Travelogue

Argentina

Argentina is one of our favorite South American countries to visit given its historical influence on the continent, its old European flavor, and the welcoming nature of its people and their Southern (Hemisphere) hospitality.  Argentina was one of the world’s wealthiest nations at the beginning of the 20th century thanks to its significant agricultural and mineral resources, and it remains one of the continent’s most highly educated populations.  Sadly, the country has largely squandered these advantages because of long-lasting political and economic instability.  Argentina boasted the highest per capita GDP in South America as recently as 2001, although it has now fallen behind a number of countries (e.g., Chile) while others have closed the gap significantly (e.g., Peru).  The country has low and recently falling scores for economic freedom, which is a trend it must remedy to again realize its potential.

We have spent extended time in both Buenos Aires and the northern region of the country – a popular destination for bird hunters but not usually for equity researchers.  Arca Continental‘s 2008 purchase of the bottler in northern Argentina, which was the company’s first (but not last) South American operating territory, took us to the region.  We had a clear understanding of Arca’s competitive advantages in Mexico, and we wanted to see and understand first-hand if management could dig a similarly deep moat outside of their home territory.

Mom-and-pop “informal” retail outlets had a strong presence in the region, although formal retail channels (e.g. larger grocery stores, hypermarkets) on balance have a larger presence in Argentina than in Mexico.  Within the smaller shops, Coke product inventory was far superior and the displays and coolers were likely to be Coke-centric.

Single-serving Coke promotion in a mom-and-pop store in Salta, which is up against the Andes mountains in northern Argentina.
A Coke promotion is prominently displayed next to this store’s signage.
Dowe and Arca’s local operational team visit with the owner of this shop near Salta.
Coolers are high return investments as the availability of cold products (of various sizes/SKUs) drives significantly higher sales.
This storefront was one of the few large Pepsi advertisements in the region.
This smaller market shop was located in a lower middle class section of town.

In addition to our store visits across Arca’s distribution footprint, we visited the company’s bottling plant in Salta and distribution center in San Miguel de Tucumán, which is three or four hours south of Salta.  The products move so fast through the Tucumán facility that it is open-air and does not need climate control.

This warehouse is open-air because Arca is turning inventory and getting product to market so quickly.
These gates may be the most “on brand” of any we have seen across dozens of facility visits globally.
These workers are inspecting reusable bottles that have been returned in and around Salta.

Wal-Mart’s Offering in Argentina

Changomas is an Argentine retailer owned by Wal-Mart.  We have visited several while in the country and found that the format is very similar to Bodega stores in Mexico, which were also owned by the Bentonville-based retailer.  While consumers frequent the numerous mom-and-pop stores throughout Argentina, they will turn to Changomas for larger quantities of food, house supplies, and even appliances.  These stores are placed strategically around public transportation systems to enable easy access for residents.

The tagline at the front of the store “Pagas Menos, Llevas Mas” roughly translates to “Pay Less, Carry More.”  This branding is consistent to the messaging that Wal-Mart customers receive around the world.
This advertisement reminds customers that “You can pay with a credit card.”  This reminded us of Bodega’s “official” spokeswoman, Mamma Lucia.

Retail & Restaurants in Buenos Aires

McDonald’s positioning with the South American consumer is generally different than with consumers in the U.S.  On the continent, McDonald’s is a higher-end brand and experience, and a much larger share of customers dine-in rather than going through a drive-through.  This customer behavior allows McDonald’s to cross-sell more coffee and dessert for enjoyment after the main meal, and many restaurants have waitstaff that services the dining room to support this higher-margin effort.  We have visited a number of different locations in Argentina, Chile, and Brazil, and while in Buenos Aires we met with the management team of the largest franchisee in South America.

This Buenos Aires location’s nicer finishes and technology stations reflect the higher-end positioning McDonald’s enjoys in South America.
Richard by a Patagonia display in a large Buenos Aires grocery store. Anheuser-Busch InBev owns the brand, and it also uses the brand for a chain of bars/cafes. This is an example of ABI vertically integrating the value chain from production to distribution to retail/restaurant.
True to the European influence on the city, Buenos Aires has a fantastic café culture that we greatly enjoy. This Coca-Cola branded café is near the city center.
Near the café is the iconic Buenos Aires obelisk. It was erected in 1936 to commemorate the quadricentennial of the first foundation of the city.

Soccer at La Bombenera

While in Buenos Aires on a beautiful Saturday night during the South American spring, we were able to attend a game hosted by Boca Juniors, which is generally considered the most successful club in Argentine professional futbol.  The club’s stadium, Estadio Alberto J. Armando, is popularly known as La Bombonera (“the Candy Box”) due to its shape and colors; it is located in La Boca – an industrial, gritty section of the city adjacent to a shipyard.

We have been fortunate to spend many Saturdays in the fall at Bryant Denny Stadium in Tuscaloosa watching Alabama football, and the environment in La Bombonera was similarly (if not more) electric.  Our experience suggests that understanding important sports in a country/region often reveals something about its people – whether it is football in Alabama or futbol in Argentina.

La Bombonera was loud and fun on this Saturday night. The most die-hard supporters sat across the stadium from these seats, which meant we had a great spot to hear the chants and songs that originated from that section throughout the night.