Customer Perception Of Luby's O To example essay topic

Luby's, Inc. Case Analysis: By: Chris Wilson October 20, 2003 INTRODUCTION: Luby's, Inc, once known as Luby's Cafeterias, Inc. is a chain of cafeteria style restaurants established in 1947 and headquartered out of San Antonio, TX. The corporation is very well known throughout the state of Texas with nearly 200 properties strategically located near retail centers, business centers, and residential areas and also has establishments in nine other southern and southwestern states. Luby's is also traded on the New York Stock exchange under the symbol LUB. Luby's idea is to serve good food at reasonable prices, using the cafeteria concept and marketing to all who want quick healthy meals. Luby's had been a flourishing company for a number of years, but within the last decade or so has shown a steady and significant decline in both revenue and market share.

This analysis of Luby's, Inc. will contain information regarding the companies financial performance, include an external environment analysis, a SWOT analysis, Value-Chain analysis, corporate governance assessment, as well as issues and problems to be addressed by management, and recommendations for the company as a whole. FINANCIAL PERFORMANCE: The financial performance section includes the following: Annual Income Statements, Balance Sheet Statements, Stock prices, Stock performance, Earnings for Luby's top officers, and additional financial performance indicators. All rights reserved. All rights reserved.

All rights reserved. Stock Prices Recent Price $2.45 52 Week High $5.50 52 Week Low $0.95 OFFICERS OF LUBY'S EARNINGS: Gasper Mir, Chairman N / A Christopher Pappas, 55 Pres, CEO, Director $107.00 K Ernest Pekmezaris, 58 CFO, Sr. VP $215.00 K Harris Pappas, 58 COO, Director $107.00 K Peter Tropoli, 30 Sr. VP - Admin. $161.00 K Dollar amounts are as of 31-Aug-02 and compensation values are for the last fiscal year ending on that date. "Pay" is salary, bonuses, etc. LUBY'S STOCK PERFORMANCE: o This example shows that Luby's has under performed the overall Dow Jones Industrial Average but outperformed one of its competitors, Piccadilly's, over the past five years. OTHER FINANCIAL PERFORMANCE INDICATORS: o Same-store sales, after adjusting for stores closed during the third quarter, declined by 3.2%. o Total Company sales, excluding discontinued operations, declined approximately 5.4% to $78.2 million for the third quarter of fiscal 2003 from $82.7 million a year ago. o For the nine months ended 5/7/03, sales fell 5% to $234.3 M. o Net loss from continuing operations totaled $9.6 million, up from $4.7 million.

EXTERNAL ENVIORMENTAL ANALYSIS: o Current economy in recession affecting sales dramatically. o Primary Luby's competitors have evolved from being strictly cafeteria style restaurants to competing with those in the fast food and take-out industry as well as sit-down diners. o More individuals are looking to get away from the cafeteria-style settings in restaurants and looking to pay for more quality outings with their families and loved ones. o Competition with those companies that offer a higher quality dinning experience and have a liquor license to offer such items as beer, wine, and exotic drinks may prove to have a distinct advantage in taking away market share from Luby's. o Luby's must respond to opportunities and threats affectively to stay afloat in this time of economic recession while at the same time increasing their customer's perception of the company. OTHER COMPANIES WITHIN THE INDUSTRY: (Information provided by: web) o APPLEBEE'S INTERNATIONAL Applebee's Intl, Inc. and its subsidiaries develops, franchises and operates casual dining restaurants principally under the names "Applebee's Neighborhood Grill & Bar" and "Rio Bravo Cantina". Each Applebee's restaurant is designed as an attractive, friendly, neighborhood establishment featuring moderately priced, high quality food and beverage items, table service and a comfortable atmosphere. Applebee's restaurants appeal to a wide range of customers including families with children, young adults and senior citizens. o FURR'S / BISSHOP'S INC Operators of family-style cafeteria restaurants in the United States. Restaurants are recognized in their regional markets for their value, convenience, food quality and friendly service. o PICCADILLY CAFETERIAS PICCADILLY CAFETERIAS, INC.

