Synergy Effect of Online and Offline Linked Distribution Network
Strengthening Group-Level Marketing Utilizing Starbucks
[Asia Economy Reporter Yuri Kim] Shinsegae Group is considering acquiring the entire stake in Starbucks Korea.
◆ "Considering 100% Acquisition of Starbucks Stake"
According to industry sources on the 22nd, Shinsegae Group is reviewing a plan to purchase the remaining 50% stake held by Starbucks Corporation in the U.S. to make Starbucks Korea a wholly owned subsidiary of E-Mart. A Shinsegae Group official stated, "Nothing has been decided yet, but we are examining the acquisition from multiple angles."
Starbucks Korea was established in 1997 as a joint venture with a 50-50 investment by Starbucks Coffee International and E-Mart. It is well known that Vice Chairman Chung Yong-jin of Shinsegae Group introduced Starbucks to Korea after experiencing it during his studies in the U.S. After opening the first domestic store in front of Ewha Womans University in July 1999, the number of stores expanded to 1,508 as of December last year, an increase of 130 stores compared to the previous year. It holds an overwhelming market share as the number one coffee specialty chain in Korea.
Despite the offline retail impact caused by COVID-19, Starbucks Korea has maintained steady sales growth. Sales grew from 241.6 billion KRW in 2010 to 1.2635 trillion KRW in 2017, and continued rapid growth to reach 1.9284 trillion KRW last year. Operating profit reached 164.4 billion KRW.
◆ Utilizing Starbucks for Group-wide Marketing
The reason Shinsegae Group is pushing to acquire the remaining Starbucks stake is their goal to become the "strongest commerce player breaking down the boundaries between online and offline." Following a 250 billion KRW equity swap with Naver, Shinsegae Group has also been named as a candidate to acquire eBay Korea and Yogiyo. Particular attention is focused on strengthening online and offline distribution networks linked with Starbucks. Shinsegae Group has expanded its business by placing Starbucks in E-Mart, Shinsegae Department Store, Starfield, and SSG.com. Shinsegae Food's sales through Starbucks last year amounted to 135 billion KRW, about 10.9% of its total sales of 1.2403 trillion KRW. Expanding sales of popular Starbucks MD products on SSG.com can attract consumers to that channel, and it also becomes easier to conduct promotions for Shinsegae Group companies through Starbucks.
Even if the entire stake is acquired, a 5% royalty must be paid, but the "dividend effect" will increase, which is expected to positively impact E-Mart's profits. Last year, Starbucks Korea paid dividends of 30 billion KRW each to E-Mart and Starbucks Coffee International. Park Jong-dae, a researcher at Hana Financial Investment, said, "E-Mart's pre-tax profits in 2019 and 2020 are estimated at about 180 billion KRW and 300 billion KRW respectively, with Starbucks equity method income accounting for 37% and 22%. If the stake acquisition leads to consolidated financial statements, an additional operating profit of around 200 billion KRW will be added, which will positively affect E-Mart's performance."
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