim. However, once they do, they must comply with the Food and Drugs Act (Section 5(1)) and the Safe Food for Canadians Act (Section 6(1)).

“Product of Canada” claims should be used for products where nearly all the contents are Canadian-sourced. While some minor non-Canadian materials can be included (such as spices, minerals, or flavouring), they must be minimal and should make up less than 2% of the total product. Packaging materials sourced from outside of Canada do not affect the eligibility of a “Product of Canada” claim, since the focus is primarily on the origin of the ingredients and manufacturing, not the packaging.

In contrast, food products may still use a “Made in Canada” claim even if most of the ingredients come from other countries, as long as the final “substantial transformation” happens in Canada and the label includes a qualifying statement clearly indicating that the product includes imported content.

What about symbols?

Often times, the packaging of products will contain a symbol of Canadiana, such as the Canadian flag or a maple leaf. The inclusion of these symbols and logos, whether intentional or not, can create the impression that the item was “Made in Canada” or a “Product of Canada” amongst consumers. Including such symbols may result in the Bureau holding the business to those standards.

In order to overcome this, it is important to include a clear qualifying statement, to describe the actual origin of the product. This statement should be placed in close proximity to the logo or symbol being used.

What are the penalties and consequences for non-compliance?

The penalties for a false or misleading Canadian Origin Claim will depend entirely on whether the conduct falls under the civil or criminal provisions of the Competition Act.

Under the civil penalties included in the Competition Act, violations can lead to:

1. For corporations, the penalty for a first time violation is up to the greater of:
   1. $10 million ($15 million for each subsequent violation); and
   2. three times the value of the benefit derives from the deceptive conduct, or if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue.
2. For individuals, the penalty for first time violation is up to the greater of:
   1. $750,000 ($1 million for each subsequent violation); and
   2. three times the value of the benefit derived from the deceptive conduct, if that amount is reasonably determined.

Under the criminal penalties of the Competition Act, an individual found to have made false or misleading claims, on summary conviction, may face a maximum penalty of a fine up to $200,000, imprisonment for a term of one year, or both. On a conviction of indictment, an individual may be subject to a fine at the court’s discretion, imprisonment for a term of up to 14 years, or both.

Conclusion

Ultimately, Canadian Origin Claims can boost consumer trust and brand loyalty, especially during these uncertain times, but only if they are made responsibly. There is no obligation to label your product as “Made in Canada” or as a “Product of Canada”, but once a Canadian Origin Claim is made, it must meet the standards outlined above.

If you have any concerns or questions relating to Canadian Origin Claims, Sotos LLP can assist.

Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca, or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your Canadian Origin Claims.

1. Government of Canada, Competition Bureau, “Product of Canada and “Made in Canada” Claims (2025) at s 3.1 [Bureau Guideline].
2. Ibid.
3. Ibid at s 3.2.1.
4. Ibid.
5. Bureau Guidelines, supra note 1 at s 3.2.2.
6. Ibid at s 2.1.
7. Government of Canada, Competition Bureau, Origin claims on food labels (2023) [Food labels].
8. Bureau Guidelines, supra note 1 at s 3.1.1.
9. Ibid.
10. Food labels, supra note 7.
11. Ibid.
12. Food labels, supra note 7.
13. Bureau Guidelines, supra note 1 at s 4.
14. Ibid.
15. Ibid.

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The Competition Bureau (the “Bureau”) has taken a significant step to challenge anti-competitive practices in the grocery industry. After an extensive investigation by the Bureau, Empire Company Limited (“Empire”) has agreed with the Bureau to remove a property control clause in a commercial lease that had previously prevented competitors from establishing competing grocery stores in Crowsnest Pass, Alberta only. This action by the Bureau represents one of the first applications of the newly-amended Competition Act (the “Act”) provisions.

What is a property control?

Property controls are negotiated restrictions in commercial lease agreements that limit how commercial real estate spaces may be used (including by other potential tenants), imposing restrictions on landlords as to who they may lease space to. Such provisions often decide what types of businesses may lease space from landlords, preventing certain businesses (namely competition), from establishing operations in violation of the provision.

While the largest commercial landlords in Canada generally enjoy significant bargaining power over potential tenants, the consolidated nature of the grocery industry in Canada, combined with the fact that grocery stores tend to be desirable and traffic-generating anchor tenants that drive potential customers to larger commercial developments, Canada’s large and mid-sized grocery chains have had significant success negotiating property control provisions to their benefit. In the grocery industry specifically, large grocery chains often use property controls to restrict landlords from allowing competing grocery businesses to open on lands owned by the landlord unrelated to the location. As a result, property controls have a direct impact on market competition, making it significantly more difficult to open competing stores in the same commercial plaza, or potentially nearby commercial plazas controlled by the same commercial landlord.

The impact of such provisions are acutely felt in smaller communities with limited commercial real estate, or in areas where commercial real estate is controlled by one or a small number of large commercial landlords.

How does the Competition Act address this issue?

The Act has been recently amended to prohibit companies from forming agreements that significantly restrict or reduce competition. Prior to the above amendments, the Bureau was restricted in its ability to investigate agreements between parties that were not considered competitors, such as supply and lease agreements. For example, agreements between landlords and grocery retailers fell outside the Bureau’s scope because the parties were not classified as “competitors” under the Act. However, the recent changes and specifically the amendments to Section 90.1 of the Act, have expanded the authority of the Competition Bureau. Now, the Competition Bureau can challenge agreements between parties that restrict or lessen competition, even if those agreements do not involve direct competitors.

What happened between the Competition Bureau and Empire?

In 2024, the Bureau began investigating the use of property controls by Empire, the parent company of Sobeys Inc., which operates grocery banners such as “Sobeys”, “IGA”, and “FreshCo”. The investigation was conducted to help “determine whether Sobeys and Loblaw are imposing anti-competitive restrictions on the use of real estate…that impact competition in the retail sale of food products”. During the investigation, the Bureau became aware of a property control restriction that was imposed by Empire on one of its “IGA” brand stores, located in Crowsnest Pass, Alberta, a town of approximately 6,000 people.

This property control provision was imposed by Empire in the region in 2017, and effectively eliminated the ability of other parties to establish competing stores to service Crowsnest Pass. The Bureau found that the provision “protected Empire’s grocery store from competition and ensured that it would continue to be the only grocery store in the area”. While conducting their investigation, the Bureau considered the question of whether the restrictions were anti-competitive in nature.

Following the investigation, Empire agreed to remove the property control. As Commissioner of Competition Matthew Boswell stated:

“Market forces – not property controls – should determine whether and where new grocery stores can open in communities across Canada. The removal of this property control in Crowsnest Pass will allow for more grocery competition to the benefit of its residents. We encourage all businesses that use property controls to review them and ensure that they comply with the law.”

The Bureau’s intervention in Crowsnest Pass raises broader questions about the future of property controls in Canada’s grocery industry.

What does this mean for the grocery industry generally?

Competition is key to affordability and choice for consumers, as it may drive the stores to offer lower prices and a wider selection of products to attract consumer dollars. However, property controls can severely limit this competition, and reduce incentives on retailers to compete for such consumer dollars. Even certain large retailers, such as Walmart, have noted that property controls restrict consumers options, making it more difficult for new players to enter the market. This issue is particularly important in smaller communities, where consumer choice is limited, and the ability to “shop around” may be limited or non existent.

