Piccadilly Cafeterias, Inc.
Piccadilly Cafeterias, Inc.
Sales: $300.6 million
Stock Exchanges: New York
SICs: 5812 Eating Places
Piccadilly Cafeterias, Inc. operates 130 cafeterias in 17 states, mostly in the southern and central regions of the United States, with the majority of units in the Gulf Coast states of Florida (22), Alabama (six), Louisiana (28), and Texas (17). The company planned to open two more cafeterias by June 30, of 1997, but the new openings were to offset the closing of two unprofitable units. The company also manages eight Ralph & Kacoo’s seafood restaurants, operating in Louisiana, Mississippi, Alabama, and Texas. Most of the cafeteria units are located in suburban malls or strip centers, but some are located in separate, free-standing buildings. All of the units are company owned or leased under long-term arrangements.
The standard Piccadilly Cafeteria seats between 250 and 450 lunch or dinner patrons. It features a wide range of foods at moderate prices and traditional cafeteria-style service. All of the food is prepared from standard recipes used at all locations, with only seasonal variations in the menu offerings and some adjustments to reflect taste preferences of customers in disparate geographical locations. The Ralph & Kacoo’s restaurants are full-service establishments specializing in Cajun seafood. They accommodate between 250 and 600 patrons.
Piccadilly Cafeterias, Inc. was founded during World War II, by Tandy Hannibal Hamilton, who had already been working in the cafeteria business for 21 years when he traveled to Louisiana to consider purchasing the small Piccadilly Cafeteria located on Third Street in downtown Baton Rouge. At the time, Hamilton was living in Kansas City, where he was serving as general manager of The Forum, a Midwestern cafeteria chain. After forming a family partnership with his wife, Tela, his daughter, Julia, and his son-in-law, William A. Richards, Hamilton bought the Piccadilly from the original owner, Thomas J. Costas, for $65,000. Hamilton and Costas closed the sale on February 1, 1944.
H. L. “Tandy” Hamilton was born in the Indian Territories of Oklahoma in 1897, son to a former federal marshal who had served Judge Isaac Parker, a “famous hanging judge” in Fort Smith, Arkansas, and his father’s second wife. He was just eight when an outlaw fatally shot his father in the back at a baseball game. Although his mother remarried, the family was poor, and Tandy and his brothers had to help make ends meet by picking cotton. In his early teens, Tandy worked with his half-brother, Doug, rounding up cattle strays near McAlester, Oklahoma, and then drifted some