While the Strategy presents significant policy aspirations, many underlying questions and specifics concerning the Strategy remain unanswered. Perhaps most importantly, whether this Strategy sufficiently addresses the underlying barriers that limit competition in Canada’s grocery industry and contribute to higher grocery costs, remains at the forefront of small and medium sized industry participants’ minds.

The Rationale for the Strategy:

Food affordability, accessibility, and domestic food production continue to be pressing concerns for Canadians. Previous market studies have revealed that there are five major grocers that dominate nearly all of the retail food market, with Loblaws controlling 17% of the market, Sobeys controlling 14% of the market, Metro controlling 6% of the market, Costco controlling 15% of the market, and Walmart controlling 13% of the market. That leaves only (approximately) 35% of the market open to other players in the industry. Because the grocery market is highly concentrated at the distribution and retail levels, there is little room for emerging and established true independent grocers to compete, as most rely on the major retailers for some or all of their inventory, the cost of which is mandated.

The Strategy:

To address these challenges, the Government of Canada has committed to invest more than three billion dollars over the next decade to strengthen Canada’s food system. As described below, the Strategy aims to increase competition, expand domestic food production, improve food distribution, build infrastructure, and reduce regulatory barriers that contribute to higher food costs.[3]

Food Terminals and Food Hubs:

A central component of the Strategy is a one billion dollar investment through the new Food Link Fund to expand food terminals and food hubs across Canada.[4] The investment is intended to help farmers and businesses grow more efficiently, enable independent grocers to purchase more competitively priced products and establish more independent supply chains.[5] By expanding food terminals, independent retailers will gain greater access to locally produced food without needing to rely exclusively on supply chains controlled by dominant grocery retailers, in turn fostering a degree of competition and price stabilization.[6] The Strategy anticipates that stronger local distribution networks will reduce transportation and distribution costs and allow independent grocers greater access to more affordable products, without relying on larger retail chains.[7]

Where food terminals are not feasible nor practical, the Strategy proposes the establishment of commercial food hubs operated by independent retailers and cooperatives.[8] These hubs will serve as regional distribution centres by facilitating the collection, storage, and delivery of locally produced food to retailers, restaurants, institutions and consumers.[9] Food hubs are intended to consolidate supply and lower costs (including costs related to logistics and distributions) by delivering competitively priced products. The Government expects to establish up to 40 food hubs, creating additional alternatives to major grocery supply chains, where food terminals are not feasible.[10]

Strengthening Competition Enforcement:

The Strategy will also provide ongoing funding of $12.9 million annually to strengthen the capacity of the Competition Bureau and the Competition Tribunal.[11] The additional funding is intended to increase the Bureau’s enforcement capacity as well as promote competition throughout the agriculture and agri-food supply chain. The increased enforcement capacity of the Bureau will attempt to create greater consumer savings through increased investigations and dedicated enforcement of anti-competitive behaviour.

The Government’s Proposed Timeline:

The Government has established measurable targets, including:

• Reaching an agreement with the Province of Ontario by the end of 2026 to expand the Ontario Food Terminals;
• Beginning construction of two additional food terminals by the end of 2028;
• Establishing or expanding 10 additional food hubs by the end of 2028;
• Increasing by 15% the number of independent grocers who purchase food from food terminals or food hubs by 2030; and
• Increasing local food sales by small and medium sized food producers by 25% by 2030; and
• Increasing Competition Bureau investigations by 10%, resulting in consumer savings of approximately $350 million annually.[12]

Farm Credit Canada (“FCC”) is supporting the Government’s Strategy through a new $1 billion Agri-food Project Finance Fund.[13] Such fund aims to finance eligible agri-food infrastructure and food processing projects, including projects that have previously struggled to receive funding..[14] The Agri-food project Finance Fund will complement FCC’s existing commitment to invest two billion dollars into food and agriculture innovation by 2030.[15] Together, these funds will assist in financing capital intensive agrifood infrastructure and processing projects.

Increasing Local Food Production:

The Strategy proposes substantial investments to expand Canada’s food production and processing capacity. The funding commitments include:

• Up to $350 million in funding, made available through the Strategic Response Fund (“SRF”), for eligible agri-food projects with new contributions up to $50 million.[16] The Government calls on industry leaders inviting them to put forward proposals for projects that will improve the self-sufficiency of food processing. Proposals should focus on building new infrastructure, modernizing existing capacity and strengthening support infrastructure;[17];
• $150 million in existing SRF funding to support food-related innovation ecosystems;[18]
• $150 million through new funding to the Regional Economic Growth through Innovation program for agri-food projects;[19]
• $150 million in new funding for the Food Security Fund to expand domestic processing, storage, distribution, and delivery capacity;[20]
• $100 million in new funding for Canada’s Collaborative Food Innovation Fund. This Funding will help companies commercialize IP, increase demand for Canadian value-added ingredients and food production, and expand the scope of production; and[21]
• $750 million over the next seven years to increase year round production of fruits and vegetables, through building more greenhouses and other controlled growing environments.[22] $650 million of the $750 million will be dedicated to support producers as they incorporate technology to reduce operating costs. The remaining $100 million will be dedicated to expand local food production in rural and northern communities.

Collectively, these investments, as well as other funds promised by the Government are intended to strengthen Canada’s domestic food supply and reduce reliance on imported goods and services, including foreign processing capacity.

Regulatory Reform and Internal Trade:

The Government commits to reduce regulatory barriers that increase costs in the food supply chain. These barriers are generally believed to increase costs, discourage investment, and limit growth throughout Canada’s food system. On June 18, 2026, Parliament enacted Bill C-30, which amended the Canadian Food Inspection Agency Act and Pest Control Products Act to require greater consideration of food security and affordability.[23] These amendments aim to provide growers and livestock producers with greater access to lower-cost production inputs (including seeds, feed, and fertilizers), by reducing regulatory delays and approval backlogs.[24]

To improve interprovincial trade, another goal of this Strategy, the Government will provide provincially licensed food establishments with further guidance to help them satisfy federal food requirements. To achieve this goal, the Government will be giving abattoirs a time-limited exemption from the Safe Food for Canadians Regulations. By doing so, local famers and rural Canadians will be able to make meat more accessible, given the regional shortages of slaughter capacity. This is said to reduce the federal administrative burden by leveraging provincial and territorial food rules. In turn, the Government expects these measures to improve market access for Canadian procedures, including the purchasing of domestically-produced foods.[25] This initiative is supported by a $12 million investment over three years, followed by an additional $3 million annually on an ongoing basis.[26]

Do These Initiatives Improve Competition in Canada?