The recent amendments to the Act therefore aim to provide the Bureau the power to challenge restrictive covenants in commercial lease agreements. However, the impact of these changes will likely have a greater impact in smaller towns than in major cities like Toronto. In large cities, consumers have access to numerous competing retailers within a short distance, making it easier to avoid the restrictions imposed by a single lease agreement. In contract, in smaller towns, a restrictive covenant can effectively eliminate all competition, leaving residents with no alternative grocery or retail options, as they are unable to drive to another nearby store.

In larger cities, the general thinking is that competition is easier to come by, as density translates to a larger number of consumers, which in turn drives a great number of commercial real estate for grocers to choose form, as well as an ability of consumers to more easily shop around. In smaller towns like Crowsnest Pass, however, there may only be demand for one or a small number of grocery retailers, which means that anti-competitive practices are significantly more easy to impose, but also for the Bureau to police.

While it remains to be seen whether the Bureau intends to continue to take action against property controls, those who will benefit the most from a sustained effort by the Bureau against these practices are likely to be independent grocers and smaller chains, especially those in smaller and rural communities. Assuming that the Bureau continues to challenge property controls, the end result may reduce the practice by large grocers to insist on property controls, potentially creating new opportunities for smaller chains and speciality stores to open in prime retail spaces, such as the same malls or plazas as larger grocery chains.

Certain large grocery chains have expressed openness to removing these restrictive provisions but have conditioned their willingness on all similarly large grocery chains doing the same. Without a broad, industry-wide change, large grocery retailers that also own shopping centers and retail spaces could still control who operates on their properties. This means that those larger chains will strategically select tenants to maintain their dominance in the market, resulting in restrictive agreements continuing in a different form. Additionally, it remains unclear whether the Bureau intends to take an active role in enforcing these new provisions, leaving questions about how much will actually change in practice.

Final guidelines from the Bureau regarding property controls are expected to be published later this year. These guidelines will be informed by the recent public consultation process, where the Bureau encouraged market participants in the food retail and real estate sectors to share their experiences with this practice. While the Bureau has not yet provided specific guidance on how future investigations will be initiated, it is likely that such investigations will be triggered by complaints, market studies, or the Bureau’s general monitoring of the grocery sector.

Conclusion

The recent amendment to the Act are intended to promote greater competition in the grocery sector, especially in smaller communities. However, for real, industry-wide change, major grocery chains would need to willingly stop using property controls altogether, which is something that remains unlikely in the short term.

It is still too early to determine whether this signals a broader push by the Bureau to actively scrutinize and challenge property controls altogether. The recent ruling in Crowsnest Pass sets a precedent, but how these changes will be applied in larger markets with multiple stores remains uncertain. What works in a small town may not have the same impact in a city where competition is already present and where commercial real estate is controlled by the very corporations that dominate the grocery industry.

If major grocery chains continue to enforce property controls wherever possible, the impact of these amendments could be limited. The real test will be whether the industry as a whole moves toward loosening these restrictions, or whether these changes simply create small victories in select markets without disrupting the status quo.

If you have any questions or concerns relating to the enforcement of property controls, Sotos LLP can assist. Please contact John Sotos at 416.977.9806 or jsotos@sotos.ca or Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your grocery sector needs.

1. Government of Canada, Competition Bureau, Competition Bureau advanced investigations into Sobeys and Loblaw’s use of property controls (2024).
2. Ibid.
3. Government of Canada, Competition Bureau, Competition Bureau takes action to protect competition in the grocery industry in an Alberta community (2025).
4. Rosa Saba, “Walmart Canada axing some property controls amid grocery competition scrutiny” Canadian Grocer (November 22, 2024).
5. Government of Canada, Competition Bureau, Call-out for information about property controls in the Canadian grocery industry (2024).

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Competition (or the lack of it) in the grocery sector has been in the news a lot in the past few years. More than 80% of Canadians believe that large grocery chains are engaged in “greedflation” (link). Whether or not that is correct, the government has responded:

• In June 2023, the House of Commons Standing Committee on Agriculture and Agri-Food published “Grocery Affordability: Examining Rising Costs in Canada”(the “House of Commons Report”).
• In July 2023, the Competition Bureau published a market study tellingly titled “Canada Needs More Grocery Competition”(the “Market Study”).
• In September 2023, the government proposed the Affordable Housing and Groceries Act (“Bill C-56”), which includes amendments to the Competition Act. It received royal assent and will come into effect on December 15, 2024.
• In November 2023, the government proposed Bill C-59, which includes more amendments to the Competition Act. It has passed second reading in the House of Commons.

This article (1) summarizes the amendments to the Competition Act in Bill C-56; (2) summarizes the proposed amendments to the Competition Act in Bill C-59; and (3) discusses how these amendments might impact competition in the grocery sector, and possible implications for grocery chains, suppliers, independent grocers, and consumers.

(1) Amendments in Bill C-56

Bill C-56 contains five major changes to the Competition Act.

First, Bill C-56 allows the Competition Bureau to compel companies to provide information for market studies (ss 10.1, 11). Currently, it can only compel industry participants to produce information where there are grounds to believe that an entity has committed or will commit an offence. This change appears to have been a response to concern identified in the House of Commons Report and the Market Study that some large grocery chains refused to provide detailed information on their profit margins.

Second, Bill C-56 prohibits any person who substantially controls a class or species of business from “directly or indirectly imposing excessive and unfair selling prices” as a prohibited anti-competitive act (s 78(k)). This might be intended to:

• Eliminate “greedflation” – that would track EU and UK law, which prohibit charging prices that are far above production costs[1] or far above prices charged in similar markets with more competition;[2]
• Reduce “shrinkflation” or to push grocers towards using unit pricing – the Market Study noted that consumers find it hard to recognize shrinkflation, especially without unit pricing, and that “a lot of Canadians expressed concerns about this practice”; and/or
• Reduce fees charged to suppliers – the House of Commons Report raised concerns about large chains charging suppliers fees for shelf space, fees for merchandising costs, late fees, and short fees, or imposing new fees “arbitrarily and without explanation”.

Third, Bill C-56 broadens “abuse of dominant position” (s 79). Under the new rule, the Bureau only has to show that the dominant company (a) engaged in a practice of anti-competitive acts; or (b) their actions are likely to prevent or lessen competition substantially. Currently, the Bureau must show both anti-competitive acts and prevention or lessening of competition substantially.

Fourth, Bill C-56 increases the penalties the Bureau can impose from $15 million ($10 million for first offence) to $35 million ($25 million for first offence) (s 79(3.1)).

Fifth, Bill C-56 allows the Bureau to prohibit agreements whose purpose is to prevent or lessen competition substantially (s 90.1(1.1)). Currently, the Bureau can only prohibit agreements that would have the effect of preventing or lessening competition substantially. This might be intended to respond to the comment in the Market Study that large grocery chains use property controls to deny independent grocers access to prime locations (e.g. leases preventing commercial landlords from leasing their other space to independent grocers).

(2) Proposed Amendments in Bill C-59

Bill C-59 proposes two major changes to the Competition Act.

First, Bill C-59 would allow private claimants to get monetary remedies from the Competition Tribunal, up to the value of the benefits that the defendant obtained from the wrongful conduct, and those remedies can be distributed to “any other person affected by the conduct” (ss 75(1.2), 76(11.1), 77(3.1), 79(4.1), 90.1(10.1)).

