Starbucks sees sharp drop in Korea sales

Starbucks Korea has suffered a “very significant” drop in sales after a ‌marketing campaign that evoked a brutal 1980 military crackdown on pro-democracy protesters triggered a public outcry, an official from the operator Shinsegae Group said on Tuesday.

The retailer, whose subsidiary E-Mart owns the coffee chain in South Korea, has faced mounting criticism over its ‘Tank Day’ tumbler marketing campaign launched on the anniversary of ​the May 18 Gwangju Uprising, when the military government deployed troops and tanks to suppress pro-democracy demonstrations.

In a press conference ​on Tuesday, Shinsegae Group chairman Chung Yong-jin made a public apology and asked people not to take out ⁠any anger on Starbucks Korea employees and frontline staff.

“I take it very seriously that Starbucks Korea’s inappropriate marketing hurt and angered many ​people,” Chung said. “I will take all responsibility for the incident.”

Hundreds of people are estimated to have died or gone missing when the military ​dictatorship of Chun Doo-hwan cracked down on the protests in Gwangju. Many details remain unconfirmed, including who gave the order to open fire.

Shares in Shinsegae fell as much as 2.8% in morning trade before reversing course to rise 1.7% as of 0116 GMT, while E-Mart shares gained 2.3%, compared with a 3.2% rise ​in the benchmark KOSPI.

A Shinsegae official said sales had fallen sharply since the marketing controversy and an internal investigation was focused on ​whether there had been any premeditation or intentional wrongdoing by management or employees.

“While sales are not our main concern at the moment, we have seen a ‌very ⁠significant drop,” said the official.

‘SERIOUS FLAWS’ EXPOSED

Starbucks Korea’s e-commerce team organised the campaign and received final approval from team leaders and executives, the official said.

The investigation had not been able to conclude whether there was intentional wrongdoing, but the incident exposed serious flaws in Starbucks Korea’s risk management framework, the company said.

The e-commerce team had been overly focused on sales amid a large volume of weekly promotional events, leading staff ​to approve the campaign without ​proper review or legal scrutiny, ⁠it said.

Starbucks global headquarters in the United States was aware of the gravity of the situation and had been receiving updates on the investigation and the company’s response, it added.

Shinsegae fired the head of Starbucks Korea ​last week after apologising over the campaign. Starbucks Global also apologised and said an investigation had ​begun.

Starbucks is the ⁠leading food and beverage chain in South Korea in terms of the estimated number of customers in the six months to February, according to data firm WISEAPP.

Shinsegae operates Starbucks Korea through SCK Company, which is 67.5% owned by E-Mart and 32.5% by Singapore’s sovereign wealth fund GIC, according to ⁠a company ​filing.

Chung’s apology “seemed sincere” and Shinsegae’s internal probe appeared to have been “wrapped up well”, ​a spokesperson for South Korea’s ruling Democratic Party was reported as saying by the Yonhap news agency. The spokesperson added the party would seek to ensure such campaigns did ​not happen again.