Starbucks Korea's losses deepen as boycott fallout lingers

Starbucks Korea fell into the red for a second straight quarter with wider losses in the third quarter, still reeling from the backlash over a May marketing campaign that evoked one of the most tragic chapters in the nation’s democratic history.

According to earnings data released Wednesday, SCK Co., which operates the chain, posted an operating loss of 45.3 billion won ($33.9 million) for the July-September period, reversing a 60 billion won profit a year earlier. The loss amounts to about 2.5 times the company’s first-ever quarterly deficit of 18.4 billion won in the second quarter.

Revenue fell 16.2 percent to 679 billion won, while nine-month sales slid 5.2 percent to 2.24 trillion won, even as the store count rose by 34 from the previous quarter to a record 2,219.

"The overhaul of promotions and the suspension of e-Frequency weighed on third-quarter sales and earnings," a Starbucks Korea official said, referring to the flagship program that rewards repeat drink purchases with merchandise and normally draws summer crowds.

The chain scrapped its summer e-Frequency, slated for June, after its May 18 tumbler promotion backfired. The campaign’s phrases "Tank Day" and "Bang on the desk" provoked swift, bitter condemnation for calling to mind the tanks that crushed the 1980 Gwangju Uprising and the police cover-up of activist Park Jong-chul’s 1987 torture death.

Nationwide boycotts ensued, then-CEO Son Jeong-hyun was dismissed and Shinsegae Group Chair Chung Yong-jin publicly apologized. The chain has since held history training for its staff.

In monthly card spending, Starbucks Korea also ceded ground to A Twosome Place, which overtook it in May for the first time in three years.

Although Starbucks regained its top spot in September, spending has yet to return to its precontroversy level. Estimated credit and debit card payments at the chain reached 125.86 billion won in October, up 4.2 percent from September and the fourth straight monthly gain, according to industry tracker IGAWorks.

Early in the fourth quarter, the company relaunched e-Frequency with a winter edition running through Dec. 31 to revive holiday traffic. Analysts expect the coffee chain’s fortunes to rally by year-end, though the public’s soured sentiment may prove slower to mend.

"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."

Starbucks Korea has also been reorganizing since October in step with a groupwide reshuffle, reassigning some employees and weighing voluntary severance packages, which it described as part of an effort to shake off the slump.

"Our key metrics are recovering every month," the company official said, vowing to run leaner operations and strengthen its product lineup.