TORONTO (Bloomberg) - Wal-Mart Stores Inc., the world's largest retailer, may double its share of Canada's grocery market in as little as five years by opening more supercentres with lower food prices, posing a "huge" threat to the country's existing grocers, BMO Capital Markets said.

Wal-Mart may account for nine percent of Canadian food sales in the next five to 10 years after increasing its supercenters to 90 from 23, BMO analyst David Hartley said in a report on Tuesday. Revenue at Loblaw Cos., Canada's biggest supermarket chain, may decline more than its rivals, he said.

The US retailer began opening supercenters with produce, meat and dairy items in Canada last year, forcing Loblaw, Empire Co.'s Sobeys grocery unit and Metro Inc. to reduce prices.

About a third of Canadian grocery sales are made at Loblaw, which last month said third-quarter profit plunged 42 percent on price cuts.

"The market leader inevitably gets hurt more than its smaller rivals in the short term," Mr. Hartley said.

"Metro and Sobeys will also be under intense pressure from Wal-Mart and Loblaw as they continue to pound the market with lower prices."

Wal-Mart reduced food prices by three percent since August in the Toronto area, and Loblaw has not been able to match what supercentres charge even after lowering prices at its discount store No Frills, the analyst said. Wal-Mart accounts for four percent of Canadian grocery sales, Mr. Hartley estimated.

Mr. Hartley rates shares of Loblaw and Stellarton, Nova Scotia- based Empire "underperform" and Montreal-based Metro "market perform."

Yesterday, he began new coverage of Canada's three biggest grocers after joining BMO Capital Markets earlier this year. Sobeys is the country's second-largest supermarket chain.

Loblaw, based in Toronto, may lose as much as C$1.62 billion ($1.59 billion) in revenue, or six percent, from Wal-Mart supercenter openings, Hartley estimated. Sobeys may see sales fall 5.5 percent, while Metro's revenue may drop 7.4 percent.

Safeway Inc.'s Canadian stores, located in western Canada, may lose the most sales on a percentage basis, a 9.2 percent drop, because many of its stores are close to new Wal-Mart supercenters, Mr. Hartley said.

Loblaw has prepared for the supercentres by consolidating warehouses, an effort that went awry, leaving some store shelves empty. In January, the supermarket chain said it would eliminate 1,000 office jobs to reduce costs, allowing the company to lower prices. The grocer's banners also include Loblaws and Zehrs.

Wal-Mart's supercentres are 50 percent larger than its regular stores and sell milk, meat and produce. The retailer has almost 300 sites in Canada since entering the country in 1994.

W Galen Weston, chairman of Loblaw's parent company George Weston Ltd., said on a conference call last month that he's committed to the grocer's plan to boost profit and won't sell the stock.

"We are putting everything we've got behind it," Mr. Weston said of Loblaw. George Weston owns 62 percent of Loblaw.

In June, Empire bought the 28 percent stake of Sobeys it did not already own for C$1.06 billion.

The move allows its food- retailing and real-estate divisions to work closer together to help improve distribution at stores and warehouses.

Wal-Mart spokesman Andrew Pelletier, Loblaw spokeswoman Elizabeth Margles, Empire spokesman Andrew Walker did not return telephone calls. Metro spokeswoman Marie-Claude Bacon declined to comment.

Wal-Mart, based in Bentonville, Arkansas, advanced 71 cents to $48.90 in New York Stock Exchange composite trading.

Loblaw, with more than 1,000 stores nationwide, fell 67 cents, or 2.1 percent, to C$32.04 on the Toronto Stock Exchange.

The shares dropped 34 percent this year, heading for their third annual decline. Empire shares were down 29 cents to C$45, while Metro's stock slipped 32 cents to C$27.87.