Unless you expect to only be paying for a very cheap lunch, it's almost always worth withdrawing local currency, as you'll almost certainly get an awful rate if using foreign money. Even if you're only making a small purchase, most places will probably accept credit and debit cards - that may be your best option, and you won't incur ATM fees that your bank might otherwise charge.

In both Colonia and Foz, virtually all retailers will take cards, unless you're talking about a newsstand or tiny little neighborhood cafe. Both cities are hugely focused on tourists, and in any event card use among locals is pretty well entrenched.