[Exclusive] Starbucks Store Landlords Sue Headquarters Over "Omitted Sales Losses"

Landlords: "Buddy Pass and Partner Card Discounts Should Be Included in Store Sales"
Starbucks: "Part of Efforts to Boost Sales... Partner Card Discounts Are Reflected"

Landlords who have leased their properties to Starbucks stores have filed a lawsuit, claiming that Starbucks headquarters intentionally omitted sales figures that serve as the basis for calculating monthly rent, resulting in financial losses for the landlords.

These landlords invested anywhere from hundreds of millions to several billions of won to set up facilities that meet Starbucks’ required specifications, leased their properties to the company, and agreed to receive rent (commission fees) as a fixed percentage of sales rather than a flat rate. They allege that Starbucks violated its contractual obligation to make efforts to increase sales and intentionally understated sales figures.

A Starbucks store in downtown Seoul.

According to the legal community on May 12, 37 Starbucks store landlords, including an individual identified as Shin, have filed a lawsuit with the Seoul Central District Court against Starbucks operator SCK Company, seeking 14 million won in commission fees per person. In their complaint, they stated their intention to increase the claim amount at a later date.

The plaintiffs argue that discounts provided through the paid subscription service "Buddy Pass," which was launched in October of last year, as well as free coupons offered through promotions in partnership with credit card companies, should be included in the store’s sales figures used to calculate rent. However, these were excluded, resulting in losses for the landlords.

For example, if a customer who has subscribed to the Buddy Pass receives a 30% discount and purchases 10,000 won worth of coffee and food at the store, the store’s sales should be recorded as the pre-discount amount of 10,000 won. However, Starbucks recorded only 7,000 won, omitting 3,000 won from the sales calculation. The plaintiffs also questioned why the subscription fees from the Buddy Pass and partnership commissions from credit card companies are retained by headquarters, but are excluded from store sales, resulting in lower rent payments to landlords.

Starbucks 'Buddy Pass' Official Program Launch Image. Provided by SCK Company.

All of the approximately 2,000 Starbucks stores nationwide are directly operated by headquarters, and each store pays about 10% to 16% of its net sales as rent. According to the Starbucks lease agreement, the "net sales" used as the basis for calculating rent is the "gross sales" generated at each store minus the following: value-added tax (VAT), partner (employee) discounts, and discounts from free coupons.

The plaintiffs also assert that sales generated from free beverage coupons provided to members of the "Shinsegae Universe Club"?a membership program implemented in partnership with Shinsegae Group affiliates since June 2022?should likewise be included in each store’s net sales.

Lee, a landlord of a Starbucks Drive-Thru (DT) store, stated, "At the time of the contract, Starbucks specified that only 'employee discounts and free coupons' would be excluded from rent settlement. However, in actual operations, various promotions have been implemented that benefit only headquarters and are not reflected in the sales of leased stores. Additionally, a structural problem has emerged where discount benefits, originally intended for Starbucks employees, have been extended to employees of affiliated companies under the guise of employee welfare."

This lawsuit is being handled by Lee Inseok, the managing attorney at YK Law Firm, and attorney Hyun Minseok, also of YK Law Firm. Attorney Hyun stated, "With subscription-based services, the goods are provided within the leased store, but payment is often made outside the store. Even if payment is made outside the leased store, under accounting standards, sales should be recognized at the point when the goods are provided. Therefore, Starbucks’ business practices do not align with standard accounting procedures."

In contrast, Starbucks responded, "We determine the lease agreement and commission rate through sufficient consultation before store openings, and in accordance with the contract, we provide a settlement report that transparently details daily and monthly sales figures."

Regarding the Buddy Pass, Starbucks stated, "A comparison of customer purchasing patterns before and after subscribing to Buddy Pass shows an increase in both visit frequency and purchase amounts, which has a positive impact on store rent. Although we cannot disclose specific numbers, the number of subscribers and the subscription fees are not significant." They added, "While rent for individual stores may fluctuate due to changes in commercial areas or economic conditions, we regret that a lawsuit has been filed that undermines our efforts to increase sales and the trust we have built, especially under challenging circumstances."

The court’s ruling on this lawsuit could set a precedent for how store sales are calculated in cases involving various types of prepaid transactions?such as app-based recharge transactions and gift cards?as well as discount transactions conducted through credit card companies or telecommunications providers. The outcome is drawing significant attention.

*Buddy Pass

Starbucks' first paid subscription service, introduced in October 2024. Initially piloted with a monthly prepaid subscription fee of 9,900 won, it became an official program with the fee reduced to 7,900 won from December 2, 2024. Subscribers receive one 30% discount coupon for handcrafted beverages usable after 2 p.m. daily, one 30% discount coupon for food, one free Delivers delivery coupon, and two free online store shipping coupons.