Starbucks Korea: Brewing Success

I can't resist commenting on Starbucks. Other than spending hours a day working out of a Starbucks in La Jolla ( or Seoul), I follow the coffee maker's success in Korea.  One reason for their success is that Starbucks is a status icon.  This article provides more insights.

 

Starbucks Enlarging Korean Footprint

Is it another American icon falling victim to the slow economy or just a tweak in its business plan to improve the bottom line?

The answer so far is a combination of both. Following the reports of staggering sales amid an economic hard time gripping the U.S., Starbucks announced Wednesday a major rationalization plan that centers on shutting down 600 stores with 12,000 being let go on its home turf. But the situation is poles apart here in Korea. A spokesman for its Korean operations expects a rise in sales and plans are afoot for a robust expansion.

McDonald's already has set a precedent in leaving its home market that has long been saturated and moving to Asian markets that are up and coming.

Annual sales from Starbucks' 254 outlets nationwide have totaled 134.4 billion won last year, up 23 percent from 2006. Net profit, for the first time, surpassed 10 billion won. And growth doesn't stop there, as the coffeehouse chain says it will open 20 more stores by year-end.

``People talk about the slow economy, but our sales don't reflect the situation,'' said Joyce Park, marketing head of Starbucks Korea. She said another 20 percent jump in revenue is expected this year.

Competitive price and space for expansion are the two factors she attributed to the local operation's consistent growth.

``Starbucks' items are 20-30 percent cheaper than our main competitors and our presence is nearly as huge as the U.S.,'' explained Park, who added that there will be a moderate expansion over the next couple years.

Korea isn't the only one brewing up solid sales. Other markets in the Asia-Pacific, Middle East and Latin America regions are also on the same track.

This is why the company plans to streamline overseas expansion even more. Starbucks expects that within three years, more than 40 percent of its outlets will be outside the U.S. compared to today's 29 percent, BusinessWeek cited a company spokeswoman as saying. About 3,500 more coffee shops are to open outside of the U.S. from 2009 to 2011.

International growth works for the American brand because about two-thirds of stores abroad operate via licensees or partnerships, in which Starbucks owns a stake. This means operators pay a fee to Starbucks for using its brand name, and the coffee giant is exposed to less risk, as the licensees and partners shoulder a big portion of the initial costs.

In Korea, retail giant Shinsegae is the 50 percent owner and operator of Starbucks Korea.

DS