Wal-Mart is planning to open small-format stores in Arizona to compete directly against Tesco's US convenience format Fresh & Easy Neighborhood Market.

The stores will operate under the fascia 'Marketside' and will be roughly a tenth of the size of its Wal-Mart Supercenters, according to the Financial Times.

Wal-Mart has secured leases on four sites in Phoenix, Arizona - some of which are just a mile from Fresh & Easy stores.

Tesco opened its first Fresh & Easy store in November, promising 'Whole Foods Market-quality food at Wal-Mart prices'.

Meanwhile, Tesco is expected to update the City on Christmas trading tomorrow (Tuesday). Analysts have predicted like-for-like sales growth of around 4%, although there is concern it may not match Sainsbury's like-for-like growth of 3.6%.