Second, Bill C-59 would lower the standard for private claimants to be allowed to bring claims. Whereas currently they have to show that their entire business is “substantially affected” by the alleged misconduct, the new rule allows claims by businesses affected “in part” by the alleged misconduct. More importantly, it allows claims to be brought if “it is in the public interest to do so”. This might open the door to claims by consumers.

We are not suggesting that these changes will substantially increase the number of claims brought in the short term. There is considerable uncertainty. To name just a few issues:

• Whose claims are “in the public interest”?
• What “other persons” are entitled to share in distributions?
• Are monetary remedies meant to be compensatory, restitutionary, or punitive?
• Are contingency fee agreements allowed?
• Can either party recover costs?
• Can the Competition Tribunal stay overlapping claims (i.e. award carriage)?
• If a settlement is reached, does it bind anyone other than the claimant and the defendant?

It will probably take years to resolve all this uncertainty. But once the confusion is resolved, private claims may become a viable way to enforce the new prohibitions in Bill C-56.

(3) Implications for the Grocery Sector

Overall, these amendments raise three possible issues for the grocery sector, on prices, supplier fees, and property controls.

Prices: The Competition Bureau could demand information on margins, identify products with especially high margins or recent decreases in size, and then bring an application for abuse of dominant position on the basis that these are “excessive and unfair” prices.

This is unlikely. The Competition Bureau rarely exercises its enforcement powers, and it is even less likely to conduct another market study since it just finished the Market Study.

Still, if grocery chains want to further limit this risk, they should consider adding unit prices on items (e.g. $1.00/kg or $1.00/L). In the Market Study, the Competition Bureau suggested that unit prices would limit or obviate concerns about pricing.

Supplier Fees: Suppliers could challenge fees for shelf space, fees for merchandising costs, late fees, and short fees as “excessive and unfair”, especially if those fees are (1) higher than fees in comparable markets; and/or (2) imposed “arbitrarily and without explanation”.

If Bill C-59 passes, this is somewhat likely. However, the fact that suppliers have to continue working with grocery chains after a claim will make such claims relatively rare.

Suppliers interested in bringing claims should check fee schedules of different chains and in comparable markets – e.g. grocery chains in other jurisdictions, or non-grocery distributors of similar products – and compare those to the fees they are being charged.

If grocery chains want to limit this risk, they should also check fee schedules of competitors and in comparable markets,[3] and make sure that all fees charged to suppliers are disclosed in advance with a written explanation.

Property Controls: The Competition Bureau is investigating Loblaws and Sobeys relating to property controls (link). If it chooses not to proceed, then after these amendments, independent grocers could challenge clauses in leases between grocery chains and commercial landlords preventing the latter from leasing to an independent grocer.

If Bill C-59 passes, this is likely. Independent grocers have the most to gain from the amendments, as collectively they give independent grocers a basis to challenge exclusion, a procedural means to bring that claim, and a lower leave standard for doing so.

If grocery chains want to limit this risk, they should review their property controls and attempt to identify purposes for those clauses other than excluding a competitor from the market. If they are unable to do so, they should reconsider those clauses.

Finally, what does all of this mean for consumers? In the short term, probably not much. These amendments are unlikely to reduce retail grocery prices or increase competition. In the longer term, if Bill C-59 passes and once independent grocers start bringing claims, competition might increase a bit, but probably not enough to meaningfully bring down grocery bills. If that was the government’s goal, then it needs to try harder.

At Sotos LLP, our team of experts possesses an unrivalled understanding of the business structure of today’s grocery sector. Whether you wish to understand the implications of Bill C-56 and Bill C-59, assistance in negotiating improved supplier relationships, or strategic advice to enhance your market position, we are here to support you. If you would like to discuss how we can help your business thrive in this highly challenging environment, please contact us.

John Sotos, Sotos LLP

John Sotos is the founding partner of Sotos LLP and a dean of the franchising, licensing and distribution bar. John has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached at 416.977.9806 or jsotos@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Adil Abdulla, Sotos LLP

Adil is an associate with Sotos LLP in Toronto. He can be reached at 416.572.7325 or aabdulla@sotos.ca.

[1] See United Brands Company v Commission of the European Union, EU document 61976CJ0027; Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK, case CE/9742-13.
[2] See Bodson v SA Pompes funèbres des régions libérées, EU document 61987CJ0030; Latvijas Autoru apvienība v Konkurences padome, EU document 62016CJ0177.
[3] To be clear, this does not mean that grocery chains can coordinate their fees with competitors. That is still a criminal offence that can result in jail time.

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Required Closure Dates

Generally, the Ontario Retail Business Holidays Act (the “Act”) requires retail businesses to close on the following nine public holidays every year:

1. New Year’s Day,
2. Good Friday,
3. Victoria Day,
4. Canada Day,
5. Labour Day,
6. Thanksgiving Day,
7. Christmas Day,
8. Easter Sunday, and
9. Any other public holiday declared by proclamation of the Lieutenant Governor to be a holiday for the purposes of this Act.

However, some exceptions may apply depending on the type and size of the retail store, what the store sells, the number of employees normally working, as well as other criteria.

Tourism Exemption By-Law 

If your store is not already included in an exemption under the Act, it may be beneficial to apply for a tourism exemption, through the council of the municipality where your business is located.

To be eligible under the Regulations to the Act (the “Regulations”), your retail business must be located within two kilometres of a tourist attraction and be directly associated with the tourist attraction or rely on tourists visiting the attraction for business on a holiday. The requirements may not be as onerous as they first appear:

•  The two-kilometre restriction may not apply to retail businesses located in more rural areas. The Regulations provide that the 2 kilometre requirement does not apply to a local municipality located in a district or regional municipality (or the County of Oxford) having a population of less than 50,000.
• A “tourist attraction” is defined quite broadly, as a natural attraction or outdoor recreational attraction, historical attraction, cultural, multi-cultural or educational attraction.  Successful applications have referred to outlet malls, hiking trails, natural parks, recreational and cultural centres and local wineries as potential tourist sites warranting the tourist exemption.

In terms of establishing an association with a given attraction, that can be as simple as establishing to the council’s satisfaction that the tourists who visit the attraction account for a considerable amount of the grocery store’s sales. Grocery stores often provide a wide range of products that are popular among tourists. For example, tourists to a nearby attraction often stop at the nearest grocery store for pre-packaged meals, snacks, beverages, pharmacy services, general merchandise such as sunscreen or insect repellent and first aid equipment. Tourists coming to the store to obtain these items can be sufficient to show a direct association.

Separate from and in addition to the exemption set out above, retail business establishments in a municipality may be exempted for up to five holidays a year during which a fair, festival or other special event is being held in that municipality (other than parades). If your location is close to fairgrounds or the sites of other holiday festivities, it may be worth applying for an exemption on those grounds.

It is important to note that each municipality may limit the application of the Act to establishments located in their municipality and define their own requirements for holiday closures and exemptions if they pass a by-law providing that the Act does not apply to their municipality. Toronto’s Bylaw, outlined below, is an example of this practice. You should review or request that your counsel reviews the Bylaws of your particular municipality to ensure the Act applies to your establishment.

Toronto tourism exemption

Tourism exemptions from mandatory closures on public holidays in Toronto are unique. Toronto is exempt from the requirements of the Act and instead determines its own requirements under its Holiday Shopping By-Law. The designated holidays are largely the same, but requirements for the tourism exemption may vary.