As of June 30, 1995, operated 132 cafeterias in 17 states. Of these, 60 were in suburban malls, 22 were in suburban strip centers, and 50 were free-standing suburban locations. In addition, they operated eight "Ralph and Kacoo's" seafood restaurants in Louisiana, Alabama, Mississippi, and Texas. o SIZZLER INTERNAT INC Sizzler International, Inc. is principally engaged in the operation, development and franchising of the Sizzler family steak house concept and the operation of Kentucky Fried Chicken franchises. Sizzler restaurants operate in the mid-scale dining market featuring a selection of grilled steak, chicken and seafood entrees, sandwiches and specialty platters, as well as a fresh fruit and salad bar in a family dining environment. o SHONEY'S INC Diversified food service chain that consists of three restaurant divisions: Shoney's, Captain D's and a Casual Dining Group. It operates two casual dining restaurant concepts: Fifth Quarter (steakhouse) and Pargo's (fresh, made-from-scratch dishes). o STAR BUFFET INC Star Buffet, Inc. is engaged primarily in the restaurant industry. The company owns and operates franchised HomeTown Buffet restaurants, BuddyFreddys restaurants, JB's restaurants, JJ North's Grand Buffet restaurants, North's Star Buffet restaurants, Holiday House restaurants and Mexican-themed restaurants operated under the Casa Bonita name.

The company's restaurants are located in the western states and are focused upon providing customers with a wide variety of fresh, high quality food at moderate prices primarily in the buffet format. SWOT ANALYSIS: Advantages Disadvantages Internal Factors Strengths: o Very recognizable name o Still thought of as "family owned" o "family oriented" o Mangers given flexibility to "tailor" their menu. o Management is compensated based on performance. o Quality standards. Weaknesses: o Continuous losses creating negative outlook for Luby's future. o Opening of restaurants may have been premature. o Large amount of debt. o No longer Luby's family owned. o Flexibility given to management to "tailor" menu may be a weakness. External Factors Opportunities: o Use existing outlook on company to change perception. o Luby's may prove to be optimal alternative restaurant during recession. o Research Opportunities. o Attraction of new customers. o Implementing Standard Operating Procedures for all Luby's. Threats: o Reducing debt load. o Recession. o Other Restaurants o Rising operating costs. o Outstanding loans to creditors. o Negative media. Strengths: o Very recognizable name in Texas and southern states in which Luby's operates. o Thought of as a "family owned" company which has long been considered a time honored concept. o Known as a "family oriented" restaurant offering very reasonable prices for the food served. o Managers are given complete discretion over his / her cafeteria to "tailor" his / her menu to suit that locations needs. o Store level management is rewarded and motivated with promotions, bonuses, and pay increases with respect to their productivity at their restaurants location. o Quality Control over food preparation is maintained uniformly throughout all chains.

Weaknesses: o Continual losses year after year in net profit and revenues. Large amount debt owed. o As mentioned in the Luby's 2002 Annual Report, Luby's misjudged the market not realizing that those individuals who once didn't mind the "mess hall" and "college dorm" atmosphere are now looking for a much better place where they can sit down and be served. o Luby's restaurants have grown across a large geographic region catering to many different market segments very rapidly, possibly without doing enough research about these markets. o Opening and closing of restaurants seems to have been done on a trial basis, giving very little thought, keeping successful cafeterias open, and closing those who don't perform. o Luby's family is no longer involved in business operations which may be cause for loyal customers to feel less "at home". o Two of the main corporate officers (Christopher and Harris Pappas) are related to one another and have other business ventures within the food service industry which may lead to a misallocation of interest by the brothers. o Managers discretion over his / her own cafeteria may prove to be non-beneficial as those who travel may find it unacceptable to have variations of food preparation from location to location. Opportunities: o Although the current view of Luby's seems to be that of a deteriorating company, they may be able to use this view in future advertising promotions to let consumers know otherwise. o In times such as these, customers are looking for the best value for their dollar. Luby's has been known for keeping prices low and quality high. Luby's may prove to be just what customers are looking for as long as the management can pull together and market the company to the best of their ability. o Although Luby's has already expanded to close to 200 locations, they need to research the locations and consumers in which they currently serve. Research is a major key to a successful business and doing so will provide Luby's with the opportunity to turn their businesses around. o Luby's has the opportunity to redirect their focus to reshaping the current mindset of its potential consumer market at the same time attracting new consumers. o The opportunity to implement a Standard Operating Procedure throughout the entire company is always present.

