Starbucks has recently been implementing an unusually aggressive discount policy in the Korean market. This approach, which somewhat contradicts the brand image of 'premium coffee,' is assessed by the industry as being rooted in a complex perception of crisis. It appears to be the result of simultaneous pressures from the rapid growth of low-cost coffee brands, slowing sales growth, and burdens from fixed expenses.
According to industry sources on the 16th, Starbucks boasts an unrivaled stature in Korea's coffee franchise market. Last year, Starbucks Korea's revenue exceeded 3 trillion won. However, despite this growth, profitability is rapidly declining. The operating profit margin has halved from over 10% in 2021 to recent levels of around 5%. The sales growth rate has also stagnated, remaining in the single digits (3-5%). The number of stores continues to increase steadily, but efficiency per store is gradually decreasing.
The decline in Starbucks’ profitability is a result of rising expenses, including materials and supplies and labor costs, an increase in fixed costs due to aggressive store expansions, one-time recall costs, and intensified competition with low-cost brands.
Currently, the biggest variable threatening Starbucks is the rapid rise of low-cost coffee brands such as Mega Coffee and Compose Coffee. These brands are rapidly encroaching on the market by offering americanos priced in the 2,000 won range per cup. They are even absorbing some demand from the 2030 generation, which has been a key customer base for Starbucks. The pressure on Starbucks comes not only from simple price competitiveness but also from changes in consumption trends focused on accessibility and value for money.
The domestic low-cost coffee market is growing rapidly, with more than 10,000 stores operating nationwide. This figure has more than tripled compared to 2020. The performance of major low-cost coffee brands is also improving year by year. Mega Coffee reported a revenue of 495.9 billion won and an operating profit of 107.6 billion won last year, marking increases of 34.6% and 55.1%, respectively, compared to the previous year. Last year, Compose Coffee's revenue was 89.7 billion won, a 1.0% increase from the previous year, and its operating profit reached 39.9 billion won, up 8.9%.
Amid these crises, Starbucks has recently introduced time- and condition-specific discount events such as 'One More Coffee' (discount on the second purchase) and 'Evening Events' (evening hour discounts). This strategy aims to boost sales during relatively quiet hours and increase turnover rates. Given the characteristics of its directly operated system, with high proportions of fixed costs such as rent and labor costs, this is analyzed as an inevitable choice for Starbucks.
Starbucks has also recently revamped its rewards program by strengthening the criteria for earning stars and diversifying benefits such as coupons and size upgrades to prevent customer attrition.
However, the market response has been mixed. Some discount events have many limitations on applicable times or menus, leading to criticism that they fall short of actually changing consumer behavior. There are also analyses suggesting that the effects on order counts and time distribution have not met expectations.
A representative from a franchise cafe noted, 'The background of Starbucks’ aggressive discount policy lies in the crisis stemming from the pressures of low-cost coffee brands and the decline in revenue growth,' adding, 'It's clear that the discounts are not merely price reductions, but rather a multi-layered strategy involving customer retention and diversification of revenue by time of day, indicating that the discount war for Starbucks is a survival strategy rather than just an option.'