We recently had the opportunity to interview John Culver, group president of Starbucks (NASDAQ:SBUX) China and Asia Pacific. This exclusive interview appeared previously on our premium investing service Motley Fool One. A full transcript follows the video. 

Enjoy, and Fool on!

TOM GARDNER:

We're here at Starbucks' headquarters in Seattle, Washington with an opportunity to sit down with John Culver, who's the group president for the China-Asia Pacific region. John, you've been at Starbucks for about twelve years ...

JOHN CULVER:

Twelve years, yes ...

TOM GARDNER:

... maybe a little bit more than twelve years.

JOHN CULVER:

Yes. Just this past week was my twelfth anniversary.

TOM GARDNER:

Which coincides, closely ... I think that maybe the first Starbucks stores in the Asia Pacific region were 1998 — somewhere in that ...

JOHN CULVER:

Eighteen years ago in 1996 we opened our first store in the Ginza in Tokyo.

TOM GARDNER:

What has changed? Give us the 50,000-foot fly by on the China-Asia Pacific region. How many units? How many locations are there? How is it spread out in the [crosstalk 00:00:45] countries?

JOHN CULVER:

Well, since our first store opened in the Ginza in 1996 in Tokyo, we now stand in 15 countries across CAP — China and Asia Pacific. We have over 4,000 stores. China's our largest market. We're approaching 1,300 stores in China across 70 cities on the mainland. We're well on our way to our 1,500-store goal by 2015. We built the new markets, such as Vietnam, in the last couple of years, as well as India. [In] Vietnam, we have over 10 stores now. India is well over 50 stores. And the accelerated growth of the region has been remarkable, particularly over the last four years.

I'll take China as an example. Four years ago in China, we had just over 400 stores in 2010. Today we're approaching 1,300 stores. We're opening over 400 stores a year in China alone [and] 750 across the region every year. The consumer acceptance — the customers [and] the way in which they've embraced Starbucks — has just been remarkable.

TOM GARDNER:

What will the percentage breakdown look like if we look forward five years or ten years? In the portfolio that I manage at The Motley Fool, I'm mandated to hold every investment a minimum of five years. We made our first recommendations in Starbucks in the mid to late-1990s. We actually went on a TV show called The View that you maybe have heard of ...

JOHN CULVER:

Oh, yes ...

TOM GARDNER:

... and we selected Starbucks for them. Three weeks later, the stock ... just in the short-term gyrations of the market ... was down more than 25%. The next time we were on The View, we got booed, but we told them we loved Starbucks. The takeaway — we've been recommending it all the way through. It's up 16x in value since 1998.

What do the growth rates look like when we look at China versus Asia Pacific overall? There's 1,300 of 4,000 locations. What might it look like five or ten years from now? We're

not interested in next quarter or next year.

JOHN CULVER:

Well, I think first and foremost, we're taking a very long-term view across the region. Whether it's China. Whether it's the rest of the markets across Asia Pacific. So, it's not just about this quarter. It's about where we're going to be 10 years from now [or] 20 years from now in terms of the stores. In terms of the retail footprint and the business outside of our stores in the grocery channel, as well.

We've had 15 consecutive quarters in the region of 20% or more revenue growth. That has outpaced the company's overall revenue growth during that time, as well. Last quarter was 7% comp growth. All of our comp growth over the last couple of years has been through transactions and that means that we're attracting new consumers into our stores. We're also driving a repeat business into our stores, as well. And more and more, Starbucks is becoming that daily ritual for our customers across the region, which is very similar to what we have here in the U.S. today.

TOM GARDNER:

And the data is showing that there are different experiences being had in stores in the CAP region. For example, more afternoon and evenings than mornings. More time spent in the location. More traffic, but maybe less revenue per visit.

JOHN CULVER:

What we see is the ticket is generally a little bit higher than what we see in the U.S. The reason why is people generally come in, in groups. They come in with their family and their friends and they want to hang out in our stores. As you said, most of our business is done in the afternoon and into the early evening ...

TOM GARDNER:

But 70% of the business in the U.S. is in the morning, right?

JOHN CULVER:

Exactly.

TOM GARDNER:

Why is that what's happening?

JOHN CULVER:

I think it's just the daily habits of the consumers across Asia. The good news is what we're seeing is more and more of that morning ritual is starting to take place in our stores, not only in China, but then across the region. That is really where the growth is going to take off for us. In those existing stores — where we've got that afternoon and evening day part already firmly in place — more and more of that is now going to push into the morning ritual where we have capacity in our stores and that's going to drive growth for us.