Currently, Toronto has made certain areas designated tourist areas where retailers may remain open without making an individual application. Specifically, businesses located in the following tourist areas are exempt from Toronto’s Holiday Shopping By-Law:

• Queens Quay West;
• Toronto Eaton Centre and the Hudson’s Bay Company (Yonge & Queen location);
• Downtown Yonge Street Business Improvement Area;
• Bloor-Yorkville Business Improvement Area; and
• Distillery Historic District.

Exemption application 

An application for a tourist exemption under the Regulations must include the following:

1. a description of the area or the retail business establishment for which the exemption is sought;
2. the justification, in relation to the seasonal nature, if any, of the tourist attraction for the time period sought in the exemption; and
3. information establishing that the tourism criteria set out in the Regulation are met.

The base fees required to submit applications are determined by the individual municipalities and can vary between municipalities. Refunds from the municipality for a portion of the application fee may be available for unsuccessful applications. Due to required statutory notice periods, an application will take a minimum of 4 months to process.

Enforcement of mandatory closures if a store opens improperly

Failure to comply with the Act may lead to fines, so obtaining a valid tourist exemption is recommended for grocery retailers who wish to serve customers on statutory holidays.  The minimum fines for retailers who open businesses on prohibited days are $500 for the first offence, $2,000 for a second offence and $5,000 for a third or subsequent offence. However, these are minimums only.  The Act states that retail outlets may be fined up to $50,000 or the total amount of gross sales for the holiday, whichever is greater.

At Sotos LLP, we have decades of experience advising clients on retail grocery issues. Here are three ways that Sotos can help retail grocery businesses:

1. Assistance in obtaining a tourism exemption: Sotos can provide guidance on the criteria for obtaining a tourism exemption and help retail grocery businesses prepare a successful application.
2. Compliance with the Act: Sotos can advise retail grocery businesses on the requirements of the Act and help them ensure that they are compliant to avoid fines.
3. Review of municipal bylaws: Sotos can review the bylaws of your particular municipality to ensure compliance with its requirements for holiday closures and exemptions.

This article was initially published in Canadian Grocer.

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To find the right franchisee and safeguard your brand, it’s critical that, as a franchisor, you have a strategy that you can put into practice to help you identify your future franchisee partners.  This article will help you identify the right franchisees for your specific system, and provides practical advice about how to assess if a prospective franchisee has what it takes to succeed in your system.

1. Business experience. Franchisees are essentially small business owners.  Prior experience operating a business, even if it’s a business type different than the franchise business they may operate, will help to set a franchisee up for success.  Remember, your new franchisee is going to have a lot of learning to do when they are onboarded to the system:  learning your system standards, understanding your brand values and how those are expressed in your daily operations, and any specific or special skills that may be necessary to operate their franchise business.  A franchisee with an understanding of small business fundamentals, such as basic accounting, budgeting, cash flow management, reporting, sales, marketing and hiring and management of employees is already one step ahead.  Franchisees with no business experience may be completely overwhelmed if, at the same time they are completing their system training, and also have to learn everything about operating a business.

2. Alignment with brand values, mission, and culture. “Fit” is going to mean something different to every franchise system, but it’s one of the most important things that franchisors need to consider in evaluating potential franchisees.  A prospective franchisee who otherwise “ticks all the boxes” but has a fundamentally different view of your brand, or of the system and its overall goals and direction is, at best, unlikely to succeed and, at worst, may create significant problems for you and the system, in general.  What’s the best way to identify the elusive “right fit?”  Here are some practical tips:

• Your initial screening and application processes should include at least some questions that directly address your brand’s values and mission. For example, ask some questions about why they are interested in your brand, in particular, and why they think they are right for the system.
• In interviewing a franchisee candidate, ask historical, behaviour-based questions that will help to reveal their personal characteristics and qualities. For instance, if one of your brand values is customer satisfaction, ask them to give you a specific example of a time in their past when a customer satisfaction issue arose, what it was, how they handled the situation, and what the result was.  These types of questions and answers will likely be very helpful to you in assessing whether the franchisee candidate is the person you’re looking for.  Past experience is often the best indicator of future performance.
• You may want to hold a discovery day or other workshop where the prospective franchisee can learn about your brand and also interact with existing franchisees. Not only will the franchisee learn about whether your system is right for them, but you can observe the candidate and assess whether you think they are right for the brand.  For instance, do they seem excited about your brand?  Do they seem engaged?  Do they get along with existing franchisees?  Are they asking good questions?  Your existing franchisees may also be able to provide you with insight on whether the candidate is compatible with your brand.
• You may wish to conduct reference checks. You might speak to previous employers, business partners or colleagues to gain insights into the candidate’s abilities and alignment with your brand values.  Another good idea is to check publicly available sources (a “Google” search, social media feeds, etc.) to see whether the franchisee candidate has a public presence and, if so, whether it reveals anything about them that is in conflict with your brand.
• You may wish to employ good profiling technology and related services. There are services available that will identify the qualities and characteristics of the most successful franchisees currently in your system, and then analyze franchisee candidates to determine whether or not they possess these same qualities.

3. Sufficient financial resources. No matter how much business experience a candidate may have, or how much they seem to fit into your brand’s culture, that franchisee is virtually certain to fail if the franchisee doesn’t have sufficient financial resources to operate.  A new unit that opens and then rapidly closes may harm the reputation of the brand, as may a unit that opens and then has to cut hours or reduce staff to stay afloat.  Franchisors should set clear financial criteria for prospective franchisees.  In particular, franchisors should ensure that prospective franchisees have a sufficient amount of unencumbered liquid assets to meet initial capital expenses, and sufficient initial operating capital to sustain the business until it is able to generate adequate profit.  The creditworthiness of the franchisee’s principal should also be explored.

4. Ambition and dedication. What are the franchisee’s expectations around business ownership and operation?  Do they intend to personally devote their full time and attention to the franchise business?  Do they understand that opening a new business, even a franchise business with excellent franchisor support, can be hard work?  Or do they think that, because the business is a franchise business, it will essentially “run itself”?  Do they believe they can just “hire a manager” to perform all business functions?  It’s important to assess a candidate’s expectations around these important issues.  Most franchise systems require franchisees to devote their full time and attention to the franchise business.  Individuals who understand this from the outset, and are keen to work hard to build a great business, are best placed to achieve success.

5. Understanding of the franchise relationship. While many franchisees are ambitious, want to be “their own boss”, and often have an entrepreneurial spirit, it’s very important for a prospective franchisee to understand the role of a franchisee within a franchise system.  A franchisor should assess whether a candidate understands that a franchisee will need to carefully follow the franchisor’s standards, methods of operation, management techniques, and business practices.  Success as a franchisee depends on the successful execution of these existing practices and standards.  The reputation of the system also depends, in part, on franchisee compliance with system standards.  For example, while it may be that restaurant franchisees can source individual items for prices lower than those offered by a franchisor’s approved suppliers, buying supplies only from approved suppliers is important to ensure consistency across the brand, manage health risks from food-borne illnesses, and achieve overall lower supply costs that are the result of volume discounts and product bundling.  Those candidates looking to “innovate” or “improve” upon the system need to understand, from the beginning, that their aspirations may not be compatible with the role of a franchisee.  It’s important for franchisors to explain to franchisee candidates the role of the franchisor, the role of the franchisee, and how their different functions work together to create the conditions for system success.

