Every day higher sales: Wal-Mart wunderkind Walmex shows them how it's done in a down economy.

"A decade ago, this would have been like a dream," enthuses housewife Cristina Garcia as she pushes her trolley between supermarket shelves groaning with everything from German beer to Spanish goat cheese to Japanese soy sauce. "None of this stuff was available. Shopping was a real misery. Now my biggest problem is deciding what not to buy."

The Superama, in the trendy Mexico City neighborhood of Condesa, is one of 605 stores run by Wal-Mart de Mexico. Known as Walmex, the company spearheads a retail revolution by offering discount prices and extravagant-by-local-standards consumer choices. As a subsidiary of US$247 billion-in-sales global retail giant Wal-Mart, the Mexican operation joins its peers in the LATIN TRADE Giant 24 by tracking its larger brethren, posting a nearly identical 12.3% increase sales to $6.4 billion in 2002, by equity participation. Walmex's total sales reached $10.1 billion.

According to Federico Casillas, Walmex's director of financial planning, Mexican consumers instantly feel at home in the stores, which come in five sub-brands, one for each market segment, from high-end supermarkets like Garcia's beloved Superama to warehouse-style discount buying clubs. "The concept of everything under the same roof is more natural for the Mexican market than it is, perhaps, for the North American," Casillas says. "The phenomenon of the 'supercenters' is relatively new there, as well as here, but during the Aztec times the open-air markets here sold everything. There is a custom in Mexico of buying everything in a single place."

Mexico has come a long way in the past few decades. Suddenly, an opposition party is in charge after decades of effective one-party rule. Satellite TV and the Internet provide access to genuinely critical news coverage. And Mexican consumers like Garcia now have nearly the same wide choice of everything from autos to breakfast cereals as their U.S. and European counterparts.

Walmex's success is no big mystery, says Casillas. Although wary of claiming that any individual product will be available cheapest at a Walmex store, Casillas says a representative basket of goods will be cheaper if bought at Walmex. The company's 'Every Day Low Prices' campaign, adopted from the U.S. headquarters, saved customers $51 million during 2002, by the company's calculation.

"We try very hard to understand what the customer wants. The objective of Wal-Mart de Mexico is to contribute to the raising of Mexican families' living standards by offering them products they need at low prices, and not just when there is a special discount," says Casillas.

Open door. Free trade has played a hand. Although the North American Free Trade Agreement, which came into effect in 1994, has made it much easier to import, the watershed came in 1987, when Mexico signed on to World Trade Organization's General Agreement on Trade and Tariffs. That effectively opened up the Mexican economy and paved the way for retailers to offer consumers any products they want.

The other half of the equation--undercutting competitors--is not as simple as it sounds. To be viable, Walmex slashed operating costs, and in that sense it has totally outstripped its rivals. Walmex's purchasing power alone is bigger than the next 17-largest Latin American retailers combined, allowing unmatched savings. But Walmex also has unique purchasing and distribution networks.

It's currently the only Mexican retail chain that has its own centralized distribution system. Suppliers thus can deliver their goods just once to any of 11 Walmex depots scattered across the country, rather than to each individual store.

The system gives the biggest boost: to small suppliers unable to maintain their own fleet of delivery trucks. Instead of having to contract expensive delivery companies, the suppliers rely on Walmex trucks to deliver their goods to the stores. "Obviously, their distribution costs are greatly reduced," says Casillas.

Wal-Mart is criticized because it is so dominant, but the company really is better and more efficient than its rivals, says Douglas Clarke, an importer of European goods, mainly British toiletries, to Mexico. "You would rather deal with them than 5,000 little stores. Everything is centralized. You have one point of contact, one centralized distribution system and one point of credit control," says Clarke. "With the number of stores they have, once you are in Wal-Mart, then it is good news."

By wiring its computer systems through international headquarters in Bentonville, Arkansas, Walmex has been able to make bulk purchases under Wal-Mart's global system whenever it wishes, although it still buys nearly 90% of its products in Mexico.

Sophisticated information systems also mean that, at any moment, Walmex executives and their suppliers can view sales of any given product region by region and store by store. They trace deliveries of goods in real time. Supply can be tailored to demand, thus dramatically slashing waste. It also allows producers to target their marketing strategies.

Stack 'em high. It's not all good news for Walmex. Like most other major international companies, the retailer gets its share of criticism for the globalization process. Critics have long alleged that the company sucks the soul out of traditional communities by robbing business from smaller, established, often family-run stores. "Sell 'em low, stack 'em high, make the downtown merchants cry!" went one company employee rallying chant heard in U.S. Wal-Marts only a few years ago.

Walmex emphatically rejects that claim. Casillas insists that its supermarkets and supercenters instead strengthen local communities economically and provide important wholesale opportunities for those same street-corner shops. Walmex also focuses on developing business with local suppliers, sometimes using its massive purchasing volume to turn them into regional or even national producers. "In reality, when we go to a new community, the cost of living in that community drops," says Casillas.

Executives in Mexico make the strategic decisions about what happens at Walmex although, of course, they can rely on support and technical advice from their U.S. counterparts in Bentonville. Early on, for example, U.S. managers failed to grasp the idiosyncrasies of the Mexican market. Swimming pool paraphernalia and outsized lawnmowers initially available at some of Mexico's Supercenters caused a stir among curious shoppers but did not sell. Mexican executives are now firmly in charge.

Following the 1994 currency crisis, the proportion of local products in the stores was sharply increased, allowing the company to keep prices down for cash-strapped consumers forced to rein in their spending on imported goods. Another major change came in 1999, when Walmex adopted the 'Every Day Low Prices' program of its northern partner Walmex had initially avoided the aggressive discounting regime, saying Mexico's high inflation rate would make it too hard to maintain.

As costs fell because of the U.S.-inspired centralized distribution and information systems, however, Walmex's top brass decided that discounting could work. The initial result was a 14% drop in average prices. That in turn has seen Walmex sales shoot up--at the cost of its competitors. Between 1999 and 2002, sales per square foot in the growing number of Walmex stores rose approximately 10% to $485 last year.

Exporting success. Now, Wal-Mart International is putting the lessons learned from its Mexican unit--the company's best-performing subsidiary--into practice in other countries. Walmex's sub-brand Bodega discount store has been studied in China, the United States and Brazil, where the Todo Dia chain is a direct copy of the Mexican format. Meanwhile, Wal-Mart model partnership with a well-established local retailer is being repeated in Japan, where the U.S. retailing giant has taken a 6% stake in retailer Seiyu with an option to buy nearly 67% by 2007.

Back in the Superama, Garcia continues to stack her trolley with food and drink. "I know the older shops might suffer," she says. "But why shouldn't Mexicans be allowed to have the same rights, to shop in the same convenient way, as people in other countries? The only surprise to me is that we never had this before."

SIMEON TEGEL * MEXICO CITY