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Starbucks' Bold Strategy for College Campuses

Starbucks (NASDAQ: SBUX  ) is kicking off the new school year by rolling out coffee trucks at a handful of college campuses -- it's latest move for world domination. The coffee giant is looking for new growth avenues in a U.S. market that is overrun with more than 11,500 Starbucks stores. Starbucks is currently testing its mobile trucks on three college campuses including Arizona State University, James Madison University, and Coastal Carolina University.

One of Starbucks new coffee trucks. Source: Starbucks Coffee

Starbucks already has around 300 stores on college campuses in the U.S., according to Bloomberg. However, the company's new coffee trucks offer something those other locations cannot ... mobility. Because these are actual trucks, they can easily navigate the campus to better optimize foot traffic depending on the time of day. For example, the trucks can operate outside of college dorms in the morning to catch students on their walk to class and later relocate to a more central position on campus to serve students between classes.

This is a smart strategy because it offers added convenience for consumers, while also driving up sales for Starbucks. The roll out is part of a licensing agreement with Aramark (NYSE: ARMK  ) in which each coffee truck is a licensed Starbucks store operated through Aramark, according to the company. A Starbucks spokesperson confirmed that Aramark has been a partner of Starbucks for as many as 18-years, with licensed stores throughout the U.S.

This long-standing relationship between Aramark and Starbucks could make expanding its college campus presence in the future a natural fit.  

Start small and go big
Aramark currently provides dining and facility services to over 600 colleges and universities across North America. Therefore, there is plenty of runway for growth if Starbucks decides to expand its coffee truck ambitions in the future. Moreover, magnifying its licensing agreement with Starbucks would certainly be a win for Aramark, as coffee accounts for roughly 18% of Aramark's on campus sales, according to Bloomberg.

"We believe the Starbucks mobile truck is a perfect opportunity to increase the convenience of our offerings and help meet our student body wherever they are in their busy days," explained Cathy Schlosberg, Aramark's vice president of marketing.

As for Starbucks, having a mobile presence on college campuses helps the coffee retailer reach a new demographic of potential coffee drinkers. How big is the addressable market you ask? It is sizable considering Starbucks only operates on 300 of the country's 4,700 college campuses. Adding mobile coffee trucks to the equation at scale could therefore significantly boost Starbucks presence outside of its traditional Company-operated retail channel.

Source: Starbucks Coffee

Starbucks is a big proponent of higher education these days. If you remember, the specialty coffee retailer recently announced its College Achievement Plan, which offers Starbucks employees the opportunity to finish their bachelor's degree with full tuition reimbursement. With Arizona State University's online bachelor degree program, Starbucks employees are now eligible to have half their tuition paid for the first two years, or the final two years paid in full.

Starbucks currently employs over 100,000 young people in America and the majority of them don't have a college degree, according to Starbucks chief executive Howard Schultz. Starting this fall, Starbucks is helping to change that by empowering its employees, or 'partners,' as the company calls them, earn a college degree. For Starbucks' shareholders this sends a clear message that the company is investing in its future by investing in its employees. In the long run, happy employees are good for business because they create a memorable experience for Starbucks customers. 

The company's new campus licensing deal with Aramark is also a win for investors because it adds another possible revenue channel outside Starbucks traditional retail stores. The deal also helps Starbucks reach a new demographic, college students. Despite its enormous presence in American society it seems that Starbucks continues to find new and innovative ways to serve its customers.   

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Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

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8/31/2015 4:01 PM
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