6. The right attitude and realistic expectations. It’s critical that the franchisee candidate has the right mindset.  Misalignments between expectations and reality is a recipe for unhappy franchisees and negative brand publicity.  A candidate should have genuine enthusiasm and passion for being a franchisee in your system, and understand what they can achieve with a franchise business.  It’s important that the franchisee candidate have a realistic understanding of the potential profitability of the franchise business.  In particular, it may be a red flag if a franchisee seems interested only in how much money they can make.  Franchisors who elect to directly provide financial information to franchisees must be very careful to do so in accordance with relevant franchise legislation.  Providing earnings claims or historical financial information in the wrong way may lead to significant claims against franchisors in future.

At Sotos LLP, we assist restaurateurs in determining whether to franchise their systems and guide them through the various stages of development and maturity. We also assist franchisors in every aspect of their sales processes. The author can be reached at aboudreau@sotos.ca.

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Nearly every franchise system includes a franchise marketing and promotion fund, often referred to as an “ad fund.” Typically, an ad fund operates as follows: individual units are obliged to contribute a specific percentage of their revenue to the ad fund, and the franchisor utilizes these funds for advertising and promotional activities to benefit the overall system and brand.

Ad funds serve as a potent tool for fostering system growth and expansion. They create a pool of funds for promotional endeavours that might otherwise be financially burdensome for either the franchisor or individual franchisees to undertake independently. In addition, initiatives funded by the ad fund contribute to maintaining consistent and brand-aligned messaging, as they are centrally coordinated by the franchisor.

However, ad funds can also become a focal point for discontented and divisive franchisees to unite around. Dissatisfied franchisees may join forces to raise concerns – real or “strategic” – regarding the management or administration of the ad fund. Even if these grievances lack merit, they can consume valuable time and resources for franchisors. Moreover, they can sow discord within the franchise system and among franchisees. In the most extreme scenarios, franchisees may unite and utilize their collective resources to initiate and maintain vexatious lawsuits concerning the ad fund, which can result in significant expenses and protracted legal battles for the franchisor.

This article aims to provide guidance on ad fund best practices and to highlight essential considerations for franchisors in creating and managing their ad funds.  Implementing these practices and thinking about these issues can help franchisors avoid the most common potential ad fund pitfalls.

1. Consider what geographic area the advertising fund will cover, and whether franchisees will have additional local marketing obligations

Prior to establishing its ad fund, a franchisor should think carefully about the geographic area the fund will cover. Should the ad fund be national in scope, and responsible for promoting the brand across the country, or should there be multiple regional funds to account for Canada’s size and the distinctness of its many regions?  Or should there be both a national fund and various regional funds? A franchisor should consider these questions in light of the nature of its brand and operations and the current market conditions. Are there important local or regional differences that the franchisor wants to address in its marketing efforts?  Or is it better to focus on a single advertising strategy Canada-wide?

A franchisor should also determine whether franchisees will be required to invest in a local ad fund geared towards promoting their local markets (over and above their obligation to contribute to the franchisor’s national fund), and/or whether they must individually meet certain self-directed local marketing spend minimums.  Making advertising a joint responsibility, by requiring individual unit spend minimums, can be an effective way to preempt complaints about the franchisor’s advertising strategy and decisions.  As discussed in more detail, below, franchisors that opt to require franchisees to participate in marketing should ensure there is appropriate franchisor oversight over the content of such marketing initiatives.  Franchisors should implement a tracking, approval, and reporting system to ensure that franchisees’ marketing efforts align with system standards, and that individual franchisees achieve minimum marketing spend requirements.

2. Management and reporting considerations: creating a special purpose “ad fund” entity, preserving the right records, and reporting to the franchisees

With very few exceptions, it’s generally advisable that the franchisor set up and manage the ad fund as a separate entity within the franchise system.  A general best practice is to incorporate a separate corporate entity whose sole purpose is to be responsible for all matters relating to the ad fund.  Ad fund contributions should not generally be co-mingled with other funds.  Instead, they should be maintained in a separate account in the name of the special-purpose entity that the franchisor has created for management of the ad fund.  While it is technically not improper to deposit ad fund monies into a mixed purpose account, such practice can create significant practical difficulties relating to tracing funds in the event the franchisor receives a demand to account for its use of ad fund monies.  To that end, any transfers in or out of the ad fund account should be properly memorialized.  Original source documentation relating to ad fund expenditures (for instance, invoices from third party marketing services providers) should be organized and preserved for a reasonable period, in accordance with the franchisor’s document retention policies.

A franchisor should maintain accurate financial records detailing contributions to and expenses drawn from the ad fund.  Such financial records should be distinct from those kept by the franchisor as part of its overall business operations.

A franchisor should consider whether it will provide franchisees with some degree of financial reporting relating to the revenue and expenses of the ad fund.  For example, will the franchisor provide regular financial reports to the franchisees about the ad fund?  Or will such reports be provided only in response to franchisee requests?  In any case, a franchisor should make sure it adheres to whatever reporting requirements it may put in place, as failure to do so can provide a pretext for disgruntled franchisees to stir up trouble.

The franchisor will also want to carefully consider the type of financial information it wants to make available to the franchisees in relation to the ad fund.  Will the franchisor provide financial statements, which may require the franchisor to engage external accountants to prepare?  Or, more commonly, will the franchisor provide only a statement of income and expenses, summarizing the revenue and expenses of the ad fund in a particular fiscal period?  In either case, it is generally recommended that franchisors provide such summary financial information to franchisees, rather than access to all source documents relating to the ad fund (for instance, general ledgers, invoices and other information relating to the financial activities of the ad fund).

3. Consider whether all franchisees will benefit equally from, and contribute equally to, the advertising fund, and specify if that is not the case

As a fundamental matter, a franchisor should carefully consider which entities will contribute to the ad fund, how the quantum of such contributions shall be calculated, and what use may be made of the funds.  For instance, is there any obligation for the franchisor to make ad fund contributions and, if not but the franchisor nonetheless contributes to the ad fund, how will such contributions be accounted for and used?  Will corporate and franchisor-owned stores be required to contribute?  What about stores that operate seasonally, or operate in a format that is different from the majority of stores in the system (kiosks, food trucks, special venue stores, ghost kitchens, etc.)  Will all franchisees contribute equally to the ad fund in accordance with a prescribed formula?

Is it fair for all units to pay the same ad fund fees if some units are only operating for a portion of the year?  The answer to this question is not always clear or straightforward.  Sometimes, units with reduced hours or seasonal units are in a prominent location, for instance, major sporting venues or pop-ups during special events, and have the potential to greatly increase brand awareness and attract new customers to existing units operating in traditional formats in the future.  Are these special location units creating goodwill for other franchisees to enjoy, or are they trading off the goodwill that other franchisees have created?

In addition to these considerations, a franchisor should specifically outline whether rebates, marketing allowances, and other amounts received by the franchisor will be contributed to the ad fund or retained by the franchisor for its own use.

Addressing these matters clearly, in both the franchise disclosure document and in the franchise agreement, can help to ensure that the ad fund is administered in a manner that franchisees perceive as transparent and fair.

