Rise by merch, fall by merch: Starbucks Korea's goods marketing cuts both ways

[NEWS ANALYSIS]

Starbucks Korea’s merchandise machine — the loyalty engine that powered nearly two decades of growth — is now fueling one of the biggest crises in the company’s history. Even the government has jumped into the fray, with Interior Minister Yun Ho-jung saying the ministry will no longer use products from companies accused of trivializing democracy, criticizing Starbucks Korea over its controversial “Tank Day” promotion.

The crisis is hitting alarming levels. Shinsegae subsidiary Emart, which owns 67.5 percent of Starbucks Korea, suffered losses on the Korea Exchange, down 24.2 percent from last week's high at 90,000 won ($59.8). The other 32.5 percent of SCK Company — the official corporate name of Starbucks Korea — is owned by Singapore's Apfin Investment.

Shinsegae's 2021 acquisition contract with Starbucks' headquarters reportedly included a call-option clause allowing the U.S. parent to forcibly buy back the entire Korean stake at a 35-percent discount to fair value in the event of severe brand damage caused by the Korean partner. 

The merchandise fiasco came at 10 a.m. on May 18, when the company launched its "Tank Day" tumbler promotion. Limited-edition tumblers, seasonal mugs and planner sets have made Starbucks Korea the country's most reliable merchandise frenzy. The Tank tumbler set, discounted between 10 and 21 percent under the slogan "Put it on the table with a sound of 'Tak,'" was supposed to be another routine drop .

The Tank Day fiasco is the latest in a string of merchandise-related blunders that have rocked the brand, from safety issues with promotional bags containing carcinogenic substances to a reseller frenzy that led a single customer to buy 300 drinks at once for promotional bags.

"Starbucks is not just selling coffee. It is selling a brand image and a lifestyle associated with that brand," said Lee Hong-joo, a professor of consumer economics at Sookmyung Women's University. "Consumers are not just drinking coffee. They are experiencing the feeling that Starbucks has become part of their daily lives and that they, in a sense, own a piece of the Starbucks brand."

The latest backlash has prompted a wave of boycott movements. Consumers posted videos of themselves smashing Starbucks tumblers and dumping mugs in trash bins. Online communities have been flooded with photos of destroyed Starbucks merchandise and pledges to switch to independent cafes, with one user writing, "I broke the only Starbucks mug in my house out of anger. I will never consume Starbucks again after they insulted May 18."

A pattern of merchandising mishaps

The pattern of merchandising mishaps is not new. In 2022, the company's summer "Carry Bag" promotion, which gave away bags to customers buying specific drinks, was recalled after harmful chemicals, including formaldehyde, were detected in the bags.

Tests involving 11 samples revealed that the bags contained formaldehyde at 284 to 585 milligrams per kilogram (284 to 585 parts per million) in the outer fabric and 29.8 to 724 milligrams per kilogram in the inner lining, far exceeding the household textile safety standard of 300 milligrams per kilogram. Formaldehyde is classified as a Group 1 carcinogen by the International Agency for Research on Cancer. Approximately 1.08 million units had to be recalled.

The fallout cost then-CEO Song Ho-seop his position when he stepped down in October 2022.

The episode cost the company directly. Operating profit fell from 239.3 billion won in 2021 to 122.4 billion won in 2022, with operating margin collapsing from 10 percent to 4.7 percent. Margins have not recovered to pre-Carry Bag levels since.

Before that, the summer 2020 e-Frequency event, which gave free bags to customers who collected drink stamps, led to what is infamously known as the "300 frappuccino" incident, in which a single customer bought 300 drinks at once to collect promotional bags.

The seasonal e-Frequency event, which offers exclusive gifts to customers who purchase a set number of drinks, draws particularly strong interest each year, and the 2020 incident became a public symbol of how merchandise had eclipsed coffee in the Starbucks Korea customer experience.

Why merchandise matters so much

Despite the recurring risks, Starbucks Korea has continued to lean into merchandise marketing because it generates the kind of revenue and customer lock-in that the coffee business cannot. 

Mobile gift certificates linked to e-Frequency events have become a primary engine of customer loyalty, with prepaid charges on the Starbucks app reaching 660.3 billion won in 2024 alone, a 257 percent increase from 2020, according to Financial Supervisory Service data submitted to the National Assembly in October 2025. Loyal customers fund the company's operations through advance payments, then return repeatedly to redeem rewards.

The most enduring example of the strategy's success is the annual Starbucks diary, distributed each winter to customers who complete the e-Frequency stamp card by purchasing drinks. The diary has become such a cultural fixture that resold copies fetched premium prices on secondhand markets, with customers planning their entire fourth-quarter coffee consumption around stamp collection.

The third-quarter results report in November 2024 explicitly named merchandise as one of two key drivers of the recovery, alongside the Buddy Pass subscription program. Korea is now Starbucks's third-largest market globally by store count, with over 2,000 outlets, but the operating margin has not returned to its pre-Carry Bag 10 percent peak, settling at 6.2 percent in 2024.

SCK Company crossed the 3-trillion-won revenue threshold for the first time in 2024, with revenue rising 5.8 percent year-on-year to 3.10 trillion won and operating profit climbing 36.5 percent to 190.8 billion won.

The 2025 numbers suggest the margin pressure is intensifying. Through the first three quarters of 2025, SCK Company revenue grew 3.8 percent year-on-year to 2.37 trillion won, but operating profit declined 4.8 percent to 135.4 billion won, weighed down by coffee bean costs and a weaker won. The slowdown in operating profit growth came even as the company opened new stores and raised prices.

Coffee? Tea? Or just sugar?  

Longtime customers have noted that the company has tilted its menu toward sweeter beverages, with Frappuccino-style drinks and seasonal sugar-bomb launches taking shelf space from the actual coffee program.

“I pretty much stick to the Americanos,” said Park Hyun-ju, an office worker on her way to work on Wednesday morning. “It’s not even the recent controversy for me; I think boycotts don’t really work anyway. What annoys me is how the brand has been making weird drinks that are more sugar than coffee for a while now.”

"The only new menu of Starbucks that I can think of that wasn't sweet is the aerocano thing," said a debate coach surnamed Kim based in Seoul. "It's always syrup-infused and whatnot." 

Kim proceeded to say that he only tries such drinks when people "make omega hype" about them. "I don't really find the appeal," Kim said.

Low-cost competitors Mega MGC Coffee and Compose Coffee have operating margins approaching 20 percent on 2,000- to 3,000-won Americanos, and Starbucks Korea has responded by leaning further into the merchandise differentiation rather than the coffee itself.

This is where the feedback loop becomes a problem. The merchandise business depends on Starbucks Korea's brand image, the aspirational, premium-but-accessible coffee shop identity that makes a 30,000-won tumbler feel like a reasonable purchase.

But the brand image is being eroded by the same strategic shift that makes the merchandise so commercially important. Each promotion that goes wrong, each beverage that gets sweeter, each mile-long line that becomes a meme about reseller culture rather than the coffee itself, undermines the very identity that gives the merchandise its value.

“Coffee shops are highly exposed to fluctuations in coffee bean prices, labor costs and rent. It is a classic low-margin industry,” said Prof. Lee. “Starbucks has therefore positioned itself as a lifestyle company. But under the current marketing strategy, the brand is more vulnerable when a crisis occurs.”

BY KIM MIN-YOUNG [kim.minyoung5@joongang.co.kr]