PHOENIX/SAN FRANCISCO (Reuters) - Lifting her 2-year-old daughter Shayla into a shopping cart at the Supermercado de Walmart here in Phoenix, Elizabeth Hernandez searches for just the right words to describe her feelings.
But she is searching for the right words in English.
"I feel more comfortable shopping here," said Hernandez, an admittedly shy 32-year-old Phoenix homemaker who is fluent in Spanish. "I don't have to know the exact right words to get what I need. It makes me feel more at home."
That's what Wal-Mart Stores Inc is hoping to hear as it tests a new concept to add to its U.S. portfolio -- a Hispanic-oriented grocery store designed to tap into this potentially lucrative and ever-growing market segment.
Calling it Supermercado de Walmart, the world's largest retailer opened the Phoenix store last month after what it said has been a successful launch in Houston in late April.
But Wal-Mart is entering an intensely competitive marketplace. Hispanics, frequent grocery shoppers, carry with them an estimated $1 trillion in buying power, and Wal-Mart competitors have already noticed that spending power.
In Phoenix, the Supermercado is going up against 40 Food City stores operated by independent Bashas' Inc. Other Hispanic groceries like Pro's Ranch Market, with seven Phoenix area stores, are entrenched in the marketplace.
The stores are also being launched as Wal-Mart puts the brakes on Marketside, the small grocery stores it opened in the Phoenix area last year. They offer shoppers ready-to-eat meals and produce without the need to go to a full grocery store.
While the recession has hindered Wal-Mart's plans to open more Marketside stores, it said it is very pleased with the Supermercados.
"It's an evolution of what we've been doing," Wal-Mart spokeswoman Amy Wyatt-Moore said, noting that Wal-Mart already operates about 500 stores in areas with large Hispanic populations.
WOOING HISPANICS WITH JALAPENOS AND MANGOES
At the Phoenix Supermercado de Walmart, signs outside the converted Walmart Neighborhood Market advertise Hispanic staples such as jalapenos and compare prices to local competitors.
Inside the brightly colored 39,000-square-foot store, a well-stocked produce section has mangoes, limes and papayas displayed in bins. The meat market has tripe and pigs feet.
Traditional Hispanic fare can be had at a small eating area, where tacos and tortas can be bought and chicken mole is a specialty. A seating area with a salsa bar is close by.
Signs are in English and Spanish and customers shop amid a background of Hispanic music coming over the speaker system.
Albert Valencia, 57, a retired school counselor, called the Wal-Mart experiment "a smart business decision."
"We spend a lot of money on groceries and we will continue to shop here if it's comfortable and they treat you right," said Valencia outside the store on a recent afternoon.
Whether the concept will succeed remains to be seen. Retailers, struggling amid the recession, are increasingly trying to appeal to budget-conscious shoppers by improving or expanding their selection of food while also cutting prices.
Bashas' spokeswoman Kristy Nied would not comment directly on the Wal-Mart experiment, saying only that "competition is good for the customer."
Barclays Capital analyst Robert Drbul said that while Wal-Mart tests new concepts like Marketside or the Supermercado, its supercenters, which combine a grocery store with a discount store, are its most important profit driver.
Bill Bishop, chairman of Willard Bishop, a consulting firm that advises supermarkets, said the test makes sense.
"When you take a look at the growth in the grocery business today in the United States, it tilts very heavily in terms of minority and even more so in terms of Hispanic," Bishop said. "It's where the growth is, even though it's niche."
Wal-Mart has the potential to open hundreds of these Hispanic grocery stores if it perfects the model, he said.
"The big question is how does a Wal-Mart create a more efficient supply chain for products that are quite frankly not going to have the same volume as mainline Anglo products?" he said.
Wal-Mart's Wyatt-Moore said only the two Supermercados are planned at the moment, and the retailer does not tend to set a timeframe for how long it will test new store concepts.
She said Wal-Mart will take what it learns in the Supermercados and apply it its Wal-Mart stores throughout the United States that also cater to Hispanic shoppers.
For now, shoppers like Evelina Escobar like what they see, and urge that the concept and the stores be expanded.
"It's about time," said Escobar, 27, shopping with her husband Edin, and 2-year-old daughter, Angelina. "They are starting to wake up in Arizona and starting to come around. Maybe other places will too."
(Reporting by Nicole Maestri in San Francisco and David Schwartz in Phoenix; Editing by Richard Chang)