In a bid to boost its appeal among more affluent consumers, Wal-Mart is revamping its discount stores in the US, and the development of the retailer's food offer is seen as key to attracting new consumers and encouraging existing customers to spend more. David Robertson reports.

The world's largest remodelling project is underway at Wal-Mart as the company overhauls its stores and introduces new product ranges designed to attract new consumers.

Many of Wal-Mart's traditional discount stores have started to look dated as other retailers, particularly Target, are adding an element of style to their low-cost proposition. Wal-Mart is now responding with its "Out in Front" project that will see 1,800 discount stores (more than half its US total) remodelled over the next 18 months.

To Europeans used to delis or polished supermarkets like Tesco, shopping at an old Wal-Mart would be something of an underwhelming experience. These stores stock everything from guns to children's bicycles but in many the food offering is surprisingly limited.

Soft drinks, cookies, breakfast cereals, bread (white), milk and confectionery is about the extent of it - even gas stations have a wider selection. Wal-Mart's 900 Supercentres are bigger, carry a wider range of products and offer consumers a more pleasant shopping environment. The fresh produce range at Supercentres is substantially larger and the meat offer has also been expanded in recent years.

In remodelling the older discount stores, Wal-Mart is seeking to adopt many of the more attractive Supercentre characteristics. However, the company has also been learning from the well-regarded Mexican division - the revamp was announced shortly after Eduardo Castro-Wright moved from heading up the Mexican operation to run the US.

Some of the changes taking place at the remodelled stores are basic but necessary, such as refitting toilets and repainting stores. In the apparel section, mock-wood flooring will be put down and in other areas whiter tiles should brighten the place up. Wal-Mart's normal skyscraper-like shelves are also coming down in size: a limit of 4.5ft is being imposed to create a more airy feel.

The food range in these remodelled stores is also growing, particularly with the introduction of organic products and a much wider selection of fresh foods and meats. In more affluent areas, there could be some surprising offerings - just-food found live lobsters for US$12 per pound at one store.

According to Bernard Sosnick of Oppenheimer Research, the "cluttered, disorganised and dreary atmosphere [is being] pushed aside for a more pleasant shopping environment".

Sosnick adds: "Remodelling has begun. The job is big. There are disruptions. But the outcome of remodelling 1,800 stores in 18 months will be a better looking and better-merchandised US Wal-Mart division. We are firm in our belief that this will create earnings growth and propel [the company's] shares higher."

There are a number of reasons why Wal-Mart has started revamping its stores. One is that the company wants to shift its reliance on new store openings to generate sales growth.

Wal-Mart's stores have traditionally been located in rural or small town America but as many of these places now have a Wal-Mart, the company has been moving into more urban areas, where land is considerably more expensive. Some analysts expect this to slow new store openings, denting sales growth unless established stores can take up the slack.

Bear Sterns said last month that remodelling should "lead to improved same store sales and if asset productivity is improved, this may ultimately reduce the number of new stores needed to drive growth".

Wal-Mart is also looking to encourage its core consumers to spend more money in its stores - and the growth in the food range is a clear example of how the company intends to do this. At the same time, Wal-Mart hopes that its revamp will entice more affluent consumers in.

William Blair analyst Mark Miller said: "It has become increasingly clear that, as Wal-Mart's core lower to middle income consumer was squeezed the past two to three years by the slow rate of wage growth and high energy prices, management's response was insufficient, particularly… its heavy emphasis on the opening price point."

More attractive stores and wider product selection will help the company reduce that emphasis on price, which could bring in the sort of consumers that have in the past avoided Wal-Mart.

However, any suggestion that Wal-Mart is going "upmarket" sends its spokespersons into denial frenzy but there is no doubt that the company is hoping remodelled stores will appeal to more affluent consumers.

Wal-Mart is also developing new concept stores that it hopes will also attract urban, better-off consumers. A test store in Plano, Texas, for example, has sushi, expensive wine, a coffee shop, made-to-order panini sandwiches and an organic range of 500 products.

There are also electronic displays at the meat counter that print recipes and another in the wine section to recommend bottles for particular foods - ideas that are likely to find their way into the remodelled stores in the future.

Sosnick said: "The initial response to the [Plano] store puts to rest the question of whether Wal-Mart will have the ability to reach middle and upper-income shoppers."

Another test store in Evergreen Park near Chicago is being aimed at "urban and multi-cultural" consumers. At Wal-Mart's annual shareholder meeting last week, chief executive Lee Scott said sales per square foot in the Chicago store were 25% above others in the area while the Plano store is 24% up on average stores. "Wal-Mart is undergoing a transformation. And it's real," Scott said. "We are changing more rapidly and profoundly than we ever have."

Wal-Mart chose not to answer any further questions on the subject of store remodelling or even confirm what changes were being made. However, consumers across America will soon see for themselves the new direction the retailer is taking.

The expanded food range, more attractive stores and the push to attract higher income consumers will put even more pressure on rival supermarkets - many of which are struggling to compete with Wal-Mart as it is.