The Strategy acknowledges that Canadians continue to face serious food affordability challenges. Through these initiatives, the Government expects to strengthen competition and expand domestic food production. However, despite the more than $3 billion commitment over the next ten years, the Strategy lacks focus and adopts an extremely broad approach that distributes funds over many initiatives, rather than concentrating on certain targeted priorities. The Strategy provides approximately $320 CAD million annually, or roughly $7.80 CAD per Canadian each year.[27] By comparison, the United States Farm Bill invests an estimated $75 USD to $120 USD per person annually toward comparable objectives, which is substantially higher per capital support for these initiatives.[28]

Commentators have also noted that Canada’s food security challenges do not revolve around availability, but rather affordability driven by, among other factors, limited competition and increased consolidation.[29] Rather, Canada’s primary issue relates to insufficient competition within the grocery sector, where a small number of dominant retailers continue to control most of the market.[30] This results in a market where food prices remain high and unaffordable, with little pressure to find meaningful solutions to lower costs and produce locally.

In addition, this Strategy gives relatively little attention to Canada’s supply management system. Dairy, poultry, and egg production account for approximately one-fifth of Canada’s farm cash receipts.[31] Yet, the Strategy contains few substantive proposals addressing this crucial sector of the market. Similarly, the Strategy does not adequately engage with the issue of restrictive property controls, which continue to prevent independent grocery retailers from entering many local markets.[32] The Competition Bureau’s 2023 Grocery Market Study identified restrictive property controls as a significant barrier to competition.[33] The Competition Bureau consequently launched an investigation into this matter on March 1, 2024. Despite these findings, Manitoba remains the only province to have prohibited this practice thus far.[34]

Recommended Action:

While the Strategy contains several promising initiatives, additional reforms are needed to meaningfully increase competition within Canada’s grocery sector. The $12.9 million ongoing funding towards strengthening the capacity of the Competition Bureau is only a drop in the ocean and is unlikely to make a substantive difference. Rather than adopting a broad, system-wide approach, a more targeted investigation of each stage of the food supply chain should be undertaken. Addressing unique competitive barriers affecting food production, processing, distribution, and retail would likely produce more effective and lasting improvements than the Strategy’s current high level approach. In our view, the following items are necessary:

1. Give stronger power to the Competition Bureau to challenge anti-competitive mergers and conduct;
2. Prohibit practices that exclude competitors, including stronger prohibitions on restrictive property controls and exclusivity clauses;
3. Support financially independent wholesalers and buying groups, such as co-operatives;
4. Provide funding to independents to upgrade technology; and
5. Eliminate Interprovincial trade barriers.

The Competition Bureau is accepting public feedback through this online form on the barriers to competition in the grocery industry until July 31, 2026.[35]

Sotos LLP advises independent grocers, suppliers, distributors and other food-sector businesses on competition, regulatory and commercial matters. We can help businesses understand how the Strategy, its funding programs and developments in competition law enforcement may affect their operations and growth. Contact our team to discuss what these developments could mean for your business.

About the authors:

John Sotos and Jason Brisebois lead Sotos LLP’s grocery practice.

John is widely regarded as the dean of franchising, licensing and distribution bar. He has been recognized by Chambers Canada, the Canadian Legal LEXPERT Directory, Lexology Index: Canada, and Best Lawyers in Canada. John can be reached at 416.977.9806 or jsotos@sotos.ca.

Jason Brisebois advises clients on franchising, distribution and commercial matters, with a particular focus on the grocery sector. He received the 2024 Lexology Client Choice Award and has been recognized by the Canadian Legal LEXPERT Directory, Lexology Index: Canada, and Best Lawyers in Canada. Jason can be reached at 416.572.7323 or jbrisebois@sotos.ca.

Aly Weiss is a 2026 summer student at Sotos LLP and contributed to the research and preparation of this article.

The post Canada’s $3.2 Billion Food Security Strategy – A Real Plan or a Placebo? appeared first on Sotos LLP.

The Code aims to address these challenges. It is an industry-led, voluntary framework that promotes fair dealing, good-faith negotiations, and greater transparency in supplier-retailer relationships. It encourages clear agreements, consistent financial terms, and accessible dispute resolution processes, all without introducing government-directed price controls. A notable feature of the Canadian approach is its broad reach. The Code applies not only to major retailers but also to independent and medium-sized businesses, reflecting a broader intention to shift the overall culture of how grocery sector actors work together.

How Canada’s Code Differs from the UK Model

Canada is not the first jurisdiction to adopt a grocery-sector code. The United Kingdom’s Grocery Supply Code of Practice (the “GSCOP”) provides a particularly useful comparison because its evolution from a voluntary initiative to a statutory model highlights both the potential and the limitations of grocery codes in concentrated markets.

Scope

Canada’s Code remains voluntary and non-binding until the Dispute Resolution Management Process (the “DRMP”) becomes fully operational on January 1, 2026. It applies across the grocery value chain and is principles-based, focusing on predictability, fair dealing, and transparency. By contrast, the GSCOP applies only to the largest UK grocery retailers with more than one billion pounds in annual turnover. The UK regime became statutory in 2010 and is overseen by the Groceries Code Adjudicator (the “GCA”), which has broad investigatory responsibilities.

Enforcement

Enforcement represents the clearest difference between the two systems:

• Canada: There are no statutory penalties and no binding enforcement mechanism. Compliance relies on industry commitment, reputational accountability, and the cultural shift the Office of the Grocery Sector Code of Conduct (the “OGSCC” or “Office”) aims to promote. The Adjudicator’s mandate emphasizes education and early resolution of issues, with structured processes available only after informal avenues are exhausted.
• United Kingdom: Compliance is mandatory and backed by an independent regulator with investigative powers, arbitration authority, and the ability to levy fines of up to one percent of a retailer’s annual turnover. Despite these powers, enforcement has been criticized for being reactive and dependent on suppliers filing complaints.

Even under a statutory regime, the UK has struggled to protect smaller suppliers. Many initially hesitated to report retailer misconduct for fear of retaliation, including delisting or reduced order volumes. This underreporting limited the GCA’s visibility into systemic problems. While the GCA’s annual surveys indicate that retailer-supplier relations have improved since the early 2020s, recent developments underscore continuing vulnerabilities. In 2025, the GCA opened an inquiry into Amazon for alleged delayed payments after fewer than half of survey respondents believed Amazon complied consistently with the GSCOP. A statutory review of the GCA’s performance is also underway to assess the effectiveness of its enforcement efforts.

