Ryan Placek
Aaron Bowen
Courtney Boyer
MNGT 481.101
Interim Report
Luby’s Inc. lists a potential risk on its annual report as being unable to compete
effectively due to intense competition, which is especially being affected by changes in customer
tastes and dietary habits (Luby’s, 2012). As discussed in Appendix A, Luby’s biggest threat is
that of substitution of products and services. It is apparent that each of Luby’s, Inc.’s restaurant
chains specialize in different food products. Luby’s Cafeteria focuses on home-style cooking
(Luby’s, 2013, para. 1) and Fuddruckers’ menu focuses on hamburgers and chicken sandwiches
(2013). The menu of Cheeseburger in Paradise includes a range of cheeseburgers and chicken
meals (2013) and Koo Koo Roo’s main food products are poultry dishes (Koo Koo Roo, 2012).
Luby’s Culinary Services provides a range of contract food catering services at universities and
medical centers (Luby’s etc., 2010). Each of the restaurant chains offers quality food options;
however, they lack healthier alternatives.
Luby’s Inc. can address this risk by diversifying its organization into growing markets
(National Restaurant Association, 2013). Some of the more successful new concepts in casual
dining, including Panera Bread, feature cafeteria-style dining with contemporary but healthier
menu selections and décor (TexasMonthly, 2001, para. 4). Luby’s Inc. needs to diversify the
company into growing markets, such as the health food restaurant industry using the firm’s
strategic resources to differentiate its services from competition. To entice diners, Luby's should
preserve its strong brand and reputation for quality food while updating its restaurants and
menu’s. Luby’s Culinary Services has already introduced a healthier menu titled “Livin’Smart”
to address the growing priority of healthier eating (RestaurantNews.com, 2012, para. 1).
Luby’s should incorporate healthier food options into the rest of its chains in addition to
developing a new health food chain that also uses Luby’s unique delivery design. Luby’s Inc.
currently struggles to create value for its shareholders, as discussed in Appendix B. A healthier
menu could bring in new customers and improve the perceived value of the organization. An
ideal location for the first establishment of this new line of restaurants would be Towson, MD.
Towson is a large city that brings heavy traffic into the already present restaurants, which makes
it a more successful area to start a restaurant. This process will enable Luby’s to compete more
effectively against the existing competition.
A firm resource is “a resource to provide a firm with the potential for a sustainable
competitive advantage [that must be] valuable, rare among [competitors], difficult [to] imitate,
no equivalent substitutes,” according to Strategic Management: Creating Competitive
Advantages- Sixth Edition. (Dess, Lumpkin, Eisner, McNamara, 2012, p.95). Also, the resource
must be organization wide making the acronym VRISO. Luby’s firm resource is the firm’s core
knowledge and expertise about restaurant design and the process of operating a cafeteria. This
knowledge and expertise is a firm resource because it follows the VRISO guidelines as
mentioned above. It is valuable because the expertise in cafeteria-style restaurant design creates
a unique experience, which can create brand equity that draws in new and repeat customers and
creates customer loyalty. This expertise is also rare because most cafeteria-style restaurants do
not compete as successfully as Luby’s, so the knowledge of how to operate several different
chains is uncommon. It would be costly to imitate because of the path dependency in the
industry. Competing firms would need to retrain management in all locations in order to be able
to effectively operate in a cafeteria-style environment. The firm resource is costly to substitute
because it includes the firm’s economies of scale, which would make it difficult for other firms
to operate as efficiently as Luby’s. Lastly, Luby’s Inc.’s firm resource is organization wide
because the expertise of operating in a cafeteria-style restaurant requires knowledge from all
levels of management as well as the store employees. For example, the cafeteria-style design is
incorporated into each of the firms support activities, (general administration, human resource
management, technology development, procurement) as well as its primary activities (inbound
logistics, operations, outbound logistics, marketing and sales, and services). The combination of
each of these factors makes Luby’s Inc.’s knowledge on cafeteria-style dining a strategic
resource and a strong source of competitive advantage.
Appendix A
Porter’s Five-Force Model – “describes the competitive environment in terms of five
basic competitive forces” (Dess et. al, 2012, 55). These five forces as listed by Dess et. al.
(2012) are:
1.
2.
3.
4.
5.
The threat of new entrants
The bargaining power of buyers.
The bargaining power of suppliers.
The threat of substitute products and services.
The intensity of rivalry among competitors in an industry.
The force that most greatly affects Luby’s Inc. would be number 4 from the above list, the threat
of substitute products and services of companies already in the health food dining industry.
Many restaurants now are starting to create more health conscious menu items, especially in the
Towson area such as Panera Bread. With companies like Panera Bread that already serve health
foods and are already operating in the area, Luby’s Inc.’s biggest challenge to entering this
market would be getting customers to choose to eat at their restaurant locations instead of an
alternative substitute. Luby’s Inc. currently serves the need for self-serviced casual dining.