TOM GARDNER:

People mistakenly think of China as one entity, but the regions and cultures are broken up and I know that Starbucks has, I think, three different joint ventures in China. How do the dynamics of thinking of China play out in how you structure the business? Maybe walk us through the creation of a single store. How does that happen? How do you choose the location? How do you staff that location? What do you expect from the customer?

JOHN CULVER:

First let me just say that the way we're structured in China, we own 100% of the majority [of our stores in] China. [One hundred percent of the majority of stores are company run.] We have a small piece of Eastern China which is a joint venture with our business partner, Unipresident. For us, really, the growth in China is going to be driven not only through our company-owned stores, but also through our joint venture in East China.

In terms of getting a store opened in China, it can be complex. You have a lot of different local agencies that you have to work through in terms of permitting. You have to make sure that you've got the infrastructure in place from a supply chain standpoint. I think what we're seen is that we've been able to invest in the infrastructure [and] to build these capabilities locally so that we can accelerate the growth.

Where we sat in 2010 with about 400 stores, we now have close to 1,300 stores. We have developed this capability around being able to open stores on a regular basis. We're now opening about one-and-a-half stores a day across China. We've gone from about 30 cities in 2010 to over 70 cities in 2014. We've also made major investments in localizing capability around research and development, around store design, and really building out the talent and the capability in the market. Starbucks China University is a great investment that we've made in developing the capability and capacity of our people.

TOM GARDNER:

What percentage of all stores do you think China will make up five years from now or ten years from now? Do you guys publish those numbers? Do you have a perception of it as one third of all CAP region stores today? What percentage do you think it will move to five years, seven years, [or] ten years from now?

JOHN CULVER:

Well, we won't get into exact percentages, but know that China is outpacing the total growth of CAP and as such, we're opening more stores in China than we're opening in any other market around the world. China will continue to become a bigger piece of the Starbucks enterprise and, as I said, in 2015 China becomes the second-largest market we have outside the U.S. And one can say one day China would rival the size of our U.S. business.

TOM GARDNER:

Which, at that point, you effectively become the CEO of the company and Howard reports to you.

JOHN CULVER:

Well, I think I'm just focused on making sure that we open our stores the right way, making sure that we create great experiences for our customers, and making sure that we've got partners that are passionate [and] that are engaged around Starbucks and who we are as a company.

TOM GARDNER:

Can you tell the "pay it forward" story in China? Mr. Tong ...

JOHN CULVER:

Yes ...

TOM GARDNER:

... the purchase that he made, what it led to, and what those developments mean for Starbucks as it really creates the essence of its brand in the minds of people who haven't been to a Starbucks.

JOHN CULVER:

This is a great story. This is a customer — Mr. Tong — who is a loyal customer. He visits one of our stores in South China. We highlighted him, as a matter of fact, in a recent Partner Family Forum, which I can talk about a little bit later.

The store manager, Vicki, gave him a credit for free syrups and sauces in his drink. He so much appreciated it that he wanted to pay that forward for other customers. He offered to buy the next 500 drinks for customers who came into our store there. It's a great story. That's just one way in which the brand is coming to life across the world.

TOM GARDNER:

And then, as I understand it, it started to ripple out and everybody else got in line and started buying coffee for the person behind them ...

JOHN CULVER:

That's right.

TOM GARDNER:

... and those sort of viral ...

JOHN CULVER:

What happened was the customers would come in and Mr. Tong had paid it forward for all these customers. [The store partners] explained that to the customers, and they actually signed a book that we presented to Mr. Tong on behalf of all the customers that received his pay forward program.

TOM GARDNER:

What type of risks [are there] working with local governments and the Chinese government? What type of challenges are there for you when you think about just the political dynamics? And you could broaden it to other countries. You don't have to focus just on China. But adapting the Starbucks culture to different areas. Trying to maintain the core principles of Starbucks while also meeting the needs of those different cultures and aligning it with what the political structure is in that country.

JOHN CULVER:

I think that what we've seen across all the markets in Asia is that the values and the culture of Starbucks resonates across borders. It really resonates not only with the people who work for us — our partners — but also our customers. And it starts by taking care of each other and doing what's right in terms of providing our people the opportunity to grow as we grow. Doing what's right for the communities that we serve.

