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Wal-Mart is testing even smaller grocery as rival opens in US

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Associated Press / January 15, 2008

PHOENIX - Wal-Mart Stores Inc. will open a smaller size of grocery store in the Phoenix area after a big British rival moved into the Southwest with more convenient smaller shops.

The world's biggest retailer said it will test four new stores called Marketside, designed at about half the size of its existing Neighborhood Market grocery chain, which are themselves much smaller than a Wal-Mart Supercenter.

The move comes after British grocery chain Tesco PLC opened its first US stores last fall in the Los Angeles area. Tesco's Fresh & Easy Neighborhood Markets are small stores aimed at shoppers who find big stores inconvenient.

Tesco plans to open hundreds of its stores in California, Nevada, and Arizona. It says they will combine gourmet food with staples at regular grocery store prices.

A Wal-Mart spokesman said the retailer is always testing new ideas and declined to say if the new Marketside stores would expand to more locations.

It is a small number for a chain that has more than 4,000 US stores, including 2,435 Supercenters that combine a full grocery section and general merchandise, some housed in buildings that can reach 200,000 square feet.

Craig R. Johnson, president of consultancy Customer Growth Partners, said Tesco has discovered untapped market potential with Fresh & Easy and that Wal-Mart is smart to try to follow.

"The great benefit of Wal-Mart's globalization for the US market is that it didn't need to start from scratch in responding to Tesco but could 'borrow' one of the many formats it already uses in Central and South America," Johnson said.

Wal-Mart has a wide range of store types and sizes in the 13 countries where it operates outside the United States, including neighborhood stores as small as 1,000 square feet.

In the United States, Wal-Mart's past growth has been fueled mainly by Supercenters. As it expands into more urban areas from its rural and exurban base, Wal-Mart is running into tighter space limits that favor smaller stores like Tesco's new offering.

Each of the four planned Marketside stores will measure about 20,000 square feet, compared to more than 40,000 square feet for a Neighborhood Market.

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