Because most conventional restaurants offer full dining services, they provide a substitute for
Luby’s service design. Although Luby’s Inc. is able to differentiate its services, its primary
competitors are the conventional style restaurants, making them the biggest threat to the firm. In
order to compete successfully, Luby’s must add enough value using its cafeteria-style design, to
differentiate from its competitors.
Appendix B
Financial Ratio Analysis
Luby’s Inc. has a relatively low market-to-book ratio, indicating that it has been less
successful at creating value for its shareholders than the industry average. Luby’s Inc. has a
current market-to-book ratio of 1.2 (Morningstar, 2013). This ratio is calculated by dividing the
firm’s market value per share by the book value per share (Dess et. al, 2012). This ratio can be
used to make inferences about a company’s performance by conducting a financial ratio analysis.
Financial ratio analysis is defined as “a method of evaluating a company’s performance and
financial well being through ratios of accounting values, including short term solvency, longterm solvency, asset utilization, profitability, and market value ratios” (Dess et. al, 2013, p.476).
This ratio can be put into context by comparing it to the market-to-book value of competing
firms within the industry. A list of Luby’s industry competitors and their financial ratios can be
found on Morningstar.com, as well as the industry average for each ratio. The current industry
average market-to-book ratio is 7.2, approximately 6 times that of Luby’s Inc. (Morningstar,
2013). The reason Luby’s Inc. has such a low market-to-book ratio is because it has not created
much value for its shareholders above the cost of its investment. This problem can be attributed
to many things, such as low intellectual capital, inadequate differentiation, or a lack of other
intangible assets.
Appendix C
Balanced Scorecard
Balanced scorecard: “a method of evaluating a firm’s performance using performance
measures from the customers’, internal, innovation and learning, and financial perspectives”
(Dess et. al, 2012, p. 107).
Since our team believes that the best opportunity for Luby’s Inc. at the time is to
diversify into the health food dining industry in the Towson area, the most relevant
perspective of the balanced scorecard to focus on would be innovation and learning.
According to Dess et. al, the innovation and learning perspective is defined as “measures of
firm performance that indicate how well firms are changing their product and service
offerings to adapt to changes in the internal and external environments” (2012, p. 108).
The external environment is rapidly changing as customers are looking for healthy
alternatives in the restaurant industry (National Restaurant Association. While
diversifying into this industry, Luby’s Inc. would be changing product in the form of the
health food menu options, as well as services in the form of operating a restaurant in a new
location to the company.
To ensure the greatest success, Luby’s Inc. would need to monitor how its customers are
reacting to these changes and make adjustments to better suit the needs of customers. One
quantitative metric that Luby’s should consider would be the number of new healthy menu items
launched and the revenue earned from these new items. This would help the business determine
which items are creating the most revenue and be able to incorporate those items into other
locations, while cutting items that create little or no revenue.
Appendix D
References
Cheeseburger in Paradise. (2013). Menu. Cheeseburger in Paradise. Retrieved November 4,
2013, from <http://www.cheeseburgerinparadise.com/menu/>
Dess, G. G., Lumpkin, G., Eisner, A. B., & McNamara, G. (2012). Strategic management: Text
and cases (6th ed.). New York, NY: McGraw-Hill/Irwin.
Fuddruckers. (2013). Our Full Menu. Fuddruckers. Retrieved November 4, 2013, from
<http://www.fuddruckers.com/menu/>
Koo Koo Roo. (2012). Menu. KooKooRoo.com . Retrieved November 4, 2013, from
<http://www.kookooroo.com/menu.php>
Luby's Inc. (2012). Annual Report. Retrieved from
<http://www.lubysinc.com/investors/filings/files/lubys2012annualreport.pdf>
Luby's. (2013) Menu. Luby's. Retrieved November 4, 2013, from
<http://www.lubys.com/menu/food.phpReferences>
Morningstar (2013, November 12). LUB: Luby's, Inc. Top Competitors and Peers.
Retrieved November 12, 2013, from
<http://financials.morningstar.com/competitors/industrypeer.action?t=LUB®ion=usa&culture=en-US>
National Restaurant Association (2013). Trending Healthy. Retrieved from
http://www.restaurant.org/Industry-Impact/Food-Healthy-Living/Trending-Healthy
RestaurantNews.com. (2012, January 12). Luby’s introduces 2012 Livin’Smart menu featuring a
bounty of healthier meal choices to start the new year. RestaurantNews.com. Retrieved
November 10, 2013 from <http://www.restaurantnews.com/lubys-introduces-2012livinsmart-menu-featuring-a-bounty-of-healthier-meal-choices-to-start-the-new-year/>
TexasMonthly. (2001). Luby’s Inc. TexasMonthly. Retrieved November 10, 2013 from
<http://www.texasmonthly.com/content/lubys-inc>