Starbucks Knows Europe

 | Jul 01, 2014 | 12:36 PM EDT  | Comments
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mcd

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Anecdotal observations can't make for rigorous investing. But they can provide a spark, a germ of thought, so to speak, that might develop, with research, into ideas that can work over time.

I point that out because I am being asked by many what investing ideas I might have been able to spot when I was touring Vienna, Budapest and Prague last week.

First, and most obvious, there are McDonald's (MCD) and KFC restaurants pretty much everywhere you look in these capitals, but none looks all that busy and most look pretty beaten down. Their ubiquity was matched by their emptiness.

Contrast that with Starbucks (SBUX). Whether it be the jammed Starbucks at the Vienna train station, the fantastic one across from the main church courtyard in Budapest, or the fabulous one outside of the mighty castle in Prague, you are blown away by their drawing power. But none can match the crowd at the Starbucks next to Hotel Sacher on Vienna's main drag. If you don't know the luxury hotel, across the street from the gorgeous opera house, you might have heard of their delicious Sacher Torte, which caused me to put on at least two pounds in three days.

But as I munched on my Sacher Torte on a beautiful sunny Sunday in Vienna, I watched the throng at Starbucks grow larger and larger as the morning went on. There are chairs and tables set up in a divide along a pedestrian boulevard and the Starbucks crowd at times overwhelmed the Sacher crowd. The only difference, from what I could tell, was that there seemed to be more tourists on my side than on the Starbucks side. The locals preferred a Venti.

Of course, that got me inspecting every Starbucks I could find in these wonderful European capitals and in each case it was the same. I listened to a gaggle of schoolgirls in the Vienna train station trying to put together drinks that weren't on the menu and the young man behind the counter seemed to know each of their predilections. You didn't need to speak German to know that the requests showed a fluency in some Italian-American-German-Starbucksian tongue that got the job done.

Frankly, I was floored. I remember growing up watching these fabulous American Express commercials where some hapless American had his wallet stolen in some nameless European city and a solemn Karl Malden intoned in the background, "American Express, don't leave home without it," implying that American Express was your personal embassy when you were robbed.

It got me thinking that with Starbucks you never leave home, because you are never without it.

It also got me thinking that someone at Starbucks knows European real estate better than just about every other company, because there simply wasn't a beautiful tourist spot that didn't have a Starbucks that fit in nicely with the environment.

Is this a reason to buy the stock? No, not in itself. As I said, there was a McDonald's or a KFC everywhere, but that sure didn't make me want to buy those stocks.

But it is a reason to recognize why the price-to-earnings multiple for Starbucks merits a premium to the others, and why, if the stock gets hit, you might think that this company's got a lot more game than even I thought and you just might want to do some buying.

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