Why McDonald's Failed In Bolivia

It seems like everywhere you go you can always spot a McDonald's. There are 36,000 stores on every continent except for Antarctica. In South America alone, there are 1,400 locations. But there is one Latin American country that flat out rejected Big Macs and McNuggets. Bolivia In 1985, Bolivia experienced the most severe economic crisis in its history. By 1986, hyperinflation drove up prices over 11,000 percent. So Bolivia decided to do something drastic. The country adopted a neo-liberal economic policy, which included throwing its doors open for foreign investors. By the mid 90s, international companies began to flood the market which ultimately played a role in helping rev up Bolivia's economy. On average the economy grew 4 percent between 1985 and 1997. That's when McDonald's entered Bolivia. The first Bolivian location opened its doors to the public in 1997, in the city of La Paz and it was met with a lot of hype. It was a huge social event.You had to go there with your friend. You have to go there with your family. And people were willing to spend significant amounts of time in line just to get there and try. It was interesting because it was a huge line of people standing. And then the drive through, there were also like a huge line on interrupting all the traffic on the street and then having to go into the side roads and things like that. So even though it was extraordinary to see. By 1999, the American fast food chain had six stores in the country. Its menu was tailored to reflect Bolivian taste buds. McDonald's offered things like "Ilajua" a believing hot sauce that was made of tomatoes and Hot Chili Peppers. McDonald's even tried to introduce the "McSaltenas" which was a spin on the traditional Bolivian dish known as saltenas. The saltenas are traditional Bolivian empanadas that can either be filled with savory or sweet foods but it ultimately did not reach the Bolivian market due to McDonald's safety standards. But despite McDonald's initial interest from the Bolivian people, lines from McDonald's grew smaller and smaller. By 2002, McDonald's operation in Bolivia expanded to Santa Cruz and Cochabamba in an effort to reach the country's middle class consumers. But that effort to appeal to Bolivia's middle class failed to shore up sales. And in the 2002, the American fast food chain shuttered all of its stores in Bolivia. It specifically went after than most affluent group. To say it was an affluent neighbor in the south side of La Paz, it was in downtown La Paz. So it didn't go really into the areas that are more where more indigenous. Probably that was a second step but the first step of entering Bolivia was really to appeal to the more affluent people, who have some type of exposure to McDonald's before. The former vice president of McDonald in South America said that: "We were having losses in the Bolivian market for several years in a row and initial investments were not breaking even." In the same year McDonald's exited Bolivia, McDonald's also close 700 stores down in nine other countries. So from what I understand McDonald's closed restaurants in Bolivia because they were under performing relative to other places. So why did McDonald's fail in Bolivia? Well it's partly to do with the deep cultural rejection from Bolivia and its government. Although President Evo Morales was elected after McDonald's exit, his attitudes towards globalism reflected the long-held national sentiment. Back in February of 2013. President Morales said this in a speech to the U.N.: "The fast food of the west is doing a great deal of harm to humankind". And "the major multinational food companies seek to control the production of food and to dominate global markets by imposing their customs and foods." The president even banned an American staple in Bolivia: Coca-Cola. In 2012, Bolivia's president and the country's Minister of External Affairs announced the expulsion of Coca Cola in Bolivia in favor of a traditional Bolivian drink. But it wasn't just politics that led to McDonald's demise, Bolivia's economy also played a role. Bolivia's one of South America's poorest countries. In 1997, when McDonald's first entered Bolivia, 63 percent Bolivians living conditions of poverty and 38 percent lived in extreme poverty. By the time McDonald's pulled out in 2002, the number grew to 65 percent of Bolivians living in poverty and 40 percent living in extreme poverty. In 2002, the average Bolivian monthly income was about 622 Bolivians, that converts just over $83 a month. So McDonald's was actually a relatively expensive food option for Bolivians, especially if they wanted to grab a quick meal. In Bolivia you can get a meal, full meal, with meat, rice, potatoes all those things were $2 or $3 and that was a lot of and that was about- I think the price of a combo or value meal was around $4 or $5 at the time they arrived. So it was a little above of what you could get elsewhere. At the same time also, there were local burger chains that we're offering exactly that value I think that Bolivian's were expecting. Those chains are I still around and doing well In the city of La Paz alone, there are upwards of 60,000 people working as street vendors. These local vendors aren't just undercutting foreign rivals on price. They are also beating the competition when it comes to the menu. Street food in Bolivia includes local specialties like saltenas and antichuchos. That's not to say that there isn't a market for burgers in Bolivia. Instead of going to McDonald's Bolivians would purchase them from '"Cholitas." A name given to the indigenous women working as local street vendors. Or they could go to local Bolivian chains like Crafted Burgers or Che burgers in La Paz. Bolivians are proud of their food and the tradition that surrounds it. Bolivians treat food as something sacred and a modernized quick service restaurant like McDonald's wasn't able to fully capture that localized flavor or its atmosphere. CNBC reached out to McDonald's about the company's time in Bolivia but they did not respond to any questions. As for McDonald's in Bolivia its failure to take off in the country had little to do with poor preparation. The company made a solid effort to allocate financial and human resources to fully understand the Bolivian market before entering. The one thing that they didn't anticipate was being rejected deeply by Bolivian culture, politics and their love for local foods.

Channel: CNBC

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Id: vl_5kD9EzDQ

Length: 7min 10sec (430 seconds)

Published: Tue Jan 15 2019