Contractual Requirements

The Canadian Code encourages written agreements but does not mandate specific contractual terms or prohibit certain practices outright. The intention is to reduce administrative burdens and avoid rigid requirements that could deter participation, particularly among smaller players. The UK takes a more prescriptive approach. Retailers must incorporate the GSCOP into their written agreements, and certain practices, such as retrospective changes, are strictly prohibited.

Regulatory Philosophy

The Canadian Code began as a proposal by Food, Health & Consumer Products of Canada (“FHCP”) and Empire Co. Ltd. (“Empire”). This led to the formation of a 10-member steering committee co-chaired by FHCP CEO Michael Graydon and Retail Council of Canada President and CEO Diane Brisebois to develop an implementation framework. A 25-member cross-industry working group, including representatives from the retail, manufacturing, and primary processing sectors, provided operational input.

The Office has emphasized guidance, education, and transparency rather than enforcement. Oversight is focused on building trust and cultural change. By contrast, the UK model relies on deterrence through detailed conduct rules and statutory penalties. The GCA’s authority is grounded in mandatory compliance, public investigations, and the ability to order corrective actions.

Developments Since Spring 2025

Since the OGSCC began operations in March 2025, the Office has been building the administrative and governance structures needed for implementation. The June to December 2025 period is designated as a transition phase focused on outreach, education, and preparing operational systems. On November 28, 2025, the Office announced that all foundational components of the DRMP had been completed and released the DRMP Manual, with the framework scheduled to come into effect on January 1, 2026. The Office also confirmed that it had begun its formal recruitment process.

At the October 20, 2025 meeting of the Standing Committee on Agriculture and Agri-Food, OGSCC President and Adjudicator Karen Proud outlined the three components of the DRMP. The first is the formal process, where parties are visible to one another and disputes may culminate in a written decision and publication of compliance findings. The second is a strictly confidential portal enabling members to report concerns anonymously, after which the Office determines whether the issue raises potential Code violations. The third enables trade associations to bring systemic concerns forward for early intervention. Proud stated that she expects most of the Office’s work to take place within the confidential and systemic streams, where issues can be resolved before they escalate into formal disputes.

Empire and Lactalis Canada were the first retailer and first supplier to sign on during the informal recruitment period. Other major retailers, although publicly supportive, had indicated that they were waiting for the finalized DRMP before formally committing. Proud has confirmed that these retailers were actively involved in the crafting of the DRMP and stated that she expected them to sign on once it was complete. The OGSCC is also collecting early issue reports through its member portal to help identify patterns, and annual reports beginning in 2026 will provide visibility into how disputes arise, emerging challenges, and areas for improvement.

Lessons from the UK: What Canada Should Monitor

The UK experience demonstrates several risks Canada must be prepared to address. First, voluntary codes often fall short when compliance depends on industry goodwill. Suppliers, particularly smaller ones, may be hesitant to report issues if they fear retaliation, limiting the regulator’s ability to detect systemic problems. Second, even statutory enforcement power does not eliminate underreporting or power imbalances in a concentrated market. Third, when a large share of national grocery sales is controlled by a few retailers, a dispute-driven framework may mitigate only the most egregious practices without significantly changing underlying commercial dynamics.

Canada’s model diverges in one important respect. The Code imposes two-way obligations on both suppliers and retailers, unlike the GSCOP, which focuses exclusively on retailer conduct. This is perplexing given the stated purpose of the Code – namely, to moderate adverse impacts on suppliers resulting from the power imbalances. This may encourage a more cooperative culture, but it also means disputes may be more nuanced and may require the Adjudicator to navigate complex reciprocal obligations.

Implications for Canada

The Canadian grocery market shares many of the same structural vulnerabilities as in the UK, including high market concentration, supplier fear of retaliation, and limited enforcement tools. Without binding mechanisms or statutory penalties, smaller suppliers will likely remain reluctant to “bell the proverbial cat” by initiating the dispute-resolution system. Nonetheless, the OGSCC’s annual reviews and increased visibility into systemic concerns may help build an evidence base for future reform. If the voluntary approach fails to produce meaningful change, legislative intervention or a move toward a mandatory framework remains a possibility, as occurred in the UK.

On balance, the intercession of the Code maintains the status quo for another ten to twenty years. In the meantime, homegrown producers and suppliers to the retail grocery sector and their counsel will be circumspect in advancing direct claims. Perhaps there may be a role for producers’ and manufacturers’ associations to take the lead role in testing the use of the Code’s dispute resolution system.

About the authors:

John Sotos, Partner

John leads the firm’s grocery practice and is widely regarded as a dean of the franchising, licensing, and distribution bar. He has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian 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.

Misha Nili, Articling Student

Misha is one of our articling students for the 2025-2026 term, working primarily with the Corporate and Commercial department.

The post Canada’s Grocery Code: Key Features and How It Compares to the UK’s GSCOP appeared first on Sotos LLP.

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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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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Franchisors and parent companies supplying goods for sale in Canada should begin to evaluate and address the ethical standards of their supply chains. Bill S-211, An Act to enact the Fighting Against Forced Labour and Child Labour in Supply Chains Act and to amend the Customs Tariff (the “Act”) will impose annual reporting obligations on Canadian businesses and their foreign parent companies to prove that they are preventing and reducing the risk of forced or child labour from being used at any step in their supply chain. The Act is expected to come into force on January 1^st, 2024.

Brief Overview of the Act

This legislation applies to both private entities and government institutions. Those subject to its provisions will be obligated to provide annual reports to the Minister of Public Safety and Emergency Preparedness, due on May 31^st each year, commencing in 2024. Of particular note, Section 11(3) specifies the mandatory contents of these reports:

• The entity’s structure, activities and supply chains;
• Its policies and due diligence processes in relation to forced and child labour;
• The parts of its business and supply chains that carry a risk of forced or child labour being used and the steps it has taken to assess and manage that risk;
• Any measures taken to remediate any forced or child labour;
• Any measures taken to remediate the loss of income to the most vulnerable families that result from its measures taken to eliminate the use of forced or child labour;
• The training provided to employees on forced and child labour; and,
• How the entity assesses its effectiveness in ensuring that forced and child labour are not being used in its business and supply chains.

