Wal-Mart prepares small U.S. stores to fend off Tesco

PHOENIX (Reuters) - Wal-Mart Stores Inc (WMT.N) is actively working to open its first small-scale grocery stores in Arizona, according to city planning officials, as the world's largest retailer looks to fend off competition from British supermarket rival Tesco (TSCO.L).

Tesco entered the U.S marketplace last year, opening Fresh & Easy Neighborhood Markets stores in California, Arizona and Nevada. The company is seeking to woo U.S. shoppers with smaller convenience stores that emphasize ready-to-eat meals and fresh produce.

Wal-Mart, whose No. 2 British supermarket chain Asda competes with No. 1 Tesco in the United Kingdom, has long been rumored to be planning a new, smaller store concept that would rival the Tesco's stores in the States.

According to planning officials for four different cities in Arizona, Wal-Mart is now refining plans it submitted to launch convenience store-sized markets -- some close to recently opened Tesco stores -- in former drug stores in four cities southeast of Phoenix.

It is not known when Wal-Mart will open the stores in the suburban communities of Gilbert, Chandler, Mesa and Tempe. No name for the new markets was submitted.

"What they want to do is make tenant improvements so they can put in this new, smaller version of their grocery stores," said Lisa Collins, Tempe's planning director.

The application plans call for the stores to occupy roughly 15,000 sq. ft.. That is less than half the average size of Wal-Mart's Neighborhood Market grocery stores, and a fraction of the size of its Supercenters, which combine grocery stores with general merchandise and can be more than three times the size of a U.S. football field.

Officials said they have been told the new stores will offer similar merchandise to Fresh & Easy Neighborhood Markets.

A Wal-Mart land use attorney, Sean Lake, listed on its Arizona applications declined comment about the company's plans, referring all questions to a company spokesperson.

"We do look at different ways to serve customers and a smaller Neighborhood Market is certainly an example of that," a Wal-Mart spokesman said.

But he declined to comment further.

A Tesco spokesman would not comment on Wal-Mart's plans. Tesco has opened 37 Fresh & Easy stores and invested $2 billion into the new venture.

Planners have been working with Wal-Mart since the first applications were filed late in 2007 requesting various tenant improvements to the vacant drug stores.

The properties are zoned already for retail use and can be approved administratively.

"This would work out well for us," said Steve Hether, Mesa's deputy building safety director. "A lot of these commercial properties have been sitting vacant for some time now."

Mark Barratt, an Arizona State University professor who tracks the industry, said, "The one thing I know is that Tesco has done its homework; it's not as apparent that Wal-Mart has done the same."

(Additional reporting by Nicole Maestri, editing by Leslie Gevirtz)