Wal-Mart’s UK chain Asda is set to announced the opening of hundreds of new discount food stores, according to the Guardian newspaper.

The stores will be a direct challenge to Tesco‘s Express and Sainsbury’s Local convenience stores which have been so successful in recent years, the paper said.

They will be one of a series of initiatives designed to mount a more effective challenge to the dominance of Tesco, which now has a market share of more than 30%. In the past 12 months Asda’s trade has stood still. Asda’s new outlets have yet to be named, though the first will be opened in Northampton next month. The supermarket group has been developing the concept using the codename “Project Disco”.

In size terms, the new stores are likely to average 7,000-10,000 sq ft – slightly larger than Express and Local outlets. Until now Asda has sold food and clothing only from superstores of 80,000 sq ft and larger. The new stores are understood to have been modelled on a successful French chain called Leaderprice.

They will stock a limited range of goods – about 2,500 lines, including fresh food. An average superstore would usually stock 10 times that number. About 95% of the goods on the shelves will carry Asda’s own brand, with only 5% branded goods.

The aim is to create the cheapest chain of food shops in town, undercutting even discounters such as Aldi and Netto. A source close to Asda said: “Store managers will be given the power to fix prices at a local level in order to ensure Asda is charging the lowest prices in the area.”

Asda intends to find high street and retail park locations for the new chain and it is understood that the company is prepared to open some stores next to Tesco outlets in order to mount a direct challenge and lure away Tesco shoppers. The new stores are the first significant initiative from chief executive Andy Bond, who took over at Asda this year.

Jay Fitzsimmons, Wal-Mart’s senior finance vice president is flying into London next week to present details of the new strategy, and other plans with Mr Bond. These could include plans for more mid-sized city centre stores and Asda Living outlets, which stock home, fashion and entertainment goods – but no food. Asda has also been experimenting with stand-alone George fashion stores in high street locations.

The two executives are expected to admit that Asda’s recent trading performance has been disappointing. The UK chain accounts for half of Wal-Mart’s international operations. The two executives are likely to concede they made a mistake by not moving into the convenience sector sooner. “Asda is about to get much more aggressive,” said an insider.

Tesco operates about 600 convenience stores and recently admitted it intends to double that number within five years. Tesco’s march into the convenience stores sector has hit the retailer’s reputation and prompted a backlash among small independent retailers, who have demanded a full competition inquiry into the dominance of the big grocers.

Asda’s Bond and Fitzsimmons are likely to insist their new venture is not a move into convenience stores and will instead label them “community” discount stores.