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Why Starbucks Still Has a Long Growth Runway in Asia

By Jeremy Bowman and Jason Hall – Sep 25, 2021 at 8:00AM

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Here's Starbucks' secret sauce in China.

Few American consumer brands have developed the kind of following that Starbucks (SBUX -1.69%) has in China. The coffee giant is opening 500 stores a year in China and is expanding in other markets in the region like Southeast Asia.

In this episode of The Five, recorded on Sept. 1, Fool contributors Jeremy Bowman and Jason Hall dig into Starbucks' growth drivers and explain why it remains a top hospitality stock

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Jason Hall: This is a good one. Let's talk about this one here. Jeremy, I think you'll like talking about this too, it's Starbucks. Robin says, "Starbucks in China, visited a few years ago, was the only commercial store in the Forbidden City in Beijing." It was Starbucks, which is just hilarious. Amazing, how did they do that? But what I want to talk about, Jeremy, maybe not that specific thing, but thinking about Starbucks and its opportunity in all of Southeast Asia, really.

Jeremy Bowman: Yeah. I mean, as a brand that it resonated really well in China. I haven't been to China, so never been to Starbucks in China so I can't say how the experience is like there, but I think they have this somewhat premium brand. It's an affordable luxury or conspicuous consumption, there a lot of different ways you can think about it. But they've really carved that out in the cafe space and they do it really well. I remember Luckin Coffee. We now know it turned out to be a fraud, but there was a fear that they were going to displace Starbucks in China and management was like, we're the premium brand in basically all of our markets and we have lower-priced competitors, Luckin, 7/11. or whatever you have. But that's going to be a different part of the market. I think Starbucks has done that really well. Nobody else is doing anything like that in China. I mean, even coffee itself is a new thing when you think about it, China being a traditionally tea-drinking country. Besides, it's been a great market for them. I think like you said, with Southeast Asia and other parts of Asia as well. They've done well in Japan and Korea and I think there is definitely more room for expansion.

Jason Hall: My favorite low-key, deep troll in an earnings call in the past couple of years was Starbucks's CEO talking about the competitive market in China. Basically said, I want them just to give away coffee because that means more of their customers will come get good coffee from us. I mean, that's basically what their CEO said. Maybe it was their operating officer at the time, I can't remember. But I'd just love that, man, that's a dig right there. That was a dig and it was a good dig too. That was pretty funny.

Jeremy Bowman owns shares of Starbucks. The Motley Fool owns shares of and recommends Luckin Coffee Inc. and Starbucks. The Motley Fool recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

Stocks Mentioned

Starbucks Stock Quote
$101.80 (-1.69%) $-1.75
Luckin Coffee Stock Quote
Luckin Coffee
$22.02 (2.80%) $0.60

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