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China's Iron Coffee Cup

TAIPEI (TheStreet) -- For years I rooted for the underdogs. I hoped one of the no-name cafes from Beijing's back alleys would come forward with plans to mass market its coffee brewed in glass equipment so elaborate it looked like a science experiment. I wanted the locals to lead Starbucks as the Seattle coffee chain spread through their country.

But by 2014 Starbucks (SBUX) expects China to be its second largest world market after the United States. By the following year the company says it will operate 1,500 stores there, ranging from a few tables in an office building lobby to what it calls an "eclectic chic" 24-hour shop in a fashionable, already 24-hour Beijing nightlife district.

Starbucks once even had a spot at Beijing's imperial Forbidden City tourist landmark. It was asked to leave in 2007, but which of its peers had even gotten in, and who cares anymore? The cafe chain now sits comfortably in the who's who of China's mightiest office towers, trendiest malls and about 1,000 other places around the country.

The reason is, Starbucks isn't just leading a trend. Other offshore coffee such as Lavazza (LAVA) and 85C, just to name a couple of many, also do a hot business in China. But Starbucks has consecrated a uniquely unalterable following by selling itself as high class yet affordable, a combo that appeals to modern urban Chinese consumers. So it has become the meeting place.

Business partners, friends and dates meet in Starbucks because it's relatively private yet they're OK being seen there if someone must look. The place smells energetically of ground coffee, the colors coordinate, the staff keeps things clean and you can usually find a table. Compare that to takeaway-only coffee -- meaning no seats -- or to Chinese restaurants, which are noisily packed during standard meal times and closed between meals. Other cafes are less abundant.

"The real story with Starbucks is not coffee, it is the rise of a well-branded 21st Century social meeting place," says James Berkeley, managing director of the London-based management advisory service Ellice Consulting. "Social is in the sense that visitors can readily communicate physically and virtually with minimal barriers. There are striking parallels with the rise of the Austrian coffee houses in the late 19th and early 20th centuries."

Starbucks showed up in 1999 around the same time as a wave of American fast-food chains such as YUM! Brands' (YUM) KFC and McDonald's (MCD). Chinese consumers saw them as high-end restaurants because of their cleanliness and strong lighting. Younger people with homework, laptops or paramours realized they could command a table for hours on one order of food.

But Starbucks stands out, again, because its customers can get by on just a coffee while avoiding competition for seats with after-school crowds who mob the fast-food chains. So sought after is Starbucks that its challengers have opened knockoffs so real you can tell only through China's inevitable alphabet spelling errors, for example "Starsbuck" and "tarbucks."

"China has a deep coffee culture and tradition and we are humbled by the way customers in China have so warmly and richly embraced the Starbucks brand," says Christina McPherson, an China and Asia-Pacific publicist with the cafe chain.

Starbucks share prices hit an all-time high on Sept. 20 after only taking their only serious dip, during the frosty global economic downturn of late 2008. My money's not on the back alley cafes of Beijing anymore.

At the time of publication the author had no position in any of the stocks mentioned.

Ralph Jennings is on LinkedIn.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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