The convenience business is poised to get a whole lot more competitive.

Wal-Mart is preparing to stand up to Tesco’s Fresh & Easy Neighborhood Market concept with two small-footprint concepts of its own, reported The Wall Street Journal.

The new concepts may come off as a step out of the usual for Wal-Mart. One concept is an urban convenience store less than a tenth of the size of the company’s supercenters and stocked with groceries aimed more affluent tastes. The other concept is a stand-alone store offering a variety of health services and products. The new outlets are being prepared for introduction early next year, according to the Journal.

A Wal-Mart spokesman wouldn’t provide specifics but said, “Our business is constantly evolving, and we’re always looking for new and innovative ways to serve our customers.”

Some analysts are debating that company may have waited too long to develop successors to its big-box U.S. stores, cutting their profit estimates for this and next year due to Wal-Mart’s ignorance towards consumer trends. Failed attempts in women’s fashions and home dcor continue to drain profits, and high gasoline prices are eating into supercenter visits.

The smaller stores could actually help Wal-Mart, according to analysts. The retailer largely has been exiled from upper-income and urban markets, including those in California and New York. High land costs and local opposition have limited the chain to just 28 supercenters in California, a tenth of the number in Texas. Smaller stores are less likely to stir up opponents than the hulking 200,000-square-foot big-box stores.

The chain hopes to begin rolling out the new convenience and health care stores early next year, and it’s looking at locations in California for the debut. A Wal-Mart spokesman said the company “regularly tests new formats” but declined to describe the effort further.

Tesco’s arrival in the U.S. Southwest has accelerated Wal-Mart’s plans. The British retailer is expected to open 30 Fresh & Easy Neighborhood Market stores by February and invest $2 billion in the U.S. rollout over the next five years.

“The impact on the competition depends on how fast Tesco rolls out. I think it’ll be fast,” David McCarthy, a London-based deputy head of equity research for Citigroup, told the Journal. He estimates Tesco could have 500 U.S. stores and U.S. revenue of $5 billion by 2010.