San José, Costa Rica, since 1956

Are U.S. chains taking over Costa Rica?

From the print edition

Teddy Mora devours a plate of marinated ribs at the new Pollo Tropical restaurant across the street from San José’s Central Park. Next to him, O’Hong Wong finishes off a couple of chicken wings. This is not their first time eating here, and they’re already fans of the U.S. chain, headquartered in Miami, Florida. 

The restaurant chain opened its first location in Costa Rica at the beginning of April, and has plans for four more sites here. After returning from a day of work in the city of Heredia, north of the capital, Mora and Wong appreciate a brand new restaurant where they can grab dinner. 

But not even two weeks after it opened, Pollo Tropical lost its status as the latest chicken franchise in town. On April 13, Popeyes, a U.S. fried-chicken franchise from Louisiana, opened a $1.5 million Costa Rican restaurant in the eastern San José suburb of Curridabat. In the same market, the two must square off against U.S. franchises KFC and Church’s Chicken, Guatemalan brand Pollo Campero and Costa Rica’s own Rostipollos, among others. 

The sector of restaurants specializing in chicken embodies only a small part of the influx of U.S. brands that are moving here. The arrivals could oversaturate the market and result in fierce competition between both international and local brands, market analysts said. But franchise expansion continues because customers like Mora enjoy the increasing number of options. 

“I think it’s good because you have more to choose from,” Mora, 37, said. “[There are] more options for food, for fast food. … There’s a lot of variety. It’s always hard to find authentic Costa Rican food in central San José. At home, we eat casados, [Costa Rica’s traditional dish, with] rice, beans, meat and plantains. When we leave the house we want to try something different.”

Restaurant Chains 2

U.S. fast food chain Pollo Tropical opened its first Costa Rica location in April.

Alberto Font

The Costa Rican Chamber of Commerce said 171 foreign franchises operate in Costa Rica, an increase from 147 in 2011, and they operate approximately 900 stores. Not all new franchises arrive from the United States, although 60 percent of foreign franchises are U.S.-based. Spanish clothing store Zara will bolster its number of locations in the country. Brazilian restaurant chain Spoleto is set for an expansion of 15 franchises in five years. Costa Rican eatery Bagelman’s  intends to expand. 

But the trend seems to be toward bringing in more U.S. franchises. The reason seems to be both Costa Rica’s eagerness for foreign investment and an improving U.S. economy that allows U.S. companies to invest in store construction and brand promotion. And Costa Rica’s middle class is a worthy target market. 

“Costa Rica is a good market for many kinds of international brands, including Pollo Tropical,” wrote Marc Mushkin, Pollo Tropical’s senior vice president of international development, in an email. “This is because of a number of factors, including the growing purchasing power of consumers, high levels of international tourism, an educated workforce and good supply chains for most products.”

A large list of U.S. brands has opened stores in Costa Rica in the past year. Carl Jr.’s opened multiple stores near the end of 2011. They’ll try to compete in a burger market that has dozens of McDonald’s (the first-ever Costa Rica franchise was a McDonald’s, which opened in 1979), Burger Kings and Wendy’s. And coming soon: Denver, Colorado’s fast-casual burger chain Smashburger.

Family restaurant Applebee’s inaugurated its second Costa Rican location in the spring, in Sabanilla, east of San José. The chain plans to open two more restaurants in the provinces of Alajuela and Guanacaste by the end of 2014. In November, Applebee’s will be joined by Chili’s, another member of the casual dining brethren that will open in Mall Multiplaza, in the southwestern suburb of Escazú. 

Moe’s Southwestern Grill will introduce Tex-Mex to Central America in June, also in Escazú. Salads and sandwich franchise Cosi’s is christening multiple stores here in 2012 and 2013. That brand has plenty of catching up to do, as sandwich shop Quizno’s opened its 20th location in the country last month. 