Primary Aims of the Act

The overarching objective of the Act is to prevent goods that have been produced in connection with forced or child labour from entering the Canadian marketplace. The Act will impose the following measures in order to achieve this objective:

• Supply Chain Transparency. The reporting obligations require companies to disclose information about their supply chains, including the measures they have taken to ensure there is no forced or child labour present at any point.
• Due Diligence. Companies whose goods are sold in Canada will now have a legislated responsibility to mitigate any risks of human rights abuses within their supply chains. Documenting this due diligence process is of utmost importance.
• Public Reporting. The Act strives to provide Canadian consumers with an opportunity to make educated purchases that align with their ethical standards. Therefore, the reporting obligations require that the reports be published on a registry on the Public Safety Canada website, as well as in a prominent location on the reporting entity’s website.
• Penalties for Non-Compliance. Failure to comply with the required ethical standards may result in being found guilty of an offence punishable by summary conviction, as well as a fine of up to $250,000. This liability can also be extended to the Directors, Officers and agents of the company.

Impact on Subsidiaries and Franchise Systems Doing Business in Canada

Many franchisors oblige their Canadian franchisees to source products from the franchisor or designated suppliers. Similarly, most parent companies directly supply their Canadian subsidiary retailers with the goods they are to sell. As a result, such franchisors and parent companies that meet the threshold of $40 million in revenue, $20 million in assets or the employment of an average of 250 employees, are required to ensure that their supply chain has not violated the Act by employing prohibited persons. In light of the Act’s enforcement, these processes may require significant restructuring, impacting not only Canadian incorporated companies but also entities exercising control over Canadian companies.[1]

Here’s how the Act will affect franchise systems and retail chains that operate in Canada: :

• Compliance Burden. Companies that are deemed to control Canadian companies will be captured by the Act. There is no question that a parent-subsidiary relationship will be captured by this and for the purposes of the Act, franchisors that have mandatory supplier requirements in their franchise agreements will also likely be captured. Parent companies and franchisors both must ensure compliance prior to the first report in May 2024. The Act allows any controlling entity to submit a joint report with the Canadian company.

• Brand Reputation. The public reporting requirement will result in the public learning about a business system’s supply chain, which parent companies and franchisors consider proprietary and confidential. It will be important to keep this in mind when drafting the reports, to retain as much control over the franchise system’s brand perception as possible.

• Competitive Advantage. Many systems will find that it is difficult to comply with the Act without drastically changing their product or the price at which the product is sold. Striking a balance between offering ethically sourced products, while maintaining the product’s current price and quality will be attractive to consumers, and will be a new factor that sets brands apart.
• Global Alignment. Franchise systems and retail chains that currently operate in countries where similar legislation is already in place, as described in the following section, will find that they can adapt the Canadian arm of their business to align with those strategies. This will result in a more globally uniform strategy.

Following International Trends

At the forefront, the Act is part of a broader global trend where countries are implementing legislation to combat modern slavery, human trafficking, and unethical labour practices in their supply chains. In doing so, Canada is joining the United Kingdom (UK), Australia, and the European Union (EU), which have already enacted or proposed similar measures. Franchise systems operating in any of these regions should already have processes in place that allow for compliance with ethical sourcing standards.

In 2015, the UK also enacted legislation entitled the UK Modern Slavery Act, to combat modern slavery in supply chains. The legislation was accompanied by a Guide entitled Transparency in Supply Chains: a practical guide. Given the absence of regulations at this time as to how the Act will apply to corporations doing business in Canada, the UK Guide can provide valuable insight.  Its appendices include examples on how to structure the reports, what should be included in the reports and the changes that should be made to internal operations to ensure due diligence.

The new Canadian legislation will broaden the scope of some existing regulations implemented in Europe. The Act introduces a stricter applicability threshold than legislation enacted in certain European countries, as it applies to companies doing business in Canada. This heightened criterion should warrant particular attention from smaller enterprises based in countries such as France and Germany.

As of January 2024, the German legislation exclusively pertains to companies with a workforce exceeding 1,000 employees in Germany. Similarly, the French legislation extends its reach to companies with more than 5,000 employees in France or 10,000 employees globally. For French and German companies falling below these employee thresholds but maintaining a presence in Canada, a comprehensive assessment of their supply chains is imperative.

In addition to the Canadian Act, the EU has proposed a regulation with the potential to impose the same applicability threshold of 250 employees, entitled “Regulation of the European Parliament and of the Council on prohibiting products made with forced labour on the Union market”. In October 2023, a joint report on the proposed regulation between the Committee on the Internal Market and Consumer Protection (IMCO) and the Committee on the International Trade (INTA) was confirmed in the European Parliament as their position in the November trilogue negotiations. If adopted, the regulation will halt all import and export of goods manufactured through forced labour at the EU’s borders. The regulation is currently awaiting the parliament’s position in the first reading and may not be in force for a few years, but given their stringent similarities, adaptation to the Canadian Act can result in advanced preparedness.

Preparing for Compliance

Business systems have a range of strategic measures to choose from to proactively prepare for the impending reporting obligations, which are set to become due in May 2024. These actions will empower them to navigate the regulatory landscape effectively:

• Supply Chain Review. Conduct a review of all supply chains and invest in due diligence procedures. This entails extending the scrutiny beyond immediate suppliers and delving deeper into the supply chain hierarchy to address potential issues. It will be important to be able to prove these steps have been taken through documentation.
• Collaboration with Stakeholders. Where appropriate, work with a local non-governmental organization or any other relevant stakeholder to establish effective strategies for addressing and rectifying any instances of forced labour. Genuine efforts to eradicate human rights violations within the supply chain will not only enhance ethical compliance but also demonstrate a commitment to responsible business practices.
• Supplier Contract Termination. Where it is not possible to directly address a human rights violation, explore how to terminate the supplier contract as soon as possible.
• Integration of Ethical Business Practices. Consider integrating ethical business operations into the brand’s image sooner rather than later. This proactive approach aligns the brand with evolving consumer preferences and demonstrates a commitment to responsible and sustainable operations.
• Franchise Agreement Review. Conduct a review of franchise agreements with Canadian franchisees to adjust any supplier provisions accordingly. Limiting the level of control over Canadian franchisee’s supply chain may assist in alleviating liability, should compliance become an issue.
• Use existing resources. It is important to note that tools currently exist to help socially-conscious consumers make informed purchasing decisions. As an example, KnowTheChain.com offers benchmarks and assessments evaluating and scoring companies on their efforts to address and combat forced labour. By following the structure of these reports, your company may gain a better understanding of what forced and child labour look like in today’s world.
• Starting early. By taking action on the above in advance of enactment, issues can be addressed earlier and more notice can be provided to third parties, if need be. This will also allow for further research to be conducted on entering agreements with suppliers who comply with the Act.

