This summer, I was in Bangkok, the capital city of Thailand. Now that I've moved to the other City of Angels, I'll relate some of my Foolish observations while living there.
Unlike the Motley Fool Global Gains team, which recently took a whirlwindtrip to Asia, I didn't travel to Thailand with the express purpose of investigating local companies. I did a little poking around, but I hit a fair amount of dead ends. The most salient scuttlebutt I have centers on two great American franchises. But first, I'd like to share my search for a hot Thai stock.
Megamalls, bummer banks, and a power play
Thais are really wild about shopping malls, and they have some of the nicest ones I've ever seen. You need a Ferrari? Just drop into the Ferrari store. I thought my hometown mall was fancy because it had a carousel. Now I know not to bring any Thai visitors there. My mall-going scuttlebutt was of limited use for investing because the best mall developers are privately held, like The Mall Group, or do not have tracking stock on a U.S. exchange, like Central Pattana. It did show me that there's a lot of baht flowing around Bangkok, however.
After my mall thesis was mauled, I figured the financial sector was worth a sniff. Banks tend to be a great proxy for investing in overall economic growth. The Global Gains team visited HDFC (NYSE:HDB) in India for this very reason, and I've got an Argentinean bank, Grupo Financiero Galicia (NASDAQ:GGAL) in my Motley Fool CAPS stable as a play on an economic turnaround in land o' tango. Thailand's economic situation is in many ways closer to that of Argentina. The Land of Smiles was ground zero for Asian Contagion a decade ago, and a full-fledged rebound has yet to materialize. Recent troubles include a military coup, increasingly violent democratic rallies, and a botched plan to restrict capital flows. But still, those malls are packed and the luxury high-rises keep rising. The Bangkok-based banks have to be doing all right ... right? Unfortunately, no. Every bank I looked at had scary-high nonperforming loan ratios, of 7% to 10%. Those bad loans are bad news, and the offending banks' shares don't look cheap enough to warrant a turnaround bet today.
My final foray was a look at wholesale power generation. I discovered a company, EGCO, that has been in the merchant power business since the sector was partially privatized 15 years ago. EGCO sports some very fat operating margins compared with American independent power producers like Dynegy (NYSE:DYN), Mirant (NYSE:MIR), and NRG Energy (NYSE:NRG). The Thai government accounts for a good chunk of revenue, which along with country risk may explain the low valuation there. That wouldn't stop me from considering this solid dividend-payer for my portfolio. The deal-breaker is that once again, there are no shares listed here in the U.S. Not even on our dear Pink Sheets. Drat.
OK, so I won't be tipping you off to a Thai ticker. I feel bad about that, really. If it's some consolation, I do feel that I have some useful insight into the on-the-ground reality of two companies whose shares are quite a bit more accessible to American investors.
A tale of two franchises
It didn't take me long to conclude that there is a glut of Starbucks (NYSE:SBUX) in Bangkok. I was able to walk out of my residence and hit three of them in short order. A look at the company website confirms my intuition: 72 stores. So why do I use the word glut? Because every Starbucks I ever visited was nearly empty. The first time, I figured it was just the time of day. But after unscientifically varying my scuttlebutt hours, I consistently found Starbucks locations to be seriously lacking in foot traffic.
Of the meager patronage that did exist, I found that no more than half of the customers were Thai. The rest were American tourists, European expatriates, or East Asian businessmen. Now, the tourist/expat/business traveler dollar -- or baht, rather -- is decidedly a strong niche in a place like Bangkok. But Starbucks isn't a niche business. It's a huge franchise that's supposed to be dominating the retail coffee market the world over.
This led me, of course, to speculate about the apparent failure of the Starbucks brand to entrance throngs of young, upwardly mobile Thais. Let's be clear -- Starbucks is priced way beyond the budget of the average Bangkok resident. Coffee from a street stand costs 20 baht -- less than $0.70. A regular tall coffee at Starbucks went for 70 baht. So price may be an issue, but it's far from the only one.
What struck me most about popular, up-market retail destinations in Thailand was that there was the Western influence, but they still retained Thai elements. Starbucks strike me as carbon copies, regardless of your coordinates. Tom Waits still plays on the stereo system.
Wai bother assimilating?
I think the most striking contrast between Starbucks and McDonald's (NYSE:MCD) was the degree of assimilation. With Starbucks, that degree was essentially zero, save for some Thai script below the English signage. In the case of McDonald's, you're seeing Thai culture reflected before you even walk in the door.
Out front stands Ronald McDonald, giving the wai. This is a polite Thai gesture of greeting, in which you place your palms together and bow. Inside, Thai pop music plays on the speakers. There are fried taro desserts and other regional menu items. The signs are mostly in Thai. And guess what? The McDonald's are full of Thai customers.
Coffee at McDonald's costs the same as it does on the street. But like I said, it's hardly about the price. The two companies obviously don't target the same demographic, after all. But the difference in marketing is truly worlds apart, and with Starbucks, I think that strategy isn't working.
For related Foolishness:
- Quick Take: McDonald's Japan to Take On Starbucks
- Hershey Kisses Starbucks
- Starbucks Forbidden in the Forbidden City
HDFC is a Global Gains recommendation. To check out more of our best international investing ideas, why not take the newsletter for a free 30-day test drive?
Fool contributor Toby Shute is a big fan of Tom Waits. He doesn't own shares in any company mentioned. Starbucks is a Motley Fool Stock Advisor selection. The Fool's disclosure policy is all about assimilating best practices.
