It is saying something to contend that the world’s biggest retailer is trying to play catch up.

True, Wal-Mart’s fiscal year 2011 sales - for the year ending Jan. 31 - grew a respectable 3.4% compared to the previous year on the strength of a 3.4% added retail square feet in 2011. However, comparable store sales in the U.S. declined by 0.6% in fiscal year 2011. That “same stores sales” stat is a closely watched indicator of a company’s fortunes. Incredibly, the company has suffered seven straight quarters of sales declines in comparable store sales in the U.S.

Total U.S. sales in fiscal year 2011 were $260 billion, virtually unchanged from last year. Grocery sales account for 54% of Wal-Mart’s U.S. sales for fiscal year 2011, up from 53% in 2010.

Okay, what’s “wrong” with Wal-Mart?

A recent Forbes blog said that Wal-Mart’s bulk is adding to peril of self-cannibalizing its own sales with further expansion in the U.S. What’s more, other analysts say the discounter has allowed other low cost retailers to offer better prices.

The fact is that Wal-Mart continues to grow, but a much reduced pace compared with a few years ago. The company opened 50 new supercenters and converted 102 discount stores to supercenters in the U.S. during fiscal year 2011, down from 132 new supercenter stores and 148 conversions in fiscal year 2007. The total number of supercenters now tops 2,900, up from 2,755 in fiscal year 2010 and 2,262 in fiscal year 2007.

By way of comparison, Wal-Mart operates 708 old fashioned discount stores as of January, off considerably from 1,083 in January 2007.

Compared to its mega-growth supercenter model, Wal-Mart operates just 189 Neighborhood Markets or other small format stores as of January, up marginally from 143 in January 2007.

Wal-Mart will open 30 to 40 smaller format stores this year, Wal-Mart executives say, with hundreds more possible in the coming years. Roughly half will be Wal-Mart Express Stores of 15,000 to 30,000 square feet and the other half will be Neighborhood Markets with a footprint of 30,000 to 60,000 square feet, officials said.

But will it be too little, too late? The New York Times on March 29 pointed out in a story called "Where Wal-Mart failed, Aldi succeeds" that the German-based deep discounter slipped into New York City with relative anonymity, while Wal-Mart’s efforts have sparked organized opposition. Environmental do-goodish deeds notwithstanding, Wal-Mart “can’t win for losing” in the public relations battle.

The story pointed out that Aldi’s expansion in the U.S. has accelerated from 25 stores or so per year after its arrival in 1976 to an expected 80 new stores in 2011 and 2012.

Meanwhile, Tesco has upped the ante with its Fresh & Easy format with plans to add about 10 stores in northern California, adding to the existing 160 units in southern California, Arizona and Nevada. Company officials say U.S. operations could break even by 2013.

Minneapolis-based Target also is rolling out its CityTarget concept, with store size ranging from 60,000 to 100,000 square feet. Only four of these stores are planned for 2012, however.

Can Wal-Mart "out Aldi" Aldi? Can Wal-Mart’s small format stores come off "fresher" than Fresh & Easy? Will Target hit the mark where Wal-Mart whiffs?

Somehow, Wal-Mart needs to get its "swag" back.

I recently asked "Gen X Mom" Sarah Krause - a contributor to the Fresh Talk blog – to ask some of her friends about their impressions of local Kansas City retailers (more on that topic later in Fresh Talk). Here is one snippet she wrote about what one of her friends said about Wal-Mart:

Mom Chris admits that she prefers to do her general grocery shopping at Wal-Mart Neighborhood Market because she feels the prices are the best but thinks the produce isn’t wonderful. “However, the produce guy and I have become friends, and he’ll guide me in the direction of what’s fresh and a good deal. I try to maximize what I spend on things that will bring the most nutritional results," Chris said.

Sarah tellingly used the word "admits" in relation to one her mom friend’s confession that she shops at Wal-Mart. While the recession has removed "shame" from the value equation for many of us, not all socio-economic groups will be attracted to a Wal-Mart or Aldi.

In its quest for expansion of U.S. small format stores, Wal-Mart must decide what demographic it is going after. Is it the Gen X Mom with a little higher quality expectations, or is it the unrepentant bargain hunter, the frugal shopper who likes Aldi.

I don’t think small format Wal-Mart stores can or should emulate Aldi. One timeless truth to remember is that people’s perception of the fresh produce department makes a difference in where people choose to shop. Committing to better quality fresh produce and superior customer service in fresh food departments could be critical for Wal-Mart getting its groove back.