Starbucks Korea Boycott: Why a $2B Business Deal is at Risk

Translation resultShinsegae moves to block risks early as Starbucks fallout spreadsA political clash and a growing consumer boycott over Starbucks Korea’s “Tank Day” marketing have raised concerns that the controversy could spread across the Shinsegae Group. Jung Yong-jin, chairman of Shinsegae Group, will appear on May 26 to deliver a public apology and is expected to unveil the group’s own internal investigation — a step observers see as an effort to contain the “Starbucks risk” before it ripples through the conglomerate.According to audit reports filed May 25 by Emart and SCK Company (Starbucks Korea), Starbucks Korea purchased 213.5 billion KRW (about USD 160.1 million) in raw materials and merchandise from Shinsegae Food last year. Those supplies included bakery items and other food and beverage products sold at Starbucks stores. Roughly 17% of Shinsegae Food’s consolidated revenue of about 1.23 trillion KRW (about USD 922.5 million) last year came from transactions with Starbucks Korea. Among Shinsegae Food’s related-party sales of about 547 billion KRW (about USD 410.3 million), nearly 40% came from Starbucks — underscoring the unit’s heavy reliance on the coffee chain.Shinsegae Group’s IT arm, Shinsegae I&C, reported about 25.7 billion KRW (about USD 19.3 million) in transactions with Starbucks Korea last year. Those contracts covered the development and operation of IT infrastructure for Starbucks’ mobile ordering service, “Siren Order,” and customer response systems. Other purchases involving Starbucks Korea amounted to roughly 41.5 billion KRW (about USD 31.1 million). Shinsegae I&C posted consolidated sales of about 687.2 billion KRW (about USD 515.4 million) last year. Starbucks Korea also recorded transactions of about 4.6 billion KRW (about USD 3.5 million) with SSG.com and about 4.4 billion KRW (about USD 3.3 million) with Shinsegae Property.Most notably, Starbucks has been a key cash cow for Emart, the largest shareholder in Shinsegae Group. Starbucks Korea paid total dividends of 106.2 billion KRW (about USD 79.7 million) last year. Applying Emart’s 67.5% stake, Emart received roughly 71.6 billion KRW (about USD 53.7 million) in dividends. That means Starbucks accounted for about 54% of Emart’s separate-basis dividend income of roughly 133.2 billion KRW (about USD 99.9 million) from affiliates last year. Emart’s other purchases from Starbucks Korea amounted to about 11.3 billion KRW (about USD 8.5 million).Shinsegae’s planned Grand Starfield Gwangju development, a project with an estimated investment of around 3 trillion KRW (about USD 2.25 billion), could also be jeopardized. Groups associated with the May 18 Gwangju movement are demanding that Shinsegae withdraw all its project plans in the city.Industry observers warn that if Starbucks Korea’s growth stalls or reverses, other group affiliates could suffer a domino effect. Internal transactions between affiliates would likely shrink, and the group’s major funding source — dividend income — could decline. Emart itself warned in a recent filing that changes in public opinion could negatively affect consumer perception, brand reputation, stakeholder relationships, operating results, and future business operations.The political escalation adds to worries that the issue could be prolonged. Lee Jae-myung has directed sharp criticism at Starbucks, and the Democratic Party has called for a boycott. On May 25, Jang Dong-hyuk, standing campaign committee member of the People Power Party, accused political actors of trying to redirect public anger over Lee Jae-myung’s trial toward Starbucks, calling it a “people’s trial for local elections.”Against that backdrop, Jung will make his first public appearance since the controversy to issue a public apology on May 26 at the Chosun Palace Hotel in Gangnam, Seoul. He will also release the results of Shinsegae Group’s internal fact-finding investigation at the event.