Bill S-211 represents a significant step towards greater transparency and ethical sourcing within supply chains in Canada. While it imposes new obligations on companies selling imported goods, it also offers the opportunity for businesses to demonstrate their commitment to socially responsible business practices. However, the consequences of non-compliance are alarming, not only from a legal standpoint, but also in terms of business impact.

For large franchisors with foreign suppliers, especially from high-risk countries that are well known for using child labour, such as Brazil, China, Vietnam and others, the legislation will require a significant overhaul of their specific supply chains in order to ensure compliance and that the franchisor has robust policies to demonstrate as such. Maintaining transparency within franchisor-franchisee relationships will also be crucial, as franchisees will now have an additional business obligation starting in May 2024.

In the realm of large luxury brands collaborating with foreign manufacturers, there is a growing consumer concern for ethically produced goods both in Canada and across Europe. As reporting obligations loom, there is a potential revelation that some luxury brands employ similar sourcing methods as those associated with the production of “fast fashion” items. The ramifications of such exposure pose a significant threat to brand equity, erode customer trust, and diminish the overall value of a luxury brand. It is conducive for these brands to proactively address and rectify any indications of unethical sourcing well in advance of impending reporting obligations to safeguard their reputation and maintain the trust of their increasingly discerning clientele.

How We Can Help

At Sotos LLP, we understand the importance of adhering to strict legislation and can provide you with tailored solutions for successful compliance. As franchising experts, we can help you navigate the nuanced issues your system may face, while preserving your brand reputation and long-term business goals. Although these upcoming reporting obligations seem daunting, we can use them as a tool for enhancing your supply chain strategy with efficiency.

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] Act at section 9: This Part applies to any entity

• • (a) producing, selling or distributing goods in Canada or elsewhere;
  • (b) importing into Canada goods produced outside Canada; or
  • (c) controlling an entity engaged in any activity described in paragraph (a) or (b).

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What is Greenwashing?

Greenwashing is when a company promotes its products or services as being environmentally conscious for marketing purposes, while in practice they are not actually taking any notable sustainability efforts.[2] It is essentially a situation where an organization spends more time and money on marketing itself as environmentally friendly than on actually minimizing its environmental impact.  It is a deceitful marketing gimmick which misleads consumers who prefer to buy goods and services from environmentally conscious brands. This issue of greenwashing is quickly becoming a priority for enforcement agencies, notably Canada’s Competition Bureau. (“Bureau”)

Greenwashing is problematic not only because it is ethically wrong and illegal but because it has created a situation where many consumers do not actually believe companies when they make claims about their sustainability practices.  This has created a world where companies big and small are afraid to tell society what they are doing to combat environmental issues for the fear people will say their actions are not enough, or people just will not believe them.

Why does Greenwashing occur?

Greenwashing can occur for a variety of reasons. One of these reasons stems from the fact that many CEOs and Corporate Boards are not as engaged with sustainability strategies as they should be.  While 90 percent of corporate executives think sustainability is important, only 60 percent of companies have a sustainability strategy.[3]  Fewer still have anyone in a leadership role responsible for this activity.  Often, companies adopt the sustainability bandwagon but do not support their marketing with leadership and budgets.

How is Greenwashing Challenged?

Aside from Consumer and Competitor activities, greenwashing has become an increased priority for enforcement agencies in Canada, notably the Bureau.  One of the very few areas where the Bureau has been effective has been in its pursuit of misleading advertising claims by investigating and prosecuting deceptive marketing practices, to ensure consumers receive truthful information allowing them to make informed buying decisions.[4]  The Competition Act prohibits businesses from making a materially false/misleading representation to the public in order to promote the supply or use of a product/service or a business interest.  In assessing whether a representation is deemed to be “material,” the Bureau looks to see if the representation could influence consumer behaviour, such as influencing them to buy or use the advertised products or services.[5]

The Bureau has sent a clear message to the business community that it has a significant role to play in Canada’s transition to a greener economy and in achieving growth goals, and that greenwashing is a high enforcement priority.  As a result, while the Bureau may not have the resources to deal with every potentially offside advertisement, businesses can expect to see increased scrutiny and higher risks in potentially misleading claims.

Past Examples of Bureau Greenwashing Enforcement

Keurig Canada:

In 2019, Ecojustice, Canada’s largest environmental law charity, applied to the Bureau triggering an inquiry regarding claims made by Keurig Canada (“Keurig”) that its coffee pods are recyclable.  Keurig had just modified their single use coffee pods to be made from a recyclable plastic, a modification that presumably would have involved significant cost increases regarding their technological and manufacturing processes.  To market this positive performance change, Keurig promotes via its website, social media, and on its packaging that their single-use coffee pods were recyclable, when consumers followed the instructions to move the metallic lid and empty the pod.[6]

The Bureau investigated these claims and determined Keurig’s assertions regarding the recyclability of its single-use coffee pods were false or misleading in municipalities that did not accept them for recycling.  The Bureau found that, outside the provinces of British Columbia and Quebec, K-Cup pods are currently not widely accepted in municipal recycling programs.[7] In other words, the Bureau found that these claims were false or misleading because they claimed to have more environmental truth benefits than they had.  The Bureau also concluded that Keurig’s claims about the steps involved to prepare the pods for recycling are false or misleading in certain municipalities. Keurig’s claims gave the impression that consumers can prepare the pods for recycling by simply peeling the lid off and emptying out the coffee grounds, but some local recycling programs require additional steps to recycle the pods.  Keurig voluntarily settled this claim for $3 million. [8] Additionally, at least one class action has been commenced against Keurig, with respect to its K-Cup or Keurig Coffee machines since Keurig began making these false misrepresentations on April 15, 2016.[9]

Royal Bank of Canada:

In October 2022, the Bureau decided to investigate charges of misleading advertising against the Royal Bank of Canada (“RBC”).  The claim accuses RBC of touting its commitments to climate action while continuing to finance fossil fuel development.  It is an inquiry by the Bureau “seeking to determine the facts relating to allegations that RBC has contravened the Competition Act by making false or misleading environmental representations.[10]” The inquiry and investigation by the Bureau are still underway.