4. Clearly define the key terms of the ad fund, including how much franchisees are required to contribute, the mediums and content of advertising that are permissible, whether the ad fund will be administered internally and/or externally, and who will pay for ad fund’s administrative expenses

While franchisors generally have a great deal of discretion as to how ad fund monies should be spent, it is important that the scope of this discretion is clearly communicated to the franchisees to avoid accusations of “unfairness” later.  It’s important to preserve the franchisor’s ability to spend the ad fund as it sees fit.  This might mean applying ad fund monies towards assisting troubled regions, or towards initiatives that seek to have the system enter new markets.

A franchisor should consider how the monies it collects for the ad fund will be apportioned, and whether franchisees can expect the ad fund to devote a proportional amount of the collected funds to specific markets or regions. Many franchisors will explicitly state in their franchise agreement that the ad fund has been created for the benefit of the system as a whole, and that franchisees should not expect that ad fund spend will benefit individual units on a proportionate or equal basis relative to their contributions or other franchisees.

To avoid potential disputes, a franchisor should address in specific detail the following considerations when structuring its ad fund:

• What amounts will franchisees be required to contribute? The franchisor should clearly define the amount that franchisees will be required to pay into the ad fund, the frequency with which they will contribute to the fund, and how the contribution will be paid to the franchisor. A franchisor should consider whether the franchisees will be required to make payments in pre-determined amounts, or whether their ongoing contributions will be determined by way of a formula based on their gross revenues or another metric.
• What media and content may the ad fund employ? A franchisor should ensure it reserves the right to employ any and all types of content and mediums of advertising (including television, radio, online, social media, etc.) for the fund as part of its activities.
• Will the ad fund rely on third-party advertising agencies, an in-house advertising department, or a combination of both to carry out its activities? A franchisor should consider whether the ad fund will be administered internally or externally, or through a combination of both. Expenses incurred by a franchisor in directly administering the fund, including direct expenses such as printing and ad placement, and indirect expenses such as salaries and head office rent, may be properly chargeable to the ad fund. When considering what and how much to charge to the ad fund, a franchisor should make a commonsense determination as to whether there is a nexus between the expenses it has incurred and whether these expenses furthered the objectives of the ad fund. Additionally, the quantum of the allocation should be proportional to the expense incurred by the franchisor and assessed reasonably. For instance, if one quarter of the franchisor’s head office space is dedicated to offices for internal marketing personnel, it may be appropriate to charge one quarter of the franchisor’s head office occupancy costs to the ad fund.
• Will the ad fund be used for purposes other than traditional marketing of the system and brand? There are a variety of promotional-related activities in which franchisors are increasingly required to engage. For instance, increased reliance on social media means that, sometimes, a franchisor must engage in reputational “damage control” or respond to negative comments on social media.  What about the cost of administering customer surveys across all or part of the system?  Franchisors should consider whether the ad fund provisions of their franchise agreements permit them to charge the cost of these activities to the ad fund. Ultimately, the franchisor should thoughtfully consider all uses or potential uses of the ad fund monies.

Finally, a franchisor should reserve the right to change and amend the rules relating to its use of ad fund monies, as necessary, to keep up with new advertising mediums and technologies, and to ensure the best possible use is being made of ad fund dollars.

5. Decide who will manage the fund, who will be responsible for its decision making, and whether there will be a franchisee advisory council.

Prior to forming the ad fund, a franchisor should carefully consider who will operate and administer the fund, and whether an advisory committee should be established to oversee and make suggestions as to the ad fund’s activities. In a majority of cases, the franchisor (or an affiliate of the franchisor) will be responsible for administering the fund and crafting the message and media to be employed in its advertising. Such centralized leadership allows the franchisor to broadcast a consistent message to potential consumers regarding its brand and products.

Some franchisors also establish franchisee advertising and marketing advisory councils, which bring together franchisees to make recommendations as to how the ad fund should carry out its activities. Most such councils are limited to making only non-binding recommendations.  However, engaging franchisees can allow franchisors to tap into franchisees’ valuable on-the-ground knowledge.  In addition, involving franchisees in the operations of the ad fund heightens transparency which can, in turn, preempt potential ad fund disputes.

6. Consider how much leeway individual franchisees will have to undertake their own advertising

One of the key advantages of franchising is establishing a common brand which can provide customers with a consistent experience. In establishing an ad fund, a franchisor can ensure that all advertising it produces is consistent with the brand’s policies, standards and image. A franchisor should carefully consider whether there is a place in its system for individual franchisees to undertake their own advertising at a local level, and whether there should be controls on the form and content of such local advertising. A franchisor should consider whether local advertising directed by individual franchisees would complement or conflict with national and regional advertising undertaken by the system’s ad fund.

A franchisor should be especially wary when it comes to a franchisee’s use of social media to promote its franchised business. Social media content and messages can spread quickly and easily.  A franchisor should be sure to clearly delineate the system’s policies on social media usage and content.  Franchisors should also ensure they have effective mechanisms to step in when and if a franchisee’s advertising is inappropriate or inconsistent with the brand.

7. Consider how the franchisor’s disclosure will be affected by the establishment of, or the reservation of the right to establish, an advertising fund

A franchisor should ensure that its franchise disclosure document fully discloses the material specifics of the ad fund it has established and its use of funds, as required by franchise legislation.

If particular franchisees are required to contribute different amounts to the ad fund, the franchisor should consider how widespread these variations are across its system, and whether knowledge of these variations is information that would be material to a decision by a prospective franchisee to acquire a franchise.

Conclusion

A well-managed ad fund, which pools contributions from franchisees, can be a valuable asset and a competitive advantage for a franchise system. However, the process of developing and administering such a fund can be complex. It is important to engage professional advisors throughout all stages of the ad fund’s lifecycle to ensure legal compliance and alignment with the system’s best interests.

At Sotos LLP, we specialize in assisting both emerging and established franchisors in navigating these complexities. Our expertise includes designing systems that adhere to best practices and crafting agreements and disclosure documents tailored to each franchise system’s unique needs.  We also have substantial experience in defending against ad fund-related claims. No matter the system or the issue, Sotos LLP is here to support and guide franchisors in optimizing their ad funds for success.

Adrienne Boudreau, Sotos LLP

Adrienne is a partner with Sotos LLP in Toronto, Canada’s leading franchise law firm. She has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. Adrienne can be reached directly at 416.572.7321 or aboudreau@sotos.ca.

John Yiokaris, Sotos LLP

John Yiokaris is a partner with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, Lexology, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached directly at 416.977.3998 or jyiokaris@sotos.ca.

Jason Brisebois, Sotos LLP

Jason Brisebois is a senior associate with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has been recognized by Best Lawyers in Canada in the Ones to Watch category. Jason can be reached directly at 416.572.7323 or jbrisebois@sotos.ca.

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Overview of Canada’s Single-use Plastic Prohibition Regulations:

Effective December 20, 2022, the Government of Canada has banned the manufacture and import for sale of single-use plastics (“SUP”), including plastic grocery bags, cutlery, stir sticks, and straws through the Single-use Plastics Prohibition Regulations (“Regulations”)[1]. In addition to the items mentioned above, foodservice wares made from hard-to-recycle plastics are also banned effective December 22, 2022, while a ban on the manufacture and import of plastic ring carriers (think six-packs of your favourite beverages) will come into effect in June, 2023.[2]

The Regulations come in advance of Canada welcoming the world to the 15^th Conference of the Parties (COP15) to the United Nations Convention on Biological Diversity, and are a step in the Canadian Government reaffirming its steadfast commitment to addressing plastic pollution and protecting biodiversity in Canada, and around the world. According to the Government, “Over the next decade, this world-leading ban on harmful single-use plastics will result in the estimated elimination of over 1.3 million tonnes of hard-to-recycle plastic waste and more than 22,000 tonnes of plastic pollution, which is equivalent to over one million full garbage bags.”[3] These measures will put Canada among the world’s leaders in the fight against plastic pollution and will help them to meet their commitments to the Ocean Plastics Charter.

