Big retailers go to court to resolve turf battles

The legal skirmishes have seen the country's biggest grocers, including Loblaw Cos. Ltd., lock horns with Shoppers Drug Mart Corp., the No. 1 drug store chain, as they duke it out over exclusive mall lease rights that allow them to carry groceries or other goods while prohibiting competitors from doing so. Underlying these food and pharmacy fights is a trend that has become one of the major ones in retailing today: A growing number of merchants are branching out into new areas to bolster their business — and in the process stepping into territory once the preserve of a rival.

The Globe and Mail
November 17, 2003

Big retailers go to court to resolve turf battles
Marina Strauss

Some of Canada's largest retailers are battling each other in court over accusations that their increasingly overlapping lines of business are stealing away sales from a shopping mall rival.

The legal skirmishes have seen the country's biggest grocers, including Loblaw Cos. Ltd., lock horns with Shoppers Drug Mart Corp., the No. 1 drug store chain, as they duke it out over exclusive mall lease rights that allow them to carry groceries or other goods while prohibiting competitors from doing so.

Underlying these food and pharmacy fights is a trend that has become one of the major ones in retailing today: A growing number of merchants are branching out into new areas to bolster their business — and in the process stepping into territory once the preserve of a rival.

Retailers ranging from Loblaw to Wal-Mart Canada Corp. and Canadian Tire Corp. Ltd. are starting to replace the traditional department stores as a one-stop shopping destination with competitive prices and wide selections.

One of the latest court tussles was fought in Nova Scotia and ended this fall with Shoppers succeeding in getting Stellarton, N.S.-based Sobeys Inc., the second-ranked grocer in Canada, to dismantle a recently opened Sobeys pharmacy in a Sydney, N.S., mall.

"It's a blurring of the lines among retailers," said retail consultant John Winter of John Winter Associates Ltd. He testified on behalf of Shoppers in two Ontario cases — one launched by Loblaw and the other by A&P Canada against the drug-store chain.

Industry observers predict more fights are on the way.

"These legal battles are going to increase for tenants in commercial developments until leases can catch up to the new realities of retailing," said retail development consultant Rick Pennycooke, president of Lakeshore Group in Toronto.

"It is this new reality that is causing these lease disputes as retailers try to protect their ever-widening merchandise turf."

He pointed to Loblaw, which now sells furniture, televisions, grandfather clocks and DVD players; Home Depot Canada Inc. peddling bottled water, clothing irons, coffee mugs and refrigerators; and Canadian Tire carrying apparel, home office supplies and indoor plants.

Shoppers, which is at the centre of all three of the most recent court cases, has expanded significantly into such fields as groceries and cosmetics under aggressive growth plans of chief executive officer Glenn Murphy. It is not lost on observers that he was once a rising star at Loblaw, where he learned his trade.

The fights have gone so far as to see Loblaw hire a private investigation firm to take pictures of a large new Shoppers store at a Stouffville, Ont., shopping plaza, where Loblaw has a No Frills supermarket. Loblaw sought an injunction late last year in Ontario Superior Court to force Shoppers to drop its groceries.

"These [Shoppers] actions are a deliberate attempt to compete with the No Frills store, which also sells the prohibited goods," Glenn Lintern, an operations director for No Frills, said in a statement filed with the court.

"It is impossible to estimate the injury and harm caused to the No Frills store by the business being operated in the Shoppers store."

Arthur Konviser, a spokesman for Shoppers, would not comment on the cases. But he said the one involving the Stouffville store as well as another Ontario Superior Court dispute with A&P at the Meadowvale West Town Centre in Mississauga have both been settled.

He would not provide details. One source familiar with the Loblaw matter said the settlement puts some restrictions on Shoppers' ability to sell groceries. A Loblaw spokesman would not comment.

However, telephone checks with the Mississauga and Stouffville Shoppers stores this week indicate they both still carry an assortment of foods, including milk, eggs, yogurt, frozen prepared meals, canned soups and bread.

Tammy Smitham, spokeswoman for A&P, said in an interview the matter was still under discussion with Bentall Retail Services, the Meadowvale landlord that had gone to court with A&P to take on Shoppers. (Landlords were a party to each of the actions.)

Ms. Smitham said the talks involve Bentall's role in enforcing A&P's "restrictive covenant," which is a lease provision that prohibits others in the mall from selling food, with some exceptions. A Bentall executive did not return calls.

At Mississauga's Meadowvale, A&P's Dominion store was confronted late last year with a newly renovated Shoppers that was twice the size of the former one in the mall, with more space for groceries.

"A&P invests significant capital in neighbourhood shopping centres and, as such, requires assurances that landlords will not permit other tenants to compete directly with A&P," Vince Bertrand, a senior vice-president at A&P, said in an affidavit filed with the court.

"A&P is no different from any other major retailer in this way. It is usual in shopping centres for major tenants, be they food retailers, drug stores or any other kind of major retailer to demand such a restrictive covenant."

He said Shoppers' sale of groceries in the newly expanded store "has had a significant and negative impact on sales and customer count at A&P."

In the Nova Scotia case, Shoppers objected when Sobeys opened a pharmacy at the North Sydney Mall where both retailers had a store. Shoppers' lease stipulated that the landlord would not permit any other pharmacy in the mall.

The landlord's receiver successfully got a court injunction last year to force Sobeys to stop operating its pharmacy, in contravention of its lease, which limited the supermarket to carrying food and "general merchandising." Shoppers intervened in the case.

In September, the Nova Scotia Court of Appeal upheld the lower court judgment and the supermarket shut its pharmacy operation soon after.

But the decision doesn't prevent Sobeys from continuing to put pharmacies in other of its supermarkets, Sobeys spokesman Andrew Walker said.


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