Canada's largest grocer is trying out a new discount small-store format in a bid to attract more customers in urban areas.

Loblaw Cos. Ltd. (TSX:L) said it opened the new 10,000-square foot store a few weeks ago in Calgary.

The location, named The Box by No Frills, offers "hard discounts and an everyday low price" on groceries and other merchandise, Sarah Davis, Loblaw's chief financial officer said in a conference call Wednesday.

"We are trying that as a pilot to see, 'Is it something that we can infill in a lot of areas of Canada because it's only 10,000 square feet?' " she told investors from the company's Brampton, Ont.-headquarters.

Loblaw's discount chain of stores, No Frills, are typically 25,000 square feet. The company also operates a number of other banners including Real Canadian Superstore, which has a large format and wide range of general merchandise in addition to groceries.

The new Box format is being tested as the company creates one of Canada's largest commercial real estate trusts with its grocery property assets, and prepares for stiffer competition from Target, Wal-Mart Canada and Sobey's, which recently announced a $5.8-billion deal to buy Safeway Inc. in Western Canada.

Davis said if the small-box format is successful, the grocery chain will buy new property to develop them into more locations under The Box banner.

"From that perspective, it's not reformating properties that have gone into the REIT, but trying out new formats with new real estate," said Davis.

Loblaw first announced plans to turn its properties into a REIT last December.

It values its property holdings at $7 billion, and said the trust will help the company optimize the value its real estate portfolio, lower the cost of capital for real estate and increase the speed of development of new retail sites.

The new Choice Properties Real Estate Investment Trust will hold 415 retail properties, one office complex and nine warehouse properties totalling 35.3 million square feet of gross leasable area.

Loblaw, which will own a stake in Choice, is Canada's largest grocer with more than 1,000 corporate and franchised stores from coast to coast. The company and its franchisees employ approximately 134,000 full-time and part-time employees.

Among the companies banners are: Loblaws, Zehrs, Provigo, Fortinos, Liquorstore and SaveEasy and among its brands are President's Choice, No Name and the Joe Fresh line of clothing.

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