Why Bolivia Allows KFC and Starbucks, but Bans McDonald's

In May, 2014, Starbucks announced that it will open its first location in Bolivia soon, while Yum! Brands said that it will do the same. McDonald's previously failed in the country, closed all of its stores, and was later banned. What will its competitors do differently?

Jul 11, 2014 at 4:30PM

McDonald's (NYSE:MCD) failed in Bolivia. It operated in the country for 14 years and eventually closed all of its locations by 2002 amid cultural rejection from locals and the government. 

Aside from Cuba, Bolivia is the only Latin American country without golden arches. This failure was a surprise, since Bolivians love eating hamburgers. Turns out they just prefer to buy them from local street vendors instead of giant fast food chains. 

Santamap

Anti-American government
Following the McDonald's failure, Bolivians elected Evo Morales as their President in 2006. He has deep anti-American sentiments and is extremely cautious on allowing western products, brands, and culture into the country. His strong stance specifically against giant US fast food chains even included a plea to the United Nations in which he called their influence "a threat to humanity." 

These are pretty strong feelings. Even Venezuela, an ally of Bolivia with similar political and ideological beliefs, has around 140 McDonald's locations. 

Bolivia rewrote its constitution in 2008 with specific measures to protect the country from foreign interests and place a focus on local businesses and investment. It also included measures to protect the country against large-scale industrial agriculture. 

Clock

Inverted clock in La Paz, Bolivia

In fact, the government is so anti-Western that the clock on the constitution building in the city of La Paz is anti-clockwise. Yes, you read that correctly--the clock has inverted hands. Bolivian Foreign Minister David Choquehuanca calls it the "clock of the south," saying that the country is being creative and does not have to obey or follow Western principles.  

End

It's the end of the world as we know it
In August, 2012, Bolivia even proposed banning Coca-Cola from the country in an effort it called the "end of capitalism." The ban would take effect on Dec. 21, 2012, which just so happened to be the end of the Mayan calendar (remember all of that end of the world talk?). However, after a few months, the country had not made the ban formal or enforced it. 

Two western giants entered the country at around the same time. This unprecedented move came as more of a surprise to investors than if the Mayan apocalypse actually happened. What's the reason for the sudden change of heart?

Changing policy?
Many investors were taken by surprise last month when Starbucks (NASDAQ:SBUX) announced that it would soon enter the Bolivian market. It will have a small presence there, as it will only add 10 locations over the next several years. Earlier last week, Yum! Brands (NYSE:YUM) announced that it will enter the country as well and attempt to do what McDonald's could not: create a profitable fast food business that appeals to locals.

A local partner is the key 
Starbucks will open its first location in the commercial business center of Santa Cruz via its subsidiary Delosur. The company has had a relationship with Latin America since it opened its doors in 1971, as it buys coffee beans by the ton. It only makes sense for Starbucks to build a presence in the region after decades, which includes Panama and Columbia as well.

Yum! will open its KFC branches with Delosur as its franchise partner as well. It will open a location in Santa Cruz and has another one planned for later this summer.

In the Yum! press release, Delosur CEO Sergio Hanna stated: 

Chicken is extremely popular in Bolivia and consumers are excited about the new restaurant. We're committed to serving our customers delicious products, providing excellent customer service and growing the KFC brand in Bolivia. 


Foolish takeaways
Regardless of the size or success of a company, it can only enter certain markets by finding and working with a local partner. Opening a handful of new locations will not move the needle for any of these Western giants, but it is an important step toward building long-term relationships in new markets.

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Mike Fee has no position in any stocks mentioned. The Motley Fool recommends McDonald's and Starbucks. The Motley Fool owns shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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