Shinsegae seeks 100% stake in Starbucks Korea

A customer exits a Starbucks Korea branch holding beverages in this undated photo. Yonhap

By Kim Yoo-chul

Shinsegae Group, the country’s top-tier retail group, is seeking to acquire a 100 percent stake in Starbucks Korea via its affiliate E-mart. Shinsegae has been impressed with Starbucks Korea’s continued profit growth despite the protracted COVID-19 pandemic, sources involved with matter said, Sunday.

E-mart, Korea’s top discount store chain, currently owns 50 percent of Starbucks Korea. Starbucks headquarters in the United States owns the other half.

“Shinsegae Group had considered unloading its 50 percent stake in Starbucks Korea as it has to renew its licensing and royalty contract with Starbucks headquarters. But impressed by the steady growth of Starbucks Korea both in terms of sales and profits even with the COVID-19 pandemic impacting the local food and beverage industry, the group shifted its stance towards acquiring the remaining stake,” an industry source said.

The value of the remaining 50 percent stake is estimated at more than 1 trillion won.

An official at Shinsegae Group said the retail giant has been reviewing the best possible scenarios on “multiple fronts.” But the official added that a final decision has yet to be made.

If the deal is completed, E-mart will be positioned to receive double the amount of dividends from Starbucks Korea, another source said. Last year, Starbucks Korea and E-mart each paid 30 billion won in dividends to Starbucks’ U.S. headquarters.

“If E-mart gains a 100 percent stake in Starbucks Korea, that doesn’t mean the discount store will be exempt from paying 5 percent in return for using trademarks and other licensing out of its annual revenue,” the official said.

Since its establishment in 1999, Starbucks Korea has proven to be a stable source of profit. As of last year, it operates 1,503 stores here including its top Starbucks Reserve outlets. Its annual revenue surpassed 1 trillion won for the first time in 2016. Last year, annual revenue totaled 1.92 trillion won. Net earnings figures weren’t available.

But the central point is that Starbucks’ U.S. headquarters seems to be aware of the increased growth potential of Starbucks Korea. Shinsegae has been focusing on finding various strategies for external and internal growth as Korea’s retail industry undergoes rapid changes following a surge in online purchases. Shinsegae has also been asked by investors to address concerns over financing to acquire the remaining stake in Starbucks Korea.

Shinsegae Group submitted its intent to acquire a 100 percent stake in eBay Korea, filing a preliminary bid to Morgan Stanley and Goldman Sachs, the two lead financial advisers for the sale. The estimated sales value of eBay Korea is believed to be around 5 trillion won.

“Because Starbucks’ U.S. headquarters is looking good, financially, it won’t be attracted by Shinsegae’s alleged approach to hand over its 50 percent stake in a one-off cash-deal. Koreans’ preference for Starbucks Korea is huge and its brand position is very strong,” a local banking industry source said.