The Closure of Luby’s Cafeteria

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The Closure of Luby’s Cafeteria

Introduction

Running an organization has never been easy, and 2020 proved a yet more challenging year for many businesses presenting new business owners with unprecedented set of challenges. Just like other businesses, Luby’s Cafeteria found itself struggling to stay afloat following the emergence of the global novel coronavirus pandemic. In September 2020, the company announced its decision to close down. Its mother company Luby’s Inc., later announced in December that it sold its Fuddruckers locations to a franchise before completely dissolving the company.

Company Overview

Founded in 1947, Luby’s Cafeteria is a public company that held the spot of the largest chain cafeteria across America. The company started from a small cafeteria in downtown Antonio and expanded fast since then beginning with Texas and then other states in the Southern states. It went on to become labeled the most profitable cafeteria chain in the America. In 1996, Luby’s Cafeteria had 147 units in Texas, ten in Tennessee, 12 in Arizona, nine in Oklahoma, four in Kansas, New Mexico, and Florida, two in Louisiana, three in Mississippi, and one in Missouri. Unlike other restaurants, Luby’s never franchised its outlets but compensates every unit manager with generous profits from their designated outlets (Lankford, 2020). Luby’s Cafeteria abides by the motto of “Good food from people.” By offering family style, freshly-prepared served in attractive settings and served at reasonable prices. The restaurant primarily caters to office and store personnel during lunch hours, shoppers and families during dinner meals. The restaurant does not offer breakfast meals. The units are usually about 10,000 to 11, 000 square feet and can accommodate approximately 300 individuals. They are found in business and shopping developments and residential areas.

Besides its down-home style, Luby’s Cafeteria has a stellar financial record. The company led its publicly-held competitors when it came to benchmarks in earnings, sales, average sales per unit and return on average equity. Luby’s has paid consecutive quarterly dividends and increased dividends each year since 1965. Except a brief time in late 1970s, Luby’s did not have a long-term debts in its balance sheet. The company’s growth is financed from periodic stock offerings, internal cash flow, and on occasion, short-term credit lines from banks. According to Forbes magazine, Luby’s individual unit managers and executives have tried to stick with what they know and have done so brilliantly. According to the magazine, compared to its competitors in the cafeteria business, such as Piccadilly and Morrison’s Bishop’s/Furr’s, none of them cuts a better hog when it comes to returning on equity. The company’s roots run through America’s social, political and economic history starting with the first unit until the twentieth century where its success lies. Despite being incorporated in 1959, the cafeteria’s history was planted when Harry Luby, a clothes merchant made a business trip to Chicago, Illinois from his hometown in Springfield, Missouri in 1909. Here, Luby got captivated by the new restaurant types where patrons collected food items from a counter to the dining tables. Luby immediately recognized that the restaurant used a then-emerging concept of assembly lines and mass production in the line of business. After two years, Luby started a similar business in Springfield, Missouri.

Aspects of Luby’s Cafeteria Failure

The main factor that pushed Luby’s Cafeteria to its collapse was the emergence of the novel COVID-19 pandemic. Luby’s Cafeteria was not suited to survive the pandemic. The restaurant used a cafeteria style that made social distancing more difficult to execute (Davahli, M. Karwowski, Sonmez, & Apostolopoulos, 2020). Notably, Luby’s was already struggling financially for years by the time the pandemic hit, which also fuelled its decision to close down. The devastating effects of the pandemic push Luby’s to wind down its operations and dissolve its business. It closed and shut down company-owned locations of two chains. As of 26th April 2021, Luby’s owned 11 locations and meanwhile, 83 franchised Fuddrukers units were operational and could be seen in 25 states mostly in Midwest and the South.

Unfortunately, the dissolution marked the end of the road for the Cafeteria’s locations as they were fully company-owned. For seven decades, the brand served famous LuAnn platters and southern-style comfort food. ABC13 noted the Luby’s cafeteria ceased majority of its operations in restaurants by the end of August 2021 fiscal year. Worth noting, Luby once owned a Cheeseburger located in Paradise, the last which closed in September. Additionally, Luby’s rights to Koo Koo Roo brand whose specialty was charbroiled chicken sold to a third party that was independent. In June 2021, when the company made it public that it was seeking buyers for portions or all its businesses, the company did not get any offers that were acceptable. However, its CEO Chris Pappas mentioned that the dissolution strategy left enough paths for flexibility making it possible for Luby’s Fuddruckers to be possible buyers. After a month, it was discovered that Pappas may be the savior of the renowned chains. The executive entered into an agreement with either Luby’s Cafeteria to review the company’s financials. Rumors had swirled that he could potentially buy the enterprise with the partnership of his brother, Harris Pappas. However, the deal did not materialize and Chris Pappas resigned as the company’s Chief Executive Officer.

Strategic Plan To Rebrand and Revive Luby’s Cafeteria

To revive and restore the glory that Luby’s Cafeteria had enjoyed for many years, there is a need to make a few changes in branding and online presence. The main reason why the cafeteria closed down in the first place is because of the pandemic. When the pandemic hit, the World Health Organization guidelines of social distancing made it impossible for the restaurant to carry out business as usual (Olteanu, 2020). For the business to perform well, there is need to rebrand the entire business. This includes giving it a new brand identity. The first step would be investing in new brand identity. This includes coming up with a new name for the business, tagline, logo, theme colors, outlet design, and even the menu. It is important to invest in the above-mentioned elements as the visibility and reputation of the restaurant will only be as good as the brand name. Another strategy would be rethinking their mode of delivery. As opposed to only offering cafeteria-style dining experiences, the new owners should venture into online delivery services. The strategy would go a long way in pushing the cafeteria’s sales, being that the primary reason it shut down was due to the pandemic. Online deliveries are viable as they would minimize congestion in the physical outlets making adherence to covid-19 social distancing regulations viable.

Conclusion

In closing, Texas-founded Luby’s Cafeteria is an example of a organization that shut down recently. After many years of service to the Americans, the company announced the decision to shut down its doors to the world in September 2020. The primary reason behind the collapse of Luby’s Cafeteria was the emergence of the covid-19 pandemic. Being that the physical units are average in size, adhering the social distancing protocols became difficult, leading to the decision to close the company. This coupled with prolonged periods of financial struggle led to the closure of Luby’s Cafeteria. In the future, businesses should be flexible enough to adjust to the changing nature and needs of their target clients.

References

Davahli, M. R., Karwowski, W., Sonmez, S., & Apostolopoulos, Y. (2020). The hospitality industry in the face of the COVID-19 pandemic: Current topics and research methods. International Journal of Environmental Research and Public Health, 17(20), 7366.

Lankford, A. (2020). The importance of analyzing public mass shooters separately from other attackers when estimating the prevalence of their behavior worldwide. Econ Journal Watch, 17(1), 40.

Olteanu, L. (2020). Rebranding strategies and their boomerang effect—The curious case of Burberry. The Journal of World Intellectual Property, 23(5-6), 777-797.