The fallout from Starbucks Korea (SCK Company)'s "May 18 Tank Day" marketing controversy has dragged on for a fourth month. Even after releasing a large batch of coupons during the summer peak season, August usage metrics did not rebound, and the securities sector expects a loss in the third quarter as well.
IBK Securities on the 10th lowered E-MART(139480)'s estimate for third-quarter consolidation operating profit by 46 billion won, from 174.5 billion won to 128.5 billion won. That is down 15.1% from a year earlier. It projected sales to rise 4.6% to 7.7413 trillion won, but profitability is deteriorating.
The reason is Starbucks, a consolidation affiliate. The securities firm estimated SCK Company's third-quarter operating profit at a loss of 24.2 billion won. Given that it posted a 60 billion won profit in the third quarter last year, it would remove 84.2 billion won from E-MART's consolidation operating profit. SCK Company recorded an operating loss of 18.4 billion won in the second quarter, marking its first quarterly loss in 27 years since entering Korea in 1999. If the estimate holds, it would be two consecutive quarters of losses.
The industry had expected Starbucks to show a recovery from the third quarter. Right after the controversy in May, it halted new product launches and promotions across the board, then resumed marketing by rolling out summer drinks on June 23, and on July 8 it distributed free drink coupons and 30% off food coupons to all roughly 15 million Rewards members.
Because the coupon expiration date was Aug. 14, the promotional effect extended into August, but the metrics did not recover. According to IGAworks Mobile Index, the Starbucks app's monthly active users (MAU) in August stood at 7,190,479, down 4.8% from the same period last year (7,553,156).
Total time spent fell even more steeply. At 1,511,438 hours in August, it plunged 16.5% from last August (1,811,003 hours). The app is installed, but people are not actually opening and using it. At Starbucks, a significant share of in-store orders are made via the app-based "Siren Order," so time spent in the app is understood to be directly tied to real purchases.
By month, it is clear the coupon effect was temporary. Total time spent on the Starbucks app stayed in the 1.85 million hours range per month from January to May, then fell 34.2% to 1,222,298 hours in June. It recovered 25.1% to 1,528,887 hours in July, but slipped slightly again in August to 1,511,438 hours. MAU also fell 6% from 7,651,725 in July to 7,190,479 in August. August time spent remains 18.7% below the January-to-May average before the controversy.
Rival brands are reaping the windfall. MEGA MGC COFFEE's August MAU was 3,529,526, up 20.1% from a year earlier, and total time spent surged 42.0%. MEGA MGC COFFEE also topped the overall food and beverage brand and membership app category with 199,411 new installs.
The key to Starbucks returning to profit is expected to hinge on the results of the winter "e-Frequency," the event with the strongest year-round traffic draw. On the 10th, E-MART's share price closed at 73,900 won, near its 52-week low (70,300 won).