Why Cant Starbucks, McDonalds Offer Lower Prices?
By Jane Han
Staff Reporter
Admitting that a good cup of coffee isn't enough to lure money-tight customers, U.S. java giant Starbucks is offering special discounts and even free refills at shops in its home market and parts of Europe. But Starbucks patrons here shouldn't expect the same deal.
``South Korea is flagged as part of the Asia-Pacific market, which we consider the fastest growing in the world,'' says Joyce Park, marketing head of Starbucks Korea, who added that the business strategy is basically unneeded here.
She explained that market conditions are different everywhere and each country devises a unique model that fits its circumstances.
From July, Starbucks franchises in the U.K. and Ireland started offering a free cup of filter coffee to all customers that bought a hot drink in a bid to win back customers amid the credit squeeze. The company said the promotion will run indefinitely.
Early this year in the U.S., the coffee joint test marketed a cup of coffee priced at just $1 at select locations, and the company says more promotions and discounts will continue.
This seems like a much-needed move at a time when the java powerhouse recently posted its first quarterly net loss since it went public 16 years ago.
The situation is different here. Annual sales from Starbucks' 254 franchises nationwide totaled 134.4 billion won last year, up 23 percent from 2006. Net profit, for the first time, surpassed 10 billion won. And the local chain says store expansions will continue.
For Starbucks, these figures seem to be enough to dismiss extra work in winning more customers. But forget discounts, what about better pricing? Korean customers pay 1.6 times more than those in developed countries like the U.S., Japan and Germany, according to the Korea Consumer Agency.
Park says the higher price simply represents the high cost of living in Korea.
``From main ingredients like milk and sugar to rent payments, things are more expensive here,'' she said, stressing that Starbucks is currently absorbing much of the rising costs to prevent raising menu prices even more.
Aside from the coffee giant, McDonald's and Burger King's fast food franchises here also opt out of cheap marketing tactics.
McDonald's in the U.S. offers full sandwiches like the double cheeseburger and McChicken burger for $1, but here, the cheapest costs 1,500 won.