Shinsegae seeks to buy Starbucks US’ stake in Korean business
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South Korea’s retail giant Shinsegae is reviewing ways to double its stake in Starbucks Korea from 50% to 100%, according to an industry source on Mar. 19. Shinsegae’s affiliate E-mart currently owns 50% of Starbucks Korea, while Starbucks Corporation headquartered in the US owns the other 50%.
If the deal is successful, Starbucks Korea would become a wholly owned subsidiary of E-mart, which will receive double the dividends from the company. Starbucks Korea paid out annual dividends of 30 billion won ($26.6 million) each to E-mart and Starbucks Corporation last year.
“While we are having thorough reviews on the topic internally, nothing has yet been confirmed,” said a Shinsegae spokesman.
Starbucks Korea will still have to pay royalties at the current rate of 5% to Starbucks headquarters even if E-mart owns a 100% stake in the company.
South Korea’s retail and franchise industry has been speculating for years regarding Starbucks Korea’s next steps.
Many had projected that Starbucks headquarters would want to purchase E-mart’s shares to operate independently, as it did in China and Japan in the last five years.
In case of a successful deal between Shinsegae and Starbucks Corporation, South Korea will mark the first country in Asia where Starbucks is 100%-owned by a local operator.
Starbucks Korea was established as a 50:50 joint venture between E-mart and Starbucks Corporation in 1997, opened its first branch in 1999 and expanded to 1,503 branches as of December last year.
Starbucks Korea’s revenue now exceeds 10% of Starbucks’ total revenue generated globally, but its operating margin falls behind the global average.
Starbucks currently holds the highest coffee franchise market share in Korea, surpassing 1 trillion won ($885 million) revenue in 2016 and maintaining more than 20% year-over-year growth rates from 2017 to 2019, at 26%, 20.5% and 22.8%, respectively.
Last year, Starbucks Korea generated 1.92 trillion won ($1.7 billion) in revenue, just 80 billion short of 2 trillion won ($1.77 billion).
Questions & Answers
Q.What is the primary motivation for Shinsegae to increase its ownership in Starbucks Korea?
What is the primary motivation for Shinsegae to increase its ownership in Starbucks Korea?
If the deal is successful, Shinsegae's affiliate E-mart would become the sole owner of Starbucks Korea. This would allow E-mart to receive double the annual dividends from the company.
Q.How does this potential deal compare to Starbucks Corporation's strategy in other Asian markets?
How does this potential deal compare to Starbucks Corporation's strategy in other Asian markets?
In China and Japan, Starbucks headquarters acquired local partners' shares to operate independently. If Shinsegae buys Starbucks US' stake, South Korea would be the first Asian country where Starbucks is fully owned by a local operator.
Q.What is the financial performance of Starbucks Korea relative to the global average?
What is the financial performance of Starbucks Korea relative to the global average?
Starbucks Korea's revenue now exceeds 10% of Starbucks' global revenue. However, its operating margin is noted to be behind the global average for the company.
Q.Will Starbucks Korea still need to pay royalties to Starbucks headquarters if it becomes a wholly-owned subsidiary?
Will Starbucks Korea still need to pay royalties to Starbucks headquarters if it becomes a wholly-owned subsidiary?
Yes, even if E-mart owns a 100% stake in the company, Starbucks Korea will still have to pay royalties at the current rate of 5% to Starbucks headquarters.