Starbucks Korea posts first quarterly operating loss in 27 years after marketing controversy

A Starbucks store logo in central Seoul. [Herald DB]

Starbucks Korea has posted a quarterly operating loss for the first time in the 27 years since it entered the South Korean market, as fallout from a marketing controversy in May and the cancellation of a summer promotion weighed on earnings.

SCK Company, the operator of Starbucks Korea, disclosed Thursday that second-quarter sales fell 6.1 percent year-on-year to 747.3 billion won ($528 million). Operating profit, which stood at 40.3 billion won in the second quarter of last year, swung to an operating loss of 18.4 billion won — a deterioration of 58.7 billion won over the year.

SCK Company had recorded an operating profit of 29.3 billion won in the first quarter of this year, making the second-quarter swing to a loss all the more stark. It marks the first quarterly operating loss since Starbucks Korea opened its first store at Ewha Womans University in 1999.

The cancellation of the summer e-Frequency promotion was a major factor. Starbucks had been scheduled to launch its summer campaign on June 2. The e-Frequency program rewards customers who purchase a set number of beverages with a free gift. Its absence left a significant gap in second-quarter sales and operating profit.

The erosion in profitability was also evident in the first-half figures. Revenue for the January–June period rose 0.5 percent from a year earlier to 1.57 trillion won, but operating profit was limited to 10.9 billion won — an 85.5 percent drop from the 75.4 billion won recorded in the first half of last year.

Starbucks Korea is now focused on winning back lapsed customers and retaining existing members. The company launched four new summer drinks on June 23, its first new products in 69 days since the spring promotion lineup. Starting July 8, it distributed free beverage coupons — redeemable for an Americano, cafe latte or vanilla cafe latte — along with 30 percent food discount coupons to about 15 million Starbucks members. New members who signed up through July 31 received the same coupons. About 90 percent of the coupons redeemed were used for iced drinks.

"There were impacts including a suspension of marketing activities during the internal reorganization and follow-up process," a Starbucks Korea official said. "We will prioritize rebuilding customer trust through community engagement while expanding differentiated benefits and services."

andy@heraldcorp.com