Franchised and non-franchised businesses in the retail, grocery and restaurant industry sectors will be required to adjust their customer offerings to adhere to the ban, including by switching to more natural, biodegradable and/or reusable alternatives, such as paper or reusable shopping bags, wooden utensils, paper straws, and fully-recyclable or biodegradable food packaging materials.

Exceptions to the Ban:

Exceptions to the Regulations allow flexible SUP to remain available for people in Canada who require it for medical or accessibility reasons.[4] This includes for use at home, in social settings, or in healthcare settings, such as hospitals and long-term care facilities. SUP items that are not flexible will be prohibited in all circumstances.

More specifically:[5]

• The manufacture and import of SUP flexible straws is allowed;
• Retailers can sell SUP flexible straws in packages of 20 or more, as long as they are not on public display and are only provided if requested;
• Individuals can give SUP flexible straws to others in a family or social setting;
• Care institutions can provide SUP flexible straws to their patients or residents; and
• A business may sell SUP flexible straws in packages of 20 or more to another business.

Additional exceptions are available for waste and bags for containing waste, as well as “products in transit.” Whether a SUP product is considered “in transit” is determined based on the final shipping destination of the product.

Ban will be effective in December 2023

Bans on both the sale and the  manufacture, import, and sale for export of SUP will not begin until December 20^th , 2023. This gives manufacturers and retailers alike time to adjust their offerings and processes. However the government is not currently planning to offer subsidies or other financial assistance to offset the costs of changing from SUP like plastic cutlery to wooden cutlery or even new materials starting to enter the market, like edible cutlery made of cereals.

Stores may also still sell their existing SUP until December of 2023, but that does not mean stores should not start planning for the future now.[6] For example, in 2021, McDonalds eliminated plastic stir sticks, straws and cutlery in more than 1,400 restaurants across Canada, replacing them with wooden alternatives, which saved an estimated 840 tonnes of plastic from landfills annually. Additionally, Sobeys eliminated SUP bags at its checkout counters in 2020, and Walmart followed suit in April, 2022. Finally, Loblaws recently announced it will ban plastic bags by spring 2023.[7]

Store owners need to begin the transition away from SUP by, firstly, assessing how much SUP they currently have stocked, and then evaluating the best way to proceed; whether that be by continuing to normally sell the products until the end of 2023, exporting the products to a jurisdiction where they are not banned, or deciding they can fit into one of the government exceptions. In conjunction with this exercise, plans to gain access to new, approved products will also need to be implemented. Oliver Bourbeau, the vice-president of federal affairs at Restaurants Canada, said there are already supply chain issues at play, mentioning that one restaurant chain with dozens of restaurants in Ontario and Quebec is so far only receiving half of its orders for non-plastic takeout containers.[8]

Due to such supply chain issues, and the substantial expected operational changes that compliance with the Regulations will entail, the costs will likely be high for stores to adopt compliant product policies. In the franchise context, this means that franchisors and franchisees will need to come to an agreement on who will actually bear the costs of changing supply policies in order to maintain viable unit-level economics.

Key Takeaways:

There are a few key takeaways and steps franchised and non-franchised store owners need to take or keep in mind regarding the ban of SUP by the Government of Canada:

1. All store owners should carefully read the Government of Canada’s technical guidelines on what counts as SUP and what falls under the above exceptions. The guidelines can be found here: https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/reduce-plastic-waste/single-use-plastic-technical-guidance.html
2. An assessment of inventory should be done, to ascertain compliance of current inventory with the future rules, to give owners an idea of how much SUP inventory they have to sell, export, etc., and to determine how extensive and expensive the changes will be.
3. Retailers should create a workable plan for December, 2023 now. This means speaking with potential suppliers, assessing costs, and in the franchise context, coming to an arrangement with franchisees on how new, potentially large costs will be shared.

If you have any questions about the new prohibitions ore any other regulatory matters affecting your business, please contact Peter Viitre at pviitre@sotos.ca. At Sotos LLP, our lawyers advise businesses in the restaurant and hospitality industry and we look forward to being of assistance to you.

[1] Single-use Plastics Prohibition Regulations 2022-138. Online: https://laws-lois.justice.gc.ca/PDF/SOR-2022-138.pdf
[2] “Change is here: Canada’s ban on certain harmful single-use plastics starts to take effect this month” Government of Canada. December 17, 2022.  Online: https://www.canada.ca/en/environment-climate-change/news/2022/12/change-is-here-canadas-ban-on-certain-harmful-single-use-plastics-starts-to-take-effect-this-month.html
[3] Ibid
[4] “Fact sheet: Exceptions for single- use plastic flexible straws” Government of Canada. Online: https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/reduce-plastic-waste/exceptions-flexible-straws-factsheet.html
[5] Ibid.
[6] Supra, note 2.
[7] Mia Rabson, “Government will ban some single-use plastics over the next 18 months” The Canadian Press June 20^th 2022. Online: https://www.cbc.ca/news/politics/plastics-ban-countdown-1.6494379
[8] Ibid.

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The Canadian Federation of Independent Grocers (“CFIG”) offers compelling benefits to Canadian grocery retailers. As designated “retailer” members of CFIG, grocery retail stores gain valuable access to resources and increased exposure to manufacturers, suppliers, and other industry players. Importantly, CFIG is not restricted to unaffiliated independent grocery retailers; franchised grocery retailers can reap the benefits too.

This article’s goal is to present a brief overview of the current dynamics of the grocery industry and why franchised grocery retailers stand to benefit from joining CFIG, despite operating within the franchise context.

The Dominance of Majors

Independent grocery retailers have steadily lost their footprint within the Canadian grocery sector to major grocery distributors. As of 2020, these “Majors” comprised roughly 80% of the market share in Canada’s grocery sector,[1] and have used their massive market influence to tilt in their favour the once-level playing field previously enjoyed across the sector.

The primary effects of the Majors’ influence have been felt by suppliers. Suppliers have reported instances where Majors have unilaterally reduced prices of supplier products, and increased contractual fees and penalties. The Federal Agriculture Minister found that the fees owed to Majors comprised 15-40% of a supplier’s sale revenue. During the COVID-19 pandemic, Majors netted record profits.

With relatively few alternatives in the marketplace, many suppliers have accepted unfavourable contractual terms they would not otherwise, lest their products be de-shelved from Major aisles.

The Grocery Code of Conduct

In part due to supplier/Major struggles, industry advocates promoted the creation and adoption of a Grocery Code of Conduct (“Code”). In July 2021, Federal, Provincial, and Territorial Ministers called for an industry-led process to develop a first proposal of a Code, and a steering committee of individuals from ten (10) stakeholder groups was formed to lead the effort.[2]

The Code is inspired by the United Kingdom’s Grocery Supply Code of Practice, which regulates the grocery sector to promote competitiveness and fair dealing. The United Kingdom has experienced a concentrated grocery retail environment similar to Canada’s, and offers a helpful precedent for the Code’s drafting.  The idea of the Code in Canada has found wide-spread support. Some Majors have also conveyed support, arguing that such oversight is a welcome development to the Canadian grocery sector, provided that the Code is fair to all parties.