Great examples of this are China with our Partner Family Forum. I was in China recently with Howard. We conducted our third Partner Family Forum two years ago. We had one in Beijing. We had one in Shanghai. This time we did it down in Guangzhou. We had over 2,000 partners along with their parents there at this forum. And think of the important role that the parents play in influencing their children in their career choices. We talked to the parents [and] we talked to the partners about the opportunity that they have to grow with Starbucks as we grow. The investments that we're making in them.

It was the partners that were able to take their parents around the displays we had set up to talk very proudly about who Starbucks was, what we're doing to invest in them as partners, and what we're doing to grow them. Those are great examples of how we're taking this culture and the values of our company and nurturing it in a way that's resonating broadly with the people that work for us, but then also into the communities that we serve.

We've talked to the government about these programs, as well, and shared in government meetings what we're doing. They're very much interested in understanding how we, as a company, are showing up in a locally relevant way and doing what's right for our people and taking care of them.

TOM GARDNER:

I remember reading about Coca-Cola in Cuba. I was reading about it maybe 15 years ago. But in the early 1960s, the Cuban government simply said, "We are taking over all the factories. Essentially we're creating 'Cuba-Cola.'" Do you think Starbucks is now [really] ingrained in the Chinese experience?

For example, in the last couple of months, when the media came out and challenged pricing of Starbucks' products, one of the really interesting responses was [through Starbucks customers on social media], saying, "Hey. We can buy somewhere else if we want to. We're getting the choice that we want. We're happy." So, there was a groundswell of support for Starbucks. But that dynamic — just as an investor looking at it — I'm looking for the risks and trying to assess whether or not I need to be worried about that or whether you feel pretty confident about the relationship [crosstalk 00:12:50].

JOHN CULVER:

Well, let's go back to the culture and values of the company. Part of our culture and values is always operating with transparency and honesty, both with our people as well as with our customers and with key stakeholders. I think throughout our history in China — we've been there for 15 years now — we've operated very transparently in a very open and honest fashion.

TOM GARDNER:

You did not come in with a gold rush mentality ...

JOHN CULVER:

We've taken a long-term view. I think what we've done is we've done a very good job of building the right relationships. There are complexities of doing business in China, but we've been able to navigate those complexities by doing things the right way. By taking care of our people. By reinvesting in those communities that we serve.

We've got a great investment that we just announced when we were there a few months ago with the Soong Ching Ling Foundation, which is a program we started in 2006 that develops youth leadership in China. That's just one great example of things that we're doing locally to make sure that we, as a company, give back to the countries where we do business.

TOM GARDNER:

How many employees are there in China now? Or across the whole CAP region? And how many will you be hiring over the next couple of years?

JOHN CULVER:

For us, in CAP, we have a total of over 60,000 partners across the business. We have over 20,000 partners in China. Over the next five years, we anticipate that those numbers will more than double during that time.

I think what's more important is not the number, but the fact that we want to find partners that share the same values that we do as a company. And at the heart of our success — whether it's here in the U.S. or whether it's over there in China or Japan — it's the values of who we are and the experience that we want to create for our partners and for our customers that resonates. Our partners are what's going to make us successful, and we've got to make sure we make the right investments in that area as a company.

TOM GARDNER:

Can you paint the picture of what a location would look like if I were walking into a Shanghai location of Starbucks and how it might be different than if I walked into one in New York City?

JOHN CULVER:

What you'd see is designs that are locally relevant — that fit in with the local architecture. There's a great store in Xiantiandi, which is a high-end shopping area in Shanghai, where we've gone in and we've completely created this environment, this store, and the experience around the local architecture. Yes, there are a lot of Chinese elements to it in terms of look and feel, but when you walk in that store ... whether you're Chinese, whether you're an American tourist or whether you're an expat or whatever ... you know that it's a Starbucks.

You know that it's a [crosstalk 00:15:57] place experience because of the warmth of the people. The fact that you're going to get your beverage made the way you want it. Whether it's in Shanghai or whether it's in New York City, it's going to be that same double-tall latte that you've come to expect every day.

TOM GARDNER:

What are the opportunities for the other Starbucks brands like Teavana? Evolution Fresh? Are there opportunities in the CAP region? Have you planted a few seedlings there?

JOHN CULVER:

Yes. Most definitely, there's huge opportunity, particularly around tea and Teavana. We see a great opportunity to take Teavana and bring that into Asia. We'll do that in due time and we'll make sure that we build the tea business the same way we've built this coffee house culture in Asia.