Other Sustainability Legislation:

The Consumer Packing and Labelling Act contains prohibitions against making false or misleading representations.[11] The Trademark Act carries a prohibition against making materially false and misleading statements about the character, quality, quantity, composition, origin, production or performance of goods and services.[12] The Canadian Advertising Standards Code states that Advertisements must not contain inaccurate, deceptive, or otherwise misleading claims, statements, illustrations or representations.  All representations must be supported by competent and reliable evidence.[13]

Key Takeaways:

Companies, including franchisors and franchisees should not refrain from enhancing their products and services that are consistent with sustainability.  In doing so, however, they must exercise caution in the scope and scale of their marketing activities.  Businesses making environmental claims should avoid bold, broad statements, and instead ensure they make claims which are specific and accurate. The following best practices should be followed, as highlighted by the Bureau.[14]

• Make sure your claims are truthful and are not misleading;
• Make sure they are specific claims that are substantiated and verifiable;
• Make sure they are not claims that either result in a misrepresentation, or an extreme exaggeration of the environmental benefits of your product; and
• Do not imply your product is endorsed by a third-party environmental organization if it is not.

At Sotos LLP, we advise franchisors and franchisees on all aspects of their business including their sustainability strategies. We would be happy to provide tailored advice on the applicable regulations and codes in place in the jurisdictions you are operating in and how they apply to your products or services.

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.

Don Houston, Sotos LLP

Don is one of our articling students for the 2022-2023 term.

[1] “Green Industry Analysis 2020- Costs & Trends” Franchise Help 2020, Online: https://www.franchisehelp.com/industry-reports/green-industry-analysis-2020-cost-trends/
[2] Carlyann Edwards, “What is Greenwashing” Business News Daily, August 5^th 2022. Online: https://www.businessnewsdaily.com/10946-greenwashing.html
[3]      Talal Rafi, “Why Sustainability is Crucial for Corporate Strategy,” Race to Resilience. June 16^th, 2022. Online: https://climatechampions.unfccc.int/why-sustainability-is-crucial-for-corporate-strategy/#:~:text=90%25%20of%20executives%20believe%20sustainability,consumer%20demand%2C%20and%20regulatory%20requirements.
[4]     “Misleading Representations and Deceptive Marketing Practices” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/deceptive-marketing-practices/types-deceptive-marketing-practices/misleading-representations-and-deceptive-marketing-practices
[5] “False or Misleading Representations” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/deceptive-marketing-practices/types-deceptive-marketing-practices/false-or-misleading-representations
[6] Mia Rabson, “Keurig to pay $3 million fine for false, misleading claims on recycling of its K-CUPSs” Toronto Star. January 6^th, 2022. Online: https://www.thestar.com/politics/2022/01/06/keurig-to-pay-3-million-fine-for-false-misleading-claims-on-recycling-of-its-k-cups.html
[7] “Keurig to pay $3 million penalty to settle Competition Bureau’s concerns over coffee pod recycling claims” Government of Canada. January, 6^th 2022. Online: https://www.canada.ca/en/competition-bureau/news/2022/01/keurig-canada-to-pay-3-million-penalty-to-settle-competition-bureaus-concerns-over-coffee-pod-recycling-claims.html
[8] Ibid
[9] “Keurig K- Cups” Sotos Class Actions. Online: https://www.sotosclassactions.com/cases/keurig-k-cups/
[10] James Bradshaw, “Competition Bureau launches inquiry into RBC’s green advertising” The Globe and Mail. October 11^th, 2022. Online: https://www.theglobeandmail.com/business/article-rbc-green-advertising-competition-bureau/
[11] Consumer Packaging and Labelling Act, R.S.C., 1985, c. C-38
[12] Trademarks Act, R.S.C., 1985, C. T-13
[13] The Canadian Code of Advertising Standards, Ad Standards. 1963. Online: https://adstandards.ca/code/the-code-online/
[14] “Environmental Claims and Greenwashing” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/environmental-claims-and-greenwashing

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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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For many reasons including the need to control their brands, franchisors exert considerable control over franchisees’ businesses. Usually, that control is explicitly authorized by the franchise agreement. Sometimes, however, franchisors make demands beyond their strict rights under the franchise agreements. Franchisees may feel pressured to accede to these demands because their livelihoods depend on cooperating with their franchisors. In some circumstances, this can amount to economic duress, justifying franchisees’ refusals to comply. This article summarizes the test for economic duress, how it has been applied in the franchise context, what questions remain unresolved, and some takeaways.

The Test for Economic Duress

Economic duress, also known as lawful act duress, can be raised as a defence to a claim for breach of contract. This doctrine recognizes that, where one party extracted a promise via a “coercion of the will”,[1] the other party did not truly consent. Thus, it has no obligation to perform.

To establish economic duress, a party must show that:

• The other party applied illegitimate pressure; and
• It was in a position where it had “no realistic alternative but to submit”.[2]

(1) Illegitimate Pressure

The doctrine of economic duress does not prohibit exploiting terms of an existing agreement to pressure a party into making concessions. This is normal and acceptable commercial pressure, which courts have regularly accepted. For instance:

• It is legitimate to insist on performance of any terms of a franchise agreement, even if those terms are “onerous”;[3]
• It is legitimate to threaten to terminate a franchise agreement where the franchisee breached the agreement and the franchisor has a right to terminate for that breach;[4] and
• It is legitimate to threaten to refuse to renew an agreement at the end of its term if the other party has no right to extend it.[5]

On the other hand, it is illegitimate to refuse (or threaten to refuse) to perform obligations already incurred to pressure a party into making concessions. For instance:

• It is illegitimate to threaten to refuse to perform terms of an agreement unless the other party provides additional consideration, i.e. demanding to re-write the contract;[6]
• It is illegitimate to threaten to terminate a franchise agreement unless the franchisee pays a fee not listed in the franchise agreement;[7]
• It is illegitimate to threaten to terminate a franchise agreement unless the franchisee makes a staffing change not required under the franchise agreement;[8] and
• In a related context, it could be illegitimate for a landlord, whose non-compliance with the building code caused a flood, to refuse to provide a rent reduction unless the franchisee releases it from claims related to the flood.[9]

