Starbucks Korea operating loss more than doubles to 45.3 billion won
Quarterly revenue dropped 16.2%, and a relaunched winter rewards programme is aimed at bringing customers back over the holiday season.
- Starbucks Korea's operating loss more than doubled to 45.3 billion won in the third quarter, marking its second consecutive quarterly deficit.
- The company attributed the loss to the suspension of its "e-Frequency" summer rewards program and an overhaul of promotions following a public backlash.
- The backlash and subsequent boycotts were caused by a May tumbler campaign that used language recalling traumatic events in South Korea's democratic history.
- The financial downturn also saw third-quarter revenue fall by 16.2%, a stark contrast to the 60 billion won profit recorded in the same period a year earlier.
Starbucks Korea attributed its weaker third-quarter performance to changes in promotions and a suspended rewards programme, as its operating loss widened to 45.3 billion won (US$33.9 million), marking a second consecutive quarterly deficit.
The company withdrew the summer edition of e-Frequency, scheduled for June, following the backlash against a May tumbler campaign. The flagship scheme normally attracts summer customers by offering merchandise in return for repeated drink purchases.
“The overhaul of promotions and the suspension of e-Frequency weighed on third-quarter sales and earnings,” a Starbucks Korea official said.
The tumbler promotion on May 18 prompted condemnation for language that recalled traumatic events in South Korea’s democratic history. “Tank Day” evoked the tanks used to crush the 1980 Gwangju Uprising, while “Bang on the desk” recalled the police cover-up of activist Park Jong-chul’s 1987 death under torture.
Among the consequences were the dismissal of then-chief executive Son Jeong-hyun and a public apology from Shinsegae Group chair Chung Yong-jin. The chain faced nationwide boycotts and later held history training for staff.
Operator SCK Company recorded its first quarterly loss in the second quarter, at 18.4 billion won. Earnings data released on Wednesday showed that the July–September deficit was about 2.5 times that amount, against a profit of 60 billion won in the same period a year earlier.
Sales for the first nine months totalled 2.24 trillion won, down 5.2%, with third-quarter revenue falling 16.2% to 679 billion won. The network expanded to a record 2,219 stores, with 34 more outlets than in the previous quarter.
Staff reassignments are under way and voluntary severance packages are being considered as Starbucks Korea reorganises its operations to address the slump. The changes began in October alongside a wider group reshuffle.
The Starbucks Korea official pledged to streamline operations and strengthen the product range, adding: “Our key metrics are recovering every month.”
Estimated credit and debit card payments in October rose for a fourth successive month to 125.86 billion won, according to industry tracker IGAWorks. That was 4.2% higher than September, although spending still had not reached its level before the controversy.
In the monthly card-spending rankings, A Twosome Place overtook Starbucks in May for the first time in three years, but Starbucks regained first place in September.
To encourage holiday visits, Starbucks brought back e-Frequency early in the fourth quarter. Its winter edition continues until December 31.
“The decline in sales likely narrowed sharply in September from June, and we see a gradual recovery taking hold,” an analyst at Kyobo Securities said.
“Since this year’s winter e-Frequency runs longer than last year’s, a fourth-quarter rebound in sales looks likely.”
Public sentiment may recover more slowly than the business, which analysts expect to improve by year-end.
Source: The Korea Herald
