Coffee chain on track for record sales of W3tr; Korea boasts higher Starbucks store density than US or China
In the capital of South Korea, where Starbucks' green glow beckons from what can seem like nearly every corner, the brand is deeply embedded in the local coffee scene -- and the lifestyle that brews with it.
Through the whirlwind of Korea's ever-shifting coffee economy, Starbucks Korea has not just survived but dominated, with both sales and store numbers steadily climbing.
One might raise an eyebrow at how this chain, originally from the US, has managed to root itself so deeply in Korea -- robust enough to weather rivalries continually mushrooming across the nation.
Green domination
What started as a 50-50 venture between Korea's E-Mart and Starbucks International in 1997 planted its first flag near Ewha Womans University in Seoul two years later.
Since then, Starbucks Korea has been seemingly unstoppable, growing into the brand's third-largest stronghold in the world with 2,009 outlets here as of January. It boasts more stores per capita in Korea than in both the US (17,049 stores) and China (7,685 stores).
While Starbucks International's divestment of its 50 percent stake in 2021 marked a significant shift in management control of the Korean venture, with E-Mart controlling 67.5 percent and Singapore's Government Investment Corporation holding the remaining 32.5 percent, the company's growth has continued unabated.
As E-Mart's most profitable subsidiary, Starbucks Korea -- rebraded as SCK Company in 2021 -- stands in contrast to struggling units like G-Market and SSG.com, which reported losses in the third quarter of last year. During this period, SCK generated 66.4 billion won in operating profit, making a big contribution to E-Mart's total operating profit of 111.7 billion won for the quarter.
Industry insiders predict that the coffee chain is on the brink of hitting record-high sales figures -- reaching the 3 trillion won ($2.04 billion) mark that it narrowly missed in 2023 with 2.92 trillion won. After hitting 1 trillion won in sales in 2016, Starbucks Korea doubled that figure to 2 trillion won by 2021.
If achieved as predicted -- a groundbreaking feat for a coffee chain -- it would elevate the firm’s status to be on par with major food companies such as Nongshim and CJ Cheiljedang.
In contrast, other coffee chains lag far behind. The runner-up, Twosome Place, recorded 480 billion won in sales in 2023, while Mega Coffee ranked third with 368.4 billion won.
Inha University consumer science professor Lee Eun-hee attributes the brand's success to an interplay of brand image, strategic accessibility and marketing initiatives.
"Starbucks has evolved beyond a coffee shop to become a social hub and personal space, supported by its spacious stores and prime locations," Lee explained, suggesting that its entrenched leadership in the field is unlikely to be dragged down anytime soon.
"The brand maintains its appeal through balanced pricing while cultivating customer loyalty through targeted programs and events," she added.
Storm to ride out
The market leader, meanwhile, is living proof of Shakespeare's words from King Henry IV: "Uneasy lies the head that wears a crown."
For all of its highest operating profit of around 140 billion won in 2023, the company has seen a decline in its profit ratio, which stands at 4.8 percent -- down from 10.1 percent in 2021.
This profit ratio contrasts sharply with those of budget-friendly competitors like Compose Coffee and Mega Coffee, which reported much higher margins at 41.3 percent and 18.8 percent in 2023, respectively.
Multiple factors are squeezing operating profits, according to a Starbucks Korea official who requested anonymity, from global economic pressures such as rising coffee bean costs and the depreciation of the won to domestic challenges including mounting labor and rental expenses, according to them.
“In fact, we did see operating profits increase in the first three quarters of last year compared to the previous year," the official noted.
Starbucks Korea implemented another price hike in January -- raising the prices of 22 beverages by 100 to 300 won, including the tall Americano to 4,700 won -- following last year's August increase of 300 to 600 won for Grande and Venti sizes and November's 200 won bump for tall iced noncoffee drinks.
Intensifying competition here poses an additional challenge to the company.
Its presence, for instance, is threatened by Mega Coffee, which boasts the largest store count in the country at 3,038 locations as of June last year and has been rapidly gobbling up market share with its affordable coffee choices.
Other coffee chain brands from abroad, such as Blue Bottle Coffee and Tim Hortons, are also sharpening their blades, making use of their brand value in North America to carve out space in the Korean market.
Membership at the core
Despite these unfavorable conditions described by the official, Starbucks Korea continues to hold its ground by improving customer experience and balancing customer acquisition and retention.
In recent years, the company has revamped its mobile app experience with user-enhanced features like quick ordering, preorder cancellations and partial gift card redemption.
The company also elevates the coffee experience through its spatial storytelling, crafting each store as a photogenic destination imbued with cultural and historical significance -- a design philosophy showcased in a company magazine celebrating 60 distinctive stores nationwide.
This vision comes to life in locations like the Daegu Jongro Gotaek store, housed in a restored century-old hanok, and Seoul's Kyungdong 1960 store, a former theater transformed into a retro-themed cafe.
These efforts seem to have yielded results, with the company totaling over 13 million members as of September last year, less than two years after surpassing the 10 million mark.
In addition to reeling in new members, Starbucks prioritizes building customer loyalty.
As the company official put it, Starbucks Korea seeks to reward loyal customers further through personalized experiences such as the enhanced membership program unveiled last May, which benefits coffee enthusiasts by offering a complimentary Americano or cafe latte every eight stars instead of 12.
Last October saw the introduction of the Buddy Pass, a 7,900 won monthly subscription designed for frequent patrons, which offers a 30 percent daily beverage discount after 2 p.m., complemented by monthly food discounts and delivery privileges.
The initiative proved its immediate impact, with subscriber purchase frequency surging 72 percent in November compared to prelaunch figures in September.
"Our long-term vision centers on deepening customer loyalty through sustained engagement," the official explained, adding that their market leadership strategy continues to prioritize customer satisfaction.
By No Kyung-min (minmin@heraldcorp.com)