This may alleviate many problems which may currently be an issue. Threats: o Reducing the debt load is both a threat in the fact that is creates a taxing situation for those top-level corporate officers to worry about. But, threats such as this can be both a motivational force which causes Luby's corporate governance to react with better management ideas and help turn the company around, or it may be the cause of the closure of more restaurant locations to come up with payments. o A recessive economy is a threat to a large percentage of the economy. o If other restaurants are able to market their products, locations, and name better than Luby's, then Luby's will continue to fall short. o Rising operating costs will be a huge factor on this company if it doesn't begin to turn a profit. o Creditors may soon be the ultimate owners of Luby's, Inc. o Continuous media coverage of Luby's losses, loan defaults, and other monetary issues will definitely be detrimental to customers and possible future customers of Luby's, Inc. VALUE CHAIN ANALYSIS: (Information taken from: Strategic Management 5th Edition) 1.

PURCHASED MATERIALS, SUPPLIES AND INBOUND LOGISTICS: Luby's company policy allows its managers of individual locations to purchase ingredients from vendors of his / her choosing. 2. OPERATIONS: Luby's operates a separate unit which is under the control of the of day-to-day operations, including food purchasing, menu planning, employment and supervision. Approximately eighty percent of all cafeteria management has been employed by Luby's for over 10 years. Cafeteria managers are given compensation by means of a salary plus bonuses, and a share of the cafeteria's annual profits regardless of profit changes. Each cafeteria prepares a substantial portion of the food served daily.

Managers supervise the preparation of entrees made throughout the day. The food is prepared in small quantities throughout serving hours, and frequent quality checks are made. Standard sets of recipes are used with variations to meet local tastes. Luby's conducts training at its facilities in San Antonio as well as on the job training and satellite based training in some restaurants. Employee relations are rated very high and Luby's has never undergone a striking workforce or been subjected to any collective bargaining agreements. 3.

DISTRIBUTION AND OUTBOUND LOGISTICS: Luby's operations combine the food quality and atmosphere of a good restaurant with the simplicity and visual food selection of cafeteria service. Luby's caters primarily to shoppers and office or store personnel for lunch and to families for dinner. 4. SALES AND MARKETING: Sales are performed through individual locations and various marketing strategies are used to promote Luby's.

Television and newspaper advertisements as well as coupons / inserts are amongst some of the various marketing tools used. 5. SERVICE Luby's looks to " ensure that all of its customers are completely satisfied with their visit... and if they fail to meet the customers expectations... promise to do what it takes to make it right" (luby. com). Online guest relations are available as well as via telephone. CORPORATE GOVERNANCE ASSESMENT: (Information Provided from: web) Craven, Judith B. 57 1998 Director Profile Ms. Craven is a retired physician administrator.

She was President of United Way of the Texas Gulf Coast (from 1992 to 1998). She is 57 and has been a director of the Company since 1998. She is a member of the Personnel and Administrative Policy Committee. She is a director of A.H. Belo Corporation, Sysco Corporation, and Valid Corp. and serves on the Board of Regents of the University of Texas at Austin.

Emerson, Arthur R. 58 1998 Director Profile Mr. Emerson is Chairman / CEO of Groves Rojas Emerson, an advertising and public relations firm (since June 2000). Prior thereto he was Vice President and General Manager of the Texas Stations of the Telemundo television network. He is 58 and has been a director of the Company since 1998. He is a member of the Finance and Audit Committee.

He is a director of USAA Federal Savings Bank. Hemminghaus, Roger R. 66 1989 Director Profile Mr. Hemminghaus is the retired Chairman of Ultra mar Diamond Shamrock Corporation where he also served as Chief Executive Officer until 1999 and as President until 1996. He is 66 and has been a director of the Company since 1989. He is Chairman of the Personnel and Administrative Policy Committee and a member of the Executive Committee and the Governance Committee.

