Acquisition costs and product recall hamper Starbucks’ profitability in South Korea

E-Mart acquired a majority stake in Starbucks’ South Korean business in January 2022 | Photo credit: Starbucks

E-Mart has reported record sales in 2022 but said the lower-than expected profitability of Starbucks Korea led to a fall in group profits. 
 

The retail giant acquired a majority stake in Starbucks’ South Korean business in January 2022, adding a 17.5% stake to its existing 50% share at a reported cost of $411m. 

E-Mart, managed by South Korean retail giant Shinsegae Group, is the largest discount store chain in South Korea and has substantial interests in the country's retail, food & beverages, hotel and construction industries. 

The company achieved 17% sales growth in 2022 to reach WON 29.3trn ($23bn) but said operating profit fell 54.2% to WON 145bn ($111m). 

A statement from E-Mart said the decline in operating profit resulted from acquiring its majority stake in Starbucks Korea, the purchase of online fashion retailer Gmarket Inc. and ‘worsened profitability from the strong dollar'. 

E-Mart said Starbucks Korea generated WON 19.4bn ($15m) operating profit in its fourth quarter, substantially less-than-expected due to a carry bag recall.  

The retail giant incurred costs of approximately WON 43.6bn ($33.6m) last year due to a product recall of promotional tote bags found to be tainted with formaldehyde, a known carcinogen.   

The bags were given for free to customers who purchased 17 Starbucks beverages between 10 May and 11 July 2022. The following month Starbucks Korea announced a major product recall of more than a million bags.   

In October 2022 Starbucks Korea appointed Son Jung-hyun as its new CEO in an attempt to draw a line under the incident and strengthen its position in the country.