TOM GARDNER:

Is it possible, ten years from now, in China, that Starbucks will be known for things other than coffee more than coffee? Is that no way?

JOHN CULVER:

I think at our core has always been coffee and who we are and what we stand for as a company — so coffee will continue to be at the forefront — but, at the same time, we're going to continue to expand into other categories, tea being one of them. We also see great opportunity to expand into channels outside of our stores. We've got a very robust business that we're building on our RTD business — our bottled Frappuccino — that we can sell into grocery stores. Sell into convenience stores.

We've got a nice business in Japan. We've got a great business in Korea. We've opened up China this past year. Our RTD business internationally — we operate in about 30 markets across the globe. We're only in half the Starbucks markets that we operate retail stores in. There's tremendous growth opportunity outside of our retail stores — not only in CAP, but across the globe.

TOM GARDNER:

In a way, we've been talking about this at maybe a ground level. Speak to an investor or to the general marketplace of people who might say, "Starbucks — the story is played out. This is a $60 billion market cap. How many companies in this category have grown to be $120 billion or $160 billion market cap? This has been an incredible investment but those growth days are done ...

JOHN CULVER:

It's not done ...

TOM GARDNER:

... and this will be more of a dividend payer and slow-growth, perhaps even market underperformer."

JOHN CULVER:

No. We're going to continue to accelerate the growth. We say we're in the very early days and these are the very early chapters of the Starbucks story. When you look at Starbucks and the runway that we have — not only here in CAP but across the globe — there is tremendous runway to continue to expand our stores, our store footprint, and continue to drive into channels outside of our stores. So, let me just be very clear. These are the very early days. We're going to continue to accelerate growth, and we see tremendous runway and opportunities.

TOM GARDNER:

Let's talk about some other CAP countries because China, obviously, is the natural focus that I would have as an investor. It's the largest group in the CAP group and it's the fastest-growing group, so that, as an investor, catches my attention. But what about India? What about the great story in South Korea? What about Japan?

JOHN CULVER:

Just real quick, [in] Japan we've got just over 1,000. That's our oldest market that we operate in. We see continued, strong growth throughout Japan. We've got a strong business outside of our retail stores with packaged coffee as well as ready-to-drink business.

We have over 600 stores in Korea. Korea is continuing to ramp up growth. We have some of the most beautiful stores throughout the region, particularly in Korea, that the team has done just a tremendous job on.

India is a market that we entered two years ago. We'll celebrate two years in October in India. We have 50 stores there today. India we see, one day, being one of the top five markets that Starbucks operates in across the globe. As I said, a tremendous runway for continued growth.

TOM GARDNER:

What would be a specific challenge you're facing in India right now?

JOHN CULVER:

India is a complex market. You've got infrastructure challenges, particularly around cold supply chain in terms of getting product into the market. You've got continued infrastructure challenges around real estate in finding the right real estate and making sure that the construction standards fall into line.

We've got a great partner there in Tata. Tata has been doing business there for over 100 years. They understand the market. We associated with them not only because they're a company that is truly respected throughout India and around the globe — sharing our same values — but more importantly, the fact that they understand India. It's worked out very well for us.

TOM GARDNER:

John, how do you spend your time on a daily basis? We were talking off camera before in that maybe 60% of your year of work is spent outside the U.S. traveling. Where do you place your emphasis? Your top priorities from one day and one week and one month to the next? Where do they fall?

JOHN CULVER:

I think my biggest priority is our people and making sure that we've got the talent that's going to enable the growth and the continued success of the business. So, I spend a lot of time around making sure that we've got the development in place that's going to fuel the future of the talent pipeline for our business and for the company, as well. The people [are] critically important.

I spend a lot of time in my stores, too. Getting the feel for what's happening with our customers. Getting the feel for what our partners are seeing and experiencing, as well. When I go out in the markets, I like to sit down and do customer roundtables. Really talk to customers one-on-one or in small groups to understand how they're feeling about Starbucks. Things we need to improve. I spend a lot of time in open forums with partners, trying to talk to them and understand from their perspective how we can do things better and how we here, in Seattle, can be of service to them to help them be successful.

TOM GARDNER:

What is one way, [when] you look across CAP, [that you think you can do better]? Not that you're like deeply displeased about it, necessarily, but something where you see room for improvement.