He is a director of Tandy Brands Accessories, Inc., CTS Corporation, Excel Energy, Inc., and Southwest Research Institute. Mir, Gasper - 2003 Chairman of the Board Profile Mr. Mir presently serves as chairman of the finance and audit committee of the Luby's board and for fifteen years led the Houston-based accounting firm that he founded in 1988. Mr. Mir is currently serving as executive advisor to the superintendent of the Houston Independent School District. Pappas, Christopher J. 55 2001 President, Chief Executive Officer, Director Profile Christopher J. Pappas is President and Chief Executive Officer of the Company (since March 7, 2001).

He is also chief executive officer of Pappas Restaurants, Inc. He is 55 and has been a director of the Company since March 2001. He is a director of the Greater Houston Partnership Board, the Children's Assessment Center Board, the Sam Houston Council of Boy Scouts of America Board, the Southwest Bank of Texas Advisory Board, and the University of Houston Conrad Hilton School of Hotel and Restaurant Management Dean's Advisory Board. He is a member of the Governance Committee and the Executive Committee. Pappas, Harris J. 58 2001 Chief Operating Officer, Director Profile Harris J. Pappas is Chief Operating Officer of the Company (since March 7, 2001).

He is 58 and has been a director of the Company since March 2001. He is also president of Pappas Restaurants, Inc. He is a director of Oceaneering International, Inc., Memorial Hermann Healthcare System, Schreiner's College, and the YMCA of Greater Houston, and an advisory board member of Frost National Bank-Houston. He is a member of the Executive Committee and the Personnel and Administrative Policy Committee. Pekmezaris, Ernest 58 2001 Chief Financial Officer, Senior Vice President Profile Mr. Pekmezaris has been Senior Vice President and CFO (since March 2001); Treasurer and former CFO of Pappas Restaurants, Inc. Tropoli, Peter 30 2001 Senior Vice President - Administration Profile Mr. Tropoli is Senior Vice President-Administration (since March 2001), attorney in private practice.

Winik, Joanne 62 1993 Director Profile Ms. Winik is President, General Manager, and a director of K LRN-TV, San Antonio's Public Broadcasting Service affiliate. She is 62 and has been a director of the Company since 1993. She is a director of PBS (Public Broadcasting System). Woliver, Jim W. 65 2001 Director Mr. Woliver is a retired former officer of the Company.

He was Senior Vice President-Operations from 1995 to 1997 and Vice President-Operations from 1984 to 1995. He is 65 and has been a director of the Company since January 2001. He is a member of the Personnel and Administrative Policy Committee. ISSUES AND PROBLEMS TO BE ADDRESSED BY MANAGEMENT: o To increase customer perception of Luby's. o To increase profits, stock value, and revenues of Luby's, Inc. o To maintain current operating procedures or to change overall operations to create a more standardized operating policy. o Maintain customer interests by launching more aggressive advertising campaigns. o How to pay debtors if cafeterias continue to under perform.

RECOMMENDATIONS: o Luby's, Inc. needs to look back to the companies roots and how it built itself into a previously successful company. o Research needs to be conducted on each location as if it were an individual company. The company needs to invest its resources, not on expansion or the opening and closing of cafeterias, but rather on how they can revamp their companies profile in the eyes of all consumers and potential consumers. o Media is one of the most powerful tools that can be used to either make or break a company. It is evident that Luby's is striving to maintain a customer oriented operation that is based on a quality experience, so during this time of recession, clever advertising campaigns may be called for to engrain this message into the market and help to draw more customers in. o Luby's needs to come up with a better operation for obtaining their ingredients for their menu items. With the current policy allowing restaurant managers the power to and flexibility to choose their own vendors for their own ingredients, taste, quality, and customer loyalty is subjected to large variations. With a standard menu, standard ingredients, etc, the company will develop a larger loyal customer population. o Standard operations procedures should be based on the most successful cafeterias as well as research conducted throughout the entire markets geographic distribution.

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