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

Loblaw said it opened the new 10,000-square foot store a few weeks ago in Calgary.

Named The Box by No Frills, the trial store offers "hard discounts and an everyday low price" on groceries and other merchandise, said Loblaw's chief financial officer Sarah Davis 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.

Up against stiffer competition

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 Sobeys, which recently announced a $5.8-billion deal to buy Safeway in Western Canada.

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

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

REIT valued at $7 billion

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 of 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.