Luby's Cafeteria Will Changing The Recipe Improve Performance? This Brief Case Includes A Swot Analysis And Recommendations For Improving Profit Margins

1039 words - 4 pages

Luby's was founded in 1911 in Springfield, Missouri and currently (at the time Case 22 was published in 1999) has 223 locations in 11 states throughout the Midwestern, Southern and Southwestern US. Luby's is a publicly traded company on the New York Stock Exchange with no single organization owning more than 5.7 percent of its stock. Barry Parker, who is the company's president/CEO, is dealing with a falling stock price and profit margins that have been considerably shrinking over the past few years. The following S.W.O.T. analysis will try to pinpoint Luby's strategic issues or problems they are facing as well assist in providing alternative solutions and a final recommendation in handling these issues.S.W.O.T.Strengths:Luby's has experienced an increase in sales revenue from $390,692,000 in 1994 to $508,871,000 in 1998. They have also increased their occupancy from 113,546,000 in 1994 to 154,501,000 in 1998, which would seem to coincide with the increased sales revenue. From 1997-1998, Luby's experienced a return on their investments of 11.0% compared to an industry average of only 8.6%. Their debt-to-equity for the 1997-1998 period is also very impressive at a low .5 compared to an industry 2.5.Weaknesses:The first, and probably most important, weakness Luby's is facing is the shrinking profit margins. Net income has lowered from $39,335,000 in 1994 to only $5,081,000 in 1998. This is primarily due to an increase in operating expenses from $331,642,000 in 1994 to a staggering $497,692,000 in 1998. Of these increased operational costs during the 1994-1998 time period, food costs have risen approximately 31%, payroll has risen 48.4%, provisions for store closings have cost $49,284,000 and general & administrative expenses have risen 43.9%. Luby's also has a weakness that isn't as noticeable, involving its brand recognition. When most people think of Luby's, they think of a more cafeteria or blue-collar dining atmosphere. This could cause Luby's to be excluded from most metropolitan patron's choices, if they are looking for more of a distinguished dining atmosphere to entertain business clients and associates.Opportunities:Many opportunities exist for Luby's since they are experiencing an increase in sales revenue and occupancy. They can increase profit margins if operating costs can be lowered thru restructuring bonuses, centralizing purchasing and etc. Other opportunities include entering into new, less metropolitan, markets to lower fixed costs and possibly increase revenue due to less geographical competition. This can also be done by closing under performing stores to increase margins. On more of a financial note, to increase cash or capital, Luby's can lower dividends paid.Threats:Even though Luby's is experiencing an increase in revenue and occupancy, they should not over look the fact that from 1997-1998 they had a growth rate of -3.2% and an estimated growth rate of 9% compared to the industry of 14% actual and 19% estimated. This...

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