On Wednesday, Quizno’s won an eight -year contract to operate the food court at Juan Santamaría International Airport, the busiest airport in the country. With a $4 million investment, QSR International will open another Quizno’s, and a KFC, Smashburger and Teriyaki Experience in the airport food court. Still, Quizno’s has less than half the number of franchises in the country as sandwich king Subway.

Restaurants constitute about a quarter of the foreign franchises in Costa Rica. Clothing stores and hotels each represent another 20 percent. 

In April, Starwood Hotels opened two more lodgings, compounding a market that contains big names like Holiday Inn and Hilton Hotels.

Grupo Roble, the Salvadoran group that owns Mall Multiplaza Escazú, Multiplaza del Este in San José and other projects, closed the Escazú location of Honduran department store Carrión at the beginning of the year. Carrión will be replaced by Tico department store Cemaco and three popular U.S. clothing stores: The Gap, Banana Republic and Forever 21. 

The rest of the U.S. franchises fall under a wide gamut of categories ranging from beauty shops to auto rentals. But those brands are showing less noticeable growth than the biggest areas of food, clothing and hotels.

Bad News for Tico Brands?

The number of Costa Rican chains is increasing alongside foreign companies. But the risk of oversaturating the market rises with each store opening. 

José Andrés Masís, a franchise legal expert, said he believes U.S. brands can survive in Costa Rica because many already are well-known by young Ticos. 

“The No. 1 factor for foreign chains, is the openness of Costa Ricans toward foreign brands, especially U.S. ones,” Masís said.

The relatively strong economy in Costa Rica, compared to the rest of the region, means Costa Ricans are aware of many of the brands that hope to break into the market. Many U.S. brands already have a toehold in the country since locals know products from vacations in the U.S., via the Internet or from television commercials. 

Local malls are providing more spaces for foreign brands. Avenida Escazú, the plaza that will be home to Starbucks by May, keeps growing. In 2013, Costa Rica will see the inauguration of two major complexes: Lincoln Plaza in Moravia, northeast of San José, and Mango Plaza in the northern Alajuela province.

It’s difficult to say if these foreign businesses are taking spaces that would go to Costa Rican brands, or if there is more opportunity for investment. But certainly there’s a demand for more foreign products.

Elsa Rojas, marketing manager of Grupo Roble in Costa Rica, said that’s part of the reason the company wants to bring clothing stores like Gap and Forever 21 to the isthmus. 

“[Consumers] like to touch and to buy things here, like they would in the United States,” Rojas said.

In many instances, Costa Ricans prefer foreign products, which complicates business for national chains, Masís said. He could list only a few items that Costa Ricans took pride in buying local, citing sustainable tourism, fruits and vegetables or coffee. 

Starbucks is one foreign company Masís feels might struggle here. He said, “If Starbucks does not promote Costa Rican coffee, if it does not make it obvious that its product will be Costa Rican, then it’s going to suffer problems, because we are very proud of our coffee.”

However, for products like clothing or shoes, Costa Ricans shrug their shoulders about the item’s origin, Masís said. Their main concern is buying something that’s affordable and fashionable. 

That does not make it impossible for national businesses to best foreign products, and some national brands have succeeded in not only dominating the Costa Rican market, but also expanding outside the country to the rest of Central America. Pops Ice Cream serves as an apotheosis for Costa Rican business owners. The ice cream store even has its own U.S. location in Florida, where it goes by a name that brims national pride, Pops Costa Rica’s Creamery.

Masís said to survive, local retailers need to reassess their focus and emphasize promoting products that are local, cheaper and better than the competition. With the right strategy, Costa Rica can avoid a future where Starbucks and McDonald’s are on every corner. But that will depend on how national business owners approach this surmounting challenge. 

“If Costa Rican businesses cling to old ways, then yes, they could suffer enormous losses in sales, and it’s possible they could disappear,” Masís said. “If they learn how to adjust mindsets, if they learn how to suit themselves to the games of the competition, they’re going to produce better products, because they will toughen up. If they leave their comfort zones what they can do is create tools, create products that can compete directly with foreign chains.”is create tools, create products that can compete directly with foreign chains.”

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