This photo taken on March 3, 2024, shows a Starbucks outlet in Seoul. (Image courtesy of Yonhap)
SEOUL, Oct. 25 (Korea Bizwire) – In a sign of mounting challenges for the world’s largest coffee chain, Starbucks has withdrawn its fiscal 2025 outlook amid declining sales and profitability concerns that span from its U.S. home market to South Korea.
The coffee giant reported disappointing preliminary fourth-quarter results on October 22, with global revenue falling 3% to $9.1 billion compared to the same period last year. Earnings per share dropped 24% to $0.80, highlighting the company’s difficulties in maintaining growth momentum.
In the United States, same-store sales declined 6%, with customer traffic plunging 10%. China, which recently surpassed the U.S. as the world’s largest coffee market, saw sales decrease by 11% in the first quarter and 14% in the second quarter.
The company also faced boycotts in the Middle East following allegations about its support for Israel during the Israel-Hamas conflict.
The withdrawal of the 2025 fiscal year guidance coincides with a leadership transition. After former CEO Laxman Narasimhan stepped down taking responsibility for the poor performance, Brian Niccol, former CEO of Chipotle, has taken the helm. The company says it needs time for strategic reassessment under the new leadership.
The challenges extend to South Korea, where Starbucks is struggling with stagnant profitability. While its operating profit margin slightly improved to 5.1% in the first half of this year, it remains far below the 10% recorded in 2021.
Despite these concerns, the chain continues its aggressive expansion, operating 1,937 stores in South Korea as of the first half of 2023, with 44 new locations opened during that period.
The company’s profitability in South Korea is being squeezed by competition from low-price coffee chains. Mega Coffee, a key competitor, has seen its monthly revenue surge 89% over the past three years.
“While the budget coffee market is growing rapidly, if the industry’s overall growth stagnates as indicated by declining coffee import volumes and values last year, this could turn into a destructive price war,” an industry insider warned.
Labor costs present another challenge for Starbucks Korea, rising from 29% of operating expenses in 2017 to 32% in 2023. The company’s policy of hiring all staff as full-time “partners” creates significant fixed labor costs. Any changes to staffing policies require consultation with global headquarters, making quick adjustments difficult.
In response, Starbucks is exploring cost-cutting measures that mark a departure from its traditional emphasis on personal customer interaction. The company is expanding the use of buzzer systems instead of calling out customer names and considering installing self-service kiosks to reduce labor costs.
Ashley Song (ashley@koreabizwire.com)