The key principle from all of these cases is that using an imbalance in bargaining power is entirely legitimate, but creating an imbalance in bargaining power by one’s own breach is not. As phrased in PIAC, a recent case by the United Kingdom Supreme Court, it is not acceptable to “directly maneuver the claimant into a position of vulnerability”.[10]

(2) Coercion of the Will

In assessing the impact on the party complaining about the duress, the court considers four factors:

• Whether that party protested at the time;
• Whether that party had an alternative available;
• Whether that party received independent legal advice; and
• Whether that party took steps to avoid the obligations after signing.[11]

Not all of these factors are equal. For instance, failure to protest and having alternatives appear to be fatal.[12] On the other hand, if there are no alternatives, the fact that the one party told the other to get legal advice is not necessarily fatal.[13] That being said, pressuring one party to sign immediately, before consulting counsel, has been found to be a coercion of the will.[14]

Unsettled Questions

There are two major unsettled questions in the law of economic duress. The first unsettled question is what practical value the doctrine has given the overriding duty of good faith and the statutory duty of fair dealing which regulates the parties to a franchise agreement. It is important to note that conduct amounting to economic duress can relieve the franchisee from performance and potentially give rise to a damage claim. A breach of the fair dealing / good faith obligation may only give rise to a damage claim or potentially be a basis for seeking equitable relief in the form of an injunction. It is unclear whether breaching the duty of good faith qualifies as illegitimate pressure. This question is of renewed interest because the court in PIAC suggested that the doctrine in the UK was limited because UK law does not recognize a duty of good faith like the one in Canada.[15] Almost all of the cases cited above were decided before Bhasin[16], where the Supreme Court of Canada recognized that there is a common law duty of good faith. Some were decided before adoption by legislation in various of the Canadian provinces including Ontario of a fair dealing obligation which parties to a franchise agreement owe to one another as an organizing principle applicable to all contractual relationships in Canada.

It is suggested here that the existence of the duty of good faith in contractual performance may further limit the scope of legitimate pressure, and correspondingly broaden the scope of illegitimate pressure that might give rise to economic duress. There might be some circumstances where exercising rights under a franchise agreement in a particular manner could be illegitimate:

• Even if a franchise agreement allows the franchisor to require the franchisee to purchase a minimum quantity of inventory from it, it might be illegitimate to increase that minimum inventory level to well above what the franchisee could possibly sell.[17]
• Even if a franchise agreement allows the franchisor to require the franchisee to make renovations, it might be illegitimate to require the franchisee to make expensive changes shortly before the end of the term.
• Even if a franchise agreement requires the franchisor to consent to any assignment of the franchise, it might be illegitimate to unreasonably refuse to consent to an assignment to a competent assignee,[18] in the hopes that the franchisee will sell to it at a lower price.
• Even if a franchise agreement requires the franchisor to consent to an extension of the franchise agreement, it might be illegitimate to mislead the franchisee into believing that it will consent to an extension, and then refuse to consent,[19] in the hopes that the franchisee will agree to modify terms in the renewed agreement.

In these cases, the franchisor imposes an unexpected cost or limitation on the franchisee, and that investment or burden does not benefit the franchisee. Substantially all of the benefits flow to the franchisor. In other words, the franchisor only considered its own interests, which would constitute a breach of the duty of good faith in franchise law.[20] As the franchisor could be found to have breached its fair dealing / good faith obligations in each of these examples depending on context, the fact that such conduct may also amount to economic duress may be of practical value when it comes to remedy.

The second but related unsettled question is whether economic duress can be used as a sword, as well as a shield. In NAV Canada, the New Brunswick Court of Appeal suggested in obiter that economic duress has been recognized as an independent tort in the UK, which applies the same test but perhaps a higher standard for finding illegitimate pressure.[21] The court did not express any opinion on whether that tort exists in Canadian law. If the tort does exist, then in addition to arguing the existence of economic duress to avoid an obligation, the franchises can make a claim for the duress including seeking damages.

Takeaways

Franchisors should be aware that, even if a franchisee agrees to do something over and above what is required by the franchise agreement, it may not be possible to enforce that new obligation. To limit this risk, franchisors should give franchisees ample time to consult counsel before they have to agree to the new obligation. This will not guarantee that the new obligation is enforceable, but it should make it more likely.

Franchisees should be aware that franchisors must follow the franchise agreement. If a franchisor threatens to breach the franchise agreement by adding a new obligation for no genuine consideration, the franchisee should protest before signing anything. Additionally, if the franchisor imposes a requirement that undermines the economic viability of the franchise, such as manipulating pricing or other levers to benefit itself at the franchisee’s expense, the franchisee should consult a lawyer before performing the new obligation. In rare cases, the franchisee might be able to avoid the new obligation.

Sotos LLP advises franchisors and franchisees on these and other issues arising from the ever-evolving legal landscape. If you would like to discuss how our firm can help your business, please contact us.

About Sotos LLP

As Canada’s leading franchising, licensing and distribution law firm, with over 20 legal professionals dedicated to the industry, we provide a comprehensive range of franchise law, corporate, private equity financing, commercial, litigation, intellectual property, employment and real estate services to franchisors. For over 40 years, we have been working with regional, national and international franchisors in every sector of the franchise industry from launch to exit including with their international expansion.

[1] Pao On v Lau Yui, [1979] 3 All ER 65 (PC).

[2] Stott v Merit Investment Corp (1988), 63 OR (2d) 545 (CA).

[3] Ellis v Subway Franchise Systems of Canada Ltd, 2000 CanLII 22770 (Ont Sup Ct) at para 39. See also 12399745 Ontario Ltd v Bank of America Canada, 2003 CanLII 26791 (Ont Sup Ct) at para 12.

[4] Dairy Queen Canada, Inc v MY Sundae Inc, 2017 BCCA 442 at para 61.

[5] Techform Products Ltd v Wolda (2001), 56 OR (3d) 1 (CA) at para 35.

[6] Knutson v The Bourkes Syndicate, [1941] SCR 419 at pp 422-423; NAV Canada v Greater Fredericton Airport Authority Inc, 2008 NBCA 28 at para 46; Burin Peninsula Community Business Development Corporation v Grandy, 2010 NLCA 69 at paras 4, 35.

[7] WH Violette Ltd v Ford Motor Co of Canada Ltd, 1980 CanLII 3250 (NB QB) at paras 5, 44, 48.

[8] Valley Equipment Ltd v John Deere Ltd, 2000 CanLII 17208 (NB QB) at paras 1, 248-249.

[9] DLG & Associates Ltd v Minto Properties Inc, 2014 ONSC 7287 at paras 21, 37-38, 101.

[10] Pakistan International Airline Corporation v Times Travel (UK) Ltd, [2021] UKSC 40 at para 4.

[11] Process Automation Inc v Norstream Intertec Inc, 2010 ONSC 3987 at para 71; DLG & Associates Ltd v Minto Properties Inc, 2014 ONSC 7287 at para 99.

[12] Luxor Food & Beverage Inc v Country Style Food Service Inc, 2008 BCSC 1433 at para 62.

[13] Burin Peninsula Community Business Development Corporation v Grandy, 2010 NLCA 69 at para 28.

[14] Stott v Merit Investment Corp (1988), 63 OR (2d) 545 (CA).

[15] Pakistan International Airline Corporation v Times Travel (UK) Ltd, [2021] UKSC 40 at paras 27-28.

[16] Bhasin v Hrynew, 2014 SCC 71.

[17] See generally Bark & Fitz Inc v 2139138 Ontario Inc, 2010 ONSC 1793 at paras 16-17, 21; Spina v Shoppers Drug Mart Inc, 2012 ONSC 5563 at paras 92, 170-171.

[18] See generally Quickie Convenience Stores Corp v Parkland Fuel Corporation, 2020 ONCA 453 at para 40; Cellular Baby Cell Phones Accessories Specialist Ltd v Fido Solutions Inc, 2014 BCSC 1959 at para 197.

[19] See generally Bhasin v Hrynew, 2014 SCC 71 at paras 72-73, 94, 103; CM Callow Inc v Zollinger, 2020 SCC 45 at paras 37-38, 89-92.

[20] See generally Shelanu Inc v Print Three Franchising Corp (2003), 64 OR (3d) 533 (CA) at para 69.

[21] NAV Canada v Greater Fredericton Airport Authority Inc, 2008 NBCA 28 at para 49.

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Background

Empire Company, which owns Sobeys, Safeway, and FreshCo. (“Empire”), and Food, Health and Consumer Products of Canada (“FHCP”) submitted a draft grocery code of practice this March to the Federal, Provincial and Territorial (“FPT”) Working Group addressing systemic and rising unfairness in the grocery industry.

Relationships between large, vertically integrated wholesale grocery retailers and small, independent suppliers in the Canadian grocery industry have been deteriorating over the past several decades as already narrow supplier profit margins thinned due in large part to the uploading of costs from grocery retailers to suppliers.

Vertically integrated grocers like Sobeys, Loblaws, Metro, and Walmart make up the vast majority of market share in Canada. They have their own distribution centers and own or control the retail locations, giving them enormous power over small suppliers. These grocers have consistently used their market supremacy to squeeze fees out of smaller suppliers for advertising, shelf-space, and development of their own infrastructure.

Many on the supplier side have been calling for regulation for years while large grocers have consistently denied the existence of an issue in need of government interference. This coming together of Empire and FHCP marks a rare collaboration between both sides of the industry to not only acknowledge the issues being faced by Canadian suppliers but to also propose a solution.

The Proposed Code

The Proposed Code aims to stabilize relations between grocers (called “Retailers” in the Proposed Code) and suppliers by promoting fair dealing, mutually beneficial relationships, transparency, and equitable dispute resolution. The code enshrines a set of good-faith industry business principles, such as ensuring changes to business terms are not imposed arbitrarily by requiring agreements between large Retailers and suppliers to be in writing.

It’s clear from the drafting of the Proposed Code that the intent was to place the majority of legal and administrative burdens on grocers and provide suppliers with more room to breathe. The first words of almost every provision of the code start with “a Retailer shall” and goes on to define a duty, obligation, or limitation of power on grocery retailers. However, the Proposed Code is not necessarily binding and a majority of these requirements may be contracted out of in the mandatory written Supply Agreement.

From an administrative perspective, the Proposed Code also places the burdens of implementation squarely on Retailers’ shoulders. For example, under the Proposed Code grocers are required to appoint a Code Compliance Officer and a Senior Buyer to ensure they are obeying the code and to give suppliers a contact to make complaints to at the Retailer level. No such personnel requirements are placed on suppliers.

Room for Improvement

The Proposed Code is still a long way from the kind of intervention needed in the industry. Most pressing in its deficiencies is the lack of any protections explicitly addressing small, independent suppliers, and the lack of detail in regard to the role of an adjudicator to enforce the code.

One of the Competition Bureau’s four distinct mandates is to “ensure that small and medium-sized enterprises have an equitable opportunity to participate in the Canadian economy”. As discussed in our previous post on the need for a Canadian grocery code of conduct and what should be included within, the Competition Bureau has consistently failed to recognize its responsibility to smaller Canadian enterprises, instead prioritizing impact on consumers.

The Proposed Code makes no specific mention of small, independent players from both the Retailer and supplier side of the industry, but their unique position and sensitivities need to be addressed. Exemptions from many of the administrative burdens imposed on larger grocers should be given to independent or single-store grocers who likely cannot support hiring an additional employee for the role of Code Compliance Officer or Senior Buyer. Small scale suppliers should also be independently considered.

Such exemptions should be considered with reference to the UK. The UK Groceries Supply Code of Practice (the “UK Code”) specifically limits its application to “Designated Retailers” and defines Designated Retailers to exclude small, independent operations.

The Proposed Code also needs to expand beyond stating principles to be promoted and putting obligations on grocers. To be effective, the code will need to incorporate an independent enforcement mechanism like the one implemented in the UK. Initially, the UK’s Code had little effect on the industry before it created the Grocery Code Adjudicator to enforce compliance with the code. The UK adjudicator is funded by a levy on designated retailers and has received almost exclusively positive reviews since being implemented in the early 2010s.

The Proposed Code for Canada does contemplate the eventual addition of an independent adjudicator to be appointed to oversee compliance with the Code, but detail on its ability and discretion to impose penalties, damages, or costs will need to be expanded.

Over the next year as the FPT Working Group considers the needs of the Canadian grocery industry and contemplates changes to Empire’s and FHCP’s Proposed Code, it would be wise to consider the lessons learned in the UK and how they can be applied to our unique Canadian context.

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@sotosllp.com.

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