JOHN CULVER:

I think the biggest opportunity we have in CAP beyond continued expansion on the store front is the continued expansion in digital. When you look at the digital platform, it is in the very early stages, particularly in CAP. We want to take a lot of what we're doing here in the U.S. and translate that over into China and throughout Asia.

A great example is we've introduced My Starbucks Rewards in China. We now have over 3 million Starbucks Rewards members and the Starbucks card accounts for over 35% of tender in our China stores.

TOM GARDNER:

You would almost expect to start seeing mobile and digital innovations coming from China this way, because of the very high level of usage there.

JOHN CULVER:

Yes, exactly. What we're doing is we're making the investments in the infrastructure around digital similar to what we've done in R&D. Similar to what we've previously done in terms of store designs. And we're localizing the capability there in the market so that we can bring those ideas not only into the market there, but bring those ideas back here to the U.S., as well.

TOM GARDNER:

I have a few ideas. I want to toss them out. Feel free to shoot them down.

Have you thought about, in the CAP region, having a wait staff that would go out on the floor and offer the refresh drinks given that the data shows people are spending more time seated? Spending time socially. [Starbucks] genuinely has become a serious social gathering place throughout China now.

JOHN CULVER:

It's amazing you bring that up, because we are doing something. [We call it] "second service." That's exactly what's happening. [When] customers are coming into our stores, they're sitting there. They're staying there for long periods of time. We now have our baristas coming out from behind the bar offering to serve them their second beverage or their second food offering. So, great idea.

TOM GARDNER:

I've run this one by a few people at Starbucks, including Troy when we sat down and talked about a year ago. The idea of a mobile app, by Starbucks, that allows you to meet people you don't know at a Starbucks. Oh, it turns out there's a documentary filmmaker who's going for a cup of Starbucks coffee at two o'clock this afternoon in my neighborhood in New York City. Oh. I'll flip over there and meet him for a cup of coffee because he's open to sitting down at a table and talking to anyone who wants to. Those sort of social connections through digital and mobile. Are there opportunities there?

JOHN CULVER:

I think there's huge opportunities in that space. We've done a lot of work around the social platforms in China. Whether it's Weibo. Whether it's through WeChat. We're looking at various partnerships that we can form to do exactly what you're talking about in terms of connecting people together more closely.

We're also looking at how we're going to take the Express Order and Pay that we're going to be testing here in the U.S. and bringing that over to Asia, as well. We feel that there's big opportunities there.

TOM GARDNER:

Last question, last idea from me, and then one final question. Has Starbucks ever thought about investing in entrepreneurs that would be doing things relevant to the CAP business throughout that region? Basically continuing to foster the idea of being entrepreneurial. Coming into Starbucks. Having an opportunity to show off your ideas to the Starbucks leadership team and see if there's something relevant there.

JOHN CULVER:

We do that with our internship program that we invest in every summer. We bring in people from the CAP region to participate in that. Then also what we've done is we've associated with particular thought leaders in China [and] in Japan around ideas and ways in which we can continue to innovate and take to the next level the Starbucks experience.

TOM GARDNER:

John, when we as investors meet somebody like you who's so bought into the business ... you've been here 12 years ... we naturally want to know [if] Starbucks is your home plate for your professional life for the next 15-plus years. That's what we love to find. The data shows that tenure in the leadership ranks of public companies and across employees and across customers and across shareholders — the companies that have the loyalty effect across their stakeholders — are the ones that win. How do you see your time at Starbucks playing out? Can you commit, now, publicly to Howard that you're here to stay?

JOHN CULVER:

I'm here to stay. I bought in 12 years ago coming into this company because I had a belief in what this company stood for. It's a company that aligns with who I am as a person and my values. I love what I do. I feel as though I've got the best job in the entire company. I love the partners that I work with over in CAP. The partners I work with in the channel development team. And I'm passionate about what I do. I feel very fortunate to be here.

TOM GARDNER:

One of the things that we hear again and again as investors, from great companies, is that they focus on the people and the culture. It's not something you see on Wall Street with a quarterly earnings focus. But if you really want to be a great long-term investor, which is where the most money is made by investors, you want to find businesses that are as social as Starbucks is. As committed to people and development in the U.S. and around the world. So, John Culver, thanks so much for spending some time with Fools.

JOHN CULVER:

Thank you very much. I appreciate it.

TOM GARDNER:

Right on!

TOM GARDNER:

Thank you. 

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