The Korean unit of Starbucks (NASDAQ:SBUX), operated by the Shinsegae Group, is experiencing a significant sales decline due to a controversial marketing campaign that has sparked public outrage.
The contentious marketing campaign coincided with the anniversary of the May 18 Gwangju Uprising, a brutal military crackdown on pro-democracy protesters in 1980. This has led to widespread criticism and backlash against Shinsegae and SCK Company, over the ‘Tank Day’ tumbler campaign, reported Yonhap News on Tuesday.
Shinsegae runs Starbucks Korea through SCK Company, which is majority-owned by E-Mart with a 67.5% stake, while Singapore’s sovereign wealth fund GIC owns the remaining 32.5%, according to a company filing.
Shinsegae Group chairman Chung Yong-jin publicly apologized on Tuesday. He said the company’s inappropriate marketing campaign upset many people and that the company accepted full responsibility for the controversy.
The Aftermath
Following the marketing controversy, a Shinsegae official confirmed a sharp drop in sales. The company is conducting an internal investigation to ascertain if there was any premeditation or intentional misconduct by management or employees.
Shinsegae last week dismissed the head of Starbucks Korea after apologizing for the controversial campaign. The incident has revealed glaring deficiencies in Starbucks Korea’s risk management framework, as admitted by the company.
According to data firm WISEAPP, Starbucks was the leading food and beverage chain in South Korea by estimated customer count in the six months through February. Starbucks’ U.S. headquarters was reportedly kept informed about the seriousness of the situation and received updates on both the investigation and the company’s response. Starbucks Global also issued an apology and said it had launched an investigation.
Starbucks Pushes Turnaround Plan
This incident comes at a time when Starbucks, which generates 74% its revenue from North America, followed by 21% from international markets and 5% from channel development, has been undergoing a restructuring process.
Earlier this month, the company announced the “Back to Starbucks” turnaround plan, which included eliminating 300 U.S. corporate roles across marketing, human resources, and supply chain, as well as regional office closures in Atlanta, Chicago, and Dallas. The company expects about $400 million in restructuring charges, including roughly $120 million for employee separation benefits.
At the same time, TD Cowen upgraded the company to Buy and set a $120 target, as the company leaned into the turnaround narrative following its quarterly beat and improving store traffic.
SBUX Price Action: On a year-to-date basis, Starbucks stock surged 22.79%, as per Benzinga Pro. On Friday, it fell 0.98% to close at $103.11.
Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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