It is true that not all spankers are abusing their children, but hitting a child is an abusive act. Plain and simple. It is certainly not a loving act. Please be reminded that advocating or defending physical punishment is never allowed on the GD forum or on MDC (see user agreement).
Anyway, OP that sure is a hard situation to be in. I admit I have reacted in (negative) emotional ways when I have seen spanking. I am getting better in my approach, as I realize it does put people on the defensive and feeling defensive isn't the way to open someone's mind or heart.
I have had the most success asking a mama if she is having a bad day or trying to empathize. NOT advocating hitting or sympathizing in the way that communicates "yeah, sometimes they need to be hit" -- but sympathizing in a way that communicates (in a gentle way) that the hitter's behavior isn't acceptable (to me) while also assuming that they don't usually act like this.
I like something like, "wow it looks like you are having a tough day. Do you need help?" in a genuinely concerned, non threatening way. Then I engage the child if it seems like that will help. It might not change their whole parenting style but at least they know someone is watching and also I think when they feel heard and validated (again, not validated in their hitting but in their feelings of frustration or stress) they usually calm down.
I usually engage a mama (or papa) before it gets to hitting if I see they are becoming frustrated/stressed/upset. If the child is around my child's age (or younger) I will say a validating/commiserating statement with maybe a veiled piece of advice -- something like "wow, when my daughter was that age the only thing that would comfort her is ____" or spin it into a positive like "wow, I see a singer in your future, what a strong voice!!" (if they are screaming or something). This is more for their benefit, because I think many parents feel like they have to be MORE of a hard@ss in public, lest someone think they are ineffective/bad parent/can't *control* thier child. I try to laugh and smile and engage them before the hitting happens -- and if it has happened I do what I mentioned above.
Hope that helps