The renewed deadline for the steering committee’s proposal is set for November, 2022.[3] If the proposal is not finalized by then, the committee may seek government intervention for assistance.[4]

For more information on the proposed Code of Conduct in Canada, see our article on the topic here.

The Canadian Federation of Independent Grocers

The CFIG is a non-profit trade association founded in 1962. CFIG’s stated aim is to equip and enable “independent, franchised and specialty grocers for sustainable success” and to continue to serve as a “strong and united voice for over 6,900 independent grocery retailers across Canada, providing programs for operational excellence and fostering solid relationships among retailers and suppliers.”

The retailer membership in CFIG is open to any independent or franchised grocery store operating in at least four (4) of the following departments: dry grocery, produce, meat, frozen, dairy, bakery, or deli. The benefits of joining CFIG are plentiful and include advocacy, news and industry updates, and opportunities for reputation and brand growth – all of which are essential at this critical juncture for the Canadian grocery sector.

Advocacy

CFIG is a zealous advocate for small and medium-sized business grocery retailers. In addition to advocating for the development of the Code, CFIG has advocated for many issues important to grocery retailers, including reducing credit card interchange payments, installing environmental tax rebates, and settling international supply chain concerns.

News and Industry Updates

CFIG provides regular updates on industry developments to members. Among periodic news publications, CFIG’s website includes an up-to-date recalls and food investigations section, along with nutritional information, and news related to technological development and other trends within the industry.

Reputation and Brand Growth

CFIG also provides ripe opportunities for networking and brand development. Retailer members gain access to numerous events to network with other suppliers, brands, competitors, and learn the skills of the trade.

For instance, CFIG hosted the Grocery Innovations Canada exhibition in Toronto in October, 2022, and is scheduled to host the Grocery & Speciality Food West exhibition in Vancouver in April, 2023. At these events and others, retailer members can gain important insights into the dynamics of the industry and help navigate its path forward.

Why Franchised Grocers Should Join CFIG

The primary benefit franchised grocers will gain by joining CFIG is access: Access to advocates who can make meaningful industrial change, while supporting them in doing so; Access to industry updates and developments, so that the franchised grocer is not caught by surprise by a recall or supply chain disruption; Access to sophisticated professional advice not otherwise available; and Access to networking opportunities, not only to strengthen their reputation and brand, but to build relationships with suppliers.

While franchised grocers operate in a different context than fully independent grocery retailers (due to the legislative requirements and terms of the governing franchise agreement), franchised grocers can leverage the access and benefit provided by a CFIG membership and share such information and best practices with colleagues, taking advantage of common representation as and when the need arises.

With membership fees as little as $310.00 per year, to a maximum of $620.00 (depending on the size of the grocery retail store), the benefits of a CFIG membership far outweigh its costs. While independent grocery retailers have long reaped CFIG’s benefits, franchised grocers should prioritize doing so too.

John Sotos, Sotos LLP

John Sotos is the founding partner of Sotos LLP and a dean of the franchising, licensing and distribution bar. John has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached directly at 416.977.9806 or jsotos@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

[1]      T. Ozbun, “Canada: leading food retailers 2020, by market share”, Statista, September 20, 2020 <online>.
[2]      “Grocery Industry Code of Conduct Progress Report”, Grocery Industry Code of Conduct Steering Committee,  July, 2022, p. 2 <online>.
[3]      D. Brown, “More work needed on grocery’s code of conduct: Committee”, Canadian Grocer, July 26, 2020 <online>.
[4]      Ibid.

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The six items being banned by the Regulations include: (1) checkout bags, (2) cutlery, (3) foodservice ware made from or containing problematic plastics that are hard to recycle, (4) ring carriers, (5) stir sticks, and (6) straws (with some exceptions, see below).

Business owners should be aware of the following key dates:

• The prohibition on the manufacture and import of checkout bags, cutlery, foodservice ware, straws (not packaged with a beverage container), and stir sticks will come into effect as of December 20, 2022.
• The prohibition on the sale of checkout bags, cutlery, foodservice ware, straws (not packaged with a beverage container), and stir sticks will be effective as of December 20, 2023. This will grant businesses 1 year to deplete existing stock.
• A ban on ring carrier manufacturing and import will be effective as of June 20, 2023.
• A ban on the sale of ring carriers and straws packaged with beverage containers (e.g. juice boxes) will come into effect as of June 20, 2024.
• A ban on the export of all six items by December 20, 2025. Note that banning exports was added to the final regulation, as it was not included in the government’s original proposal.

The Regulations include a number of exceptions to the ban, which exceptions include:

• Single-use straws for accessibility: The Regulations permit hospitals, medical facilities and long-term care facilities to sell single-use plastic flexible straws to patients or residents.
• Waste and bags for containing waste: The Regulations do not apply to plastic manufactured items that are waste, nor to items that are intended to hold waste (and do not meet the definition of single-use checkout bags).
• Products in transit: The Regulations do not apply to plastic manufactured items that are transiting through Canada. Whether a single-use plastic product is considered “in transit” is determined based on the final shipping destination of the product.

The announcement concludes almost 2 years of consultations with provincial and municipal governments, industry and individual Canadians. The public consultation process included a Science Assessment of Plastic Pollution, a discussion paper on an integrated management approach to plastic products, and a draft regulation.

During the press conference announcing the publication of the Regulations, Minister Guilbeault stated that Canada is not opposed to restricting additional items in the future. He also acknowledged that the plastic pollution problem cannot be solved through bans alone and that other actions are necessary to reach the government’s goal of zero plastic waste by 2030.

The Regulations are part of a larger movement, as outlined in Canada’s Zero Plastic Waste Agenda, which includes developing targets, standards and further regulations aimed at eliminating plastic pollution in Canada in the years to come.[2]  Businesses should continue to evolve to meet new requirements and find alternatives to single-use plastics being produced, sold or used in their operations, including researching, testing and comparing alternative products and contacting existing suppliers to determine if they have suitable product offering capabilities.   Lastly, businesses should refer to the government’s guidance document, which is intended to help businesses and organizations adapt to the proposed requirements and outlines important considerations for businesses navigating alternative products or systems. [3]  Business owners should familiarize themselves with this guide to ensure that their business decisions are aligned with the new Regulations and industry best practices.

At Sotos LLP, our team of industry experts has provided strategic advice to business owners in the development of best practices that respond to and address issues arising from the ever-evolving legal landscape for over 40 years.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She practices business law with a focus on franchising, licensing, and distribution. Please contact Anna at 416.572.7322 or athompson-amadei@sotosllp.com if you would like to discuss this or any other topic relating to the operation of your business.

Read part I and II of this article. 

[1] https://www.canada.ca/en/environment-climate-change/news/2022/06/government-of-canada-delivers-on-commitment-to-ban-harmful-single-use-plastics.html
[2] https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/reduce-plastic-waste/canada-action.html
[3] https://www.canada.ca/en/environment-climate-change/services/managing-reducing-waste/consultations/proposed-single-use-plastics-prohibition-regulations-consultation-document.html

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