Luby’s struggling to keep up with new trends
Low sales spurring chain to close stores
Luby’s, an iconic Texas restaurant chain known for its cafeteria-style comfort foods, is struggling to remain relevant in a hyper-competitive market as customers increasingly favor new, fast-casual concepts.
The Houston company, which earlier this year expressed concerns about staying in business, said Monday that it had shuttered 21 restaurants and laid off some corporate staff over the past year amid declining foot traffic and sales. The chain is in the process of closing and selling off additional restaurant to pay down $39.3 million of debt and negotiating with lenders to reach a refinancing agreement.
The company did not disclose the locations of the stores it has closed or plans to close, or the number of employees it laid off.
“Our aim and goal is to return to profitability,” president and CEO Chris Pappas said in a conference call with analysts Monday.
Luby’s, founded in San Antonio more than 70 years ago, operates 146 company-owned restaurants nationally under the Luby’s Cafeteria, Fuddruckers Restaurants and Cheeseburger in Paradise brands. The company moved to Houston in 2004.
Luby’s has struggled to retain diners in recent years amid growing competition from new fastcasual concepts such as Shake Shack and Flower Child, which offer trendy foods and limited service that appeals to younger diners armed with cell phones and social media sites to share their experiences.
“The sweet spot of the restaurant industry is the younger millennial who has some money and goes out a lot,” said David Litt-
witz, a restaurant broker with Houston-based Littwitz Investments. “Luby’s can work very hard to provide a good, hot, fresh meal at an affordable price, but they’re just not what millennials are thinking about. There’s nothing really Instagrammable about going down the cafeteria line and getting a meal.”
Restaurant chains specializing in full-service, family dining have also struggled amid changing tastes. Applebee’s and Outback Steakhouse have shuttered dozens of locations while others such as Ruby’s Diner have filed for bankruptcy in recent years.
Luby’s, which reported earnings Monday for its fourth quarter and fiscal year that ended Aug. 29, said its foot traffic fell 5.5 percent at Luby’s Cafeterias and 8.3 percent at Fuddruckers during the fourth quarter. The company posted $365.2 million in sales over the year, down 3.7 percent from the previous year. Same-store sales fell 0.5 percent overall.
Pappas said Luby’s executives are not satisfied with the company’s financial performance.
“While operationally, there are several bright spots, the decline in profitability for the whole company is totally unacceptable,” Pappas said. “In order to improve profitability, we must significantly improve traffic and sales.”
Luby’s closed four Luby’s Cafeterias, 11 Fuddruckers and six Cheeseburgers in Paradise locations over the past year. The sale of 10 restaurants generated $14.8 million, about a quarter of the way toward the company’s goal of raising $45 million. The company, which closed nine locations last year, is looking to shutter more underperforming stores.
Luby’s provides food service management to hospitals, schools and corporate offices at 27 locations, and has several international locations in Canada, Central and South America, Poland and Puerto Rico. The food service division represented a bright spot for the embattled company. Revenue from food service contracts grew to $6.4 million this year, up from $5.8 million last year.
Last month, Luby’s promoted Todd Coutee to chief operating officer to grow its sales and profit margins, which have lagged amid rising costs and lower guest traffic. Coutee said the company plans to use a combination of discounts, employee training on customer service and more popular menu options to drive foot traffic back to Luby’s restaurants.
“I believe these are the keys to generate brand loyalty and repeat business,” Coutee said. “We have iconic brands that are relevant in today’s restaurant landscape.”