Walmart is working to fix a huge weakness, and now it's becoming a threat to Whole Foods and Trader Joe's

Hayley Peterson

Business Insider/Hayley Peterson

Walmart's store of the future is nothing like the retailer's giant supercenters.

The Neighborhood Markets, as Walmart calls them, are smaller, closer to city centers, and carry only groceries and consumables. The stores are an attempt to elevate Walmart's reputation in the fresh grocery world.

It's paying off: comparable sales at Neighborhood Markets were up 7% in the most recent quarter, while overall sales were up only 0.6%.

The Markets pose a threat to traditional grocers like Whole Foods, Kroger, and Trader Joe's, according to Moody's Vice President Charles O'Shea.

O'Shea says the Markets have a distinct advantage over rivals because they can use Walmart's extensive supply chain. He predicts that they will eventually outnumber supercenters.

The company now has 656 Neighborhood Markets and more than 3,400 supercenters.

We visited a Neighborhood Market in Richmond, Virginia, to check out what it offers.

The outside of the store looks similar to a regular Walmart with a more compact parking lot.

The inside is smaller than a regular Walmart, however, with only about 10 aisles. It's like a mini Kroger.

Most Neighborhood Markets are about 42,000 square feet, about one-fifth the size of a Walmart supercenter.

The first thing you see when you walk inside is the fresh-produce section. The company is planning to build up to 95 more Markets this year, a smaller number than previously planned. Walmart US CEO Greg Foran said last week that the company is hedging growth of the concept to "focus on improving profitability and the productivity of this format through enhanced fresh and access to services."

The section is stocked with most of the fruits and vegetables you would need for most basic recipes.

There's even a small organic section. The fruits and vegetables all look fresh and unblemished.

There are crates of extra produce underneath the displays, which makes restocking easier and faster for employees. It also allows employees to restock empty shelves from the sales floor — where they can also help customers — instead of having to leave the sales floor to pick up produce from the back of the store, a Walmart representative told Business Insider.

I was pretty surprised to see this much empty shelf space in the produce section, however. We reached out to Walmart corporate about the empty space, and a representative apologized and said this particular store was installing new shelves in the produce area so employees had to empty and restock the section. The shelves remained empty for the duration of my one-hour visit.

The packaged fruit section was also a little bare. This isn't because there weren't any employees around. There were two helpful employees working in the produce section for the duration of my visit.

Overall, the customer service was exceptional. There were employees present in almost every aisle of the store and each of them greeted me enthusiastically and asked if I needed help. One employee offered to get me a cart, since my basket looked heavy. Several offered to help me find the items I was looking for.

The deli and bakery appeared to be well stocked with sandwich meat, but appeared to be running low on rotisserie chicken.

A Walmart representative said the store restocks rotisserie chicken at lunch and dinner, and these were chickens left over from the lunch rush. To prevent waste, the store matches its cooking to customer demand, so the number of chickens available throughout the day varies according to customer traffic patterns.

The bakery features goods like fresh-baked cookies, cupcakes, and bread.

The wine and beer selection is extensive. Customers near some Neighborhood Markets can order their groceries online and then pick them up at stores. Walmart has rolled out online grocery pickup in 20 cities.

There are two aisles devoted to non-alcoholic drinks, including soda, water, and sports drinks. On top of the shelving, a few pieces of furniture and baby items are displayed.

There's also a grill for sale in the soda aisle. Other than these items, the store focuses entirely on groceries and consumables.

All the middle aisles were well stocked, clean, and tidy.

Some aisles were a little redundant, however. It doesn't seem like this much space needs to be devoted to vegetable oil ...

... or ketchup.

The store also had an abundance of ranch dressing.

And still more ranch dressing.

I found a few kitchen appliances for sale, like coffee machines, toasters, and toaster ovens.

There was a large selection of meat for sale, as well. "Our customers love Neighborhood Markets because they offer the convenience of a local grocery store and pharmacy, plus millions of additional items on Walmart.com with free pickup," Walmart spokesman John Forrest Ales told Business Insider. "That's an unbeatable combination of easy shopping and a great compliment to our supercenters."

The store's small size made it easy to find the items I was looking for. If I needed to make a quick grocery run, I would prefer coming to this Neighborhood Market over my local Kroger, which is larger.

Two aisles devoted to frozen food feature several bins of low-price items.

Hershey's chocolate syrup was prominently featured in the ice-cream aisles.

The Neighborhood Markets have been successful so far in terms of sales. The markets reported same-store sales growth of 7.3% in the most recent quarter, compared to 1.5% same-store sales growth for all of Walmart's US stores.

About 75% of the store is devoted to edibles, and the remaining 25% features cleaning products, pet supplies, and the pharmacy. Separating this section from the food makes it easy to find what I'm looking for.