American Coffee Shops Are Far Out in the Far Easthttp://www.fool.com/investing/general/2014/04/04/american-coffee-shops-are-far-out-in-the-far-east.aspx Dan Moskowitz
April 4, 2014
Have you ever traveled on a city bus in South Korea? If the answer happens to be yes, then you might have enjoyed the strong scent of Dunkin' Donuts while en route to your destination.
No, Dunkin' Donuts hasn't opened tiny stores on city buses in South Korea. However, it does use machines to spray its coffee scent on city buses, and many of those buses happen to stop near Dunkin' Donuts restaurants.
This is only one of many ways in which Dunkin' Brands (NASDAQ: DNKN) is establishing its presence in a country where coffee is now so popular -- having surpassed the popularity of tea -- that the government has considered limiting the amount of coffee shops allowed to be in operation. But it gets even more interesting.
Yes, "a few hours." Dunkin' Donuts in South Korea is nothing like Dunkin' Donuts in the United States. In South Korea, customers visit primarily in the late afternoon and at night, and they stay for a few hours. Going to get coffee is a social event that people enjoy after work, whereas in the United States, most people visit Dunkin' Donuts for a few minutes to retrieve their morning coffee.
Due to this difference in consumer habits, Dunkin' Donuts restaurants in South Korea don't have drive-thrus. Another difference is that South Korean consumers are allowed to remove the doughnuts from the shelves themselves, which Dunkin' Donuts says increases the likelihood of customers taking more than one.
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If you're wondering about the role of Starbucks (NASDAQ: SBUX) in South Korea, you might be surprised.
A different atmosphere
If you walk into a Dunkin' Donuts restaurant in Seoul in the late afternoon or evening, you'll likely find scores of young people socializing, providing the restaurant with an enjoyable buzz. If you walk into a Starbucks restaurant in Seoul, you'll likely find an older, wealthier, and quieter crowd enjoying the soothing music in the background.
Dunkin' Donuts might be the hip American coffee shop in South Korea, and this is currently the company's largest international market, but the real future growth potential for Dunkin' Donuts and Starbucks is found in China.
A race to the Chinese consumer
McDonald's has just shy of 2,000 locations in China. For fiscal-year 2013, comps slid 3.6% in China. However, this was primarily due to customer fear surrounding the avian flu, not customer dissatisfaction.
McDonald's plans on innovating to help drive growth in its entire APMEA segment, with increased menu variety, convenience, and affordability. But considering China doubled its imports of coffee since 2010, and since barista academies are beginning to open up there, McDonald's might want to focus on coffee. South Korea's population is just 50 million, whereas China has a population of 1.4 billion. If a caffeine crush took