updated 1/14/2008 5:33:39 PM ET 2008-01-14T22:33:39

Wal-Mart Stores Inc. will open a new, 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 U.S. 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 U.S. 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 in size.

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 U.S. 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 U.S., including neighborhood stores as small as 1,000 square feet.

In the U.S., 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.

Wal-Mart shares fell 5 cents to $47.67 Monday.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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