Manitoba government's plan to nix restrictive covenants for grocers draws mixed reviews
'We cut our margins to try to be more competitive, but there's only so low that you can go,' says Munther Zeid
The NDP government is taking aim at restrictive covenants for grocery stores, but those in the industry say the move may not make groceries more affordable.
During its throne speech Tuesday, the government vowed to introduce legislation that will target restrictive covenants, a legal practice that limits the kinds of stores that can open in the vicinity of a particular company's location.
Muther Zeid said grocer-specific property controls prevented him from having two or three more Foodfare locations in the city, including a former Safeway building that sat empty for five years at the corner of Henderson Highway and Bronx Place.
The owner — Sobeys — eventually allowed its discount brand FreshCo to open up shop in 2021.
"Very frustrating. There's opportunity. The neighbourhood needs it but you can't do anything about it," he told CBC News on Wednesday.
"So we'll see how it changes things."
Zeid said any building can be converted into a grocery store, but one that sort of has all the necessities in place is more advantageous for a prospective grocer. Those locations also make it cheaper to open and have fewer up-front costs.
He believes the elimination of restrictive covenants would level the playing field from a convenience standpoint for consumers since it would provide more choices of where to shop for groceries.
But Zeid doesn't foresee retail prices of groceries dropping much as a result of the promise made by the provincial government.
"Having more stores causes the piece of pie to be cut into smaller pieces for everybody," he said.
'Good thing for consumers'
The slice of pie won't necessarily shrink for everyone, said Gary Sands, the senior vice-president for the Canadian Federation of Independent Grocers.
"This will definitely help remove some barriers to competition for the smaller guys, and that helps them at least stay on that playing field," Sands said Tuesday from Toronto.
"Anything that can remove barriers to competition for smaller businesses in this country, we should just welcome and applaud."
The federation fully supports the Manitoba government's intention to remove restrictive covenants.
"I think that this move by the Manitoba government helps keep this in the public spotlight, and that's a good thing for the grocery industry and that's a good thing for consumers," Sands said.
Removing restrictive covenants is something the federation has recommended to governments across the country, as well as the Competition Bureau, he said.
The bureau's study of the retail grocery market released in May agreed with the federation's recommendations.
"This limits competition from new grocers, and can deny consumers the benefits that competition brings about: lower prices, greater choice, and increased levels of innovation," the study said of restrictive covenants.
There are nearly 7,000 independent grocers in Canada, according to Sands, many of which are in rural or remote communities. It's those locations that the federation is particularly concerned about.
"We have to be careful when we're allowing restrictive covenants to go in place that we're not erecting barriers to independent grocers moving into these communities because somebody moved out," he said.
Property controls aren't making significant differences: economist
The cost of food has increased significantly since the COVID-19 pandemic.
According to Statistics Canada data released in November 2022, food prices were twice as high as the overall inflation rate — the highest level in almost 40 years.
Premier Wab Kinew pointed the finger at grocery giants.
"Right now, big grocery store chains, when they set up a location in the province, can basically draw a circle on a map around that location and prevent there from being competition within that radius," he said Tuesday at the provincial legislature.
"We're going to end that practice."
University of Guelph professor of food economics Mike von Massow said scrapping restrictive covenants for grocers isn't going to drop grocery prices to levels seen prior to skyrocketing inflation.
"The players that will come in if the restricted covenants are reduced are relatively small and don't have the buying power that the big grocers have," he said.
Von Massow adds that there's no real evidence that these property controls are making a significant difference in a lot of places.
If Kinew wants to truly look into making groceries cheaper, the province needs to look at wholesale costs, Zeid said. He even invited the premier to call him so that ideas of how to bring prices down can be shared.
"We have to be able to buy it cheaper to sell it cheaper. We don't have much of a choice when it comes to wholesale," Zeid said.
"There's no competition in the wholesale side to force prices down," he added. "On the retail side, we cut our margins to try to be more competitive, but there's only so low that you can go."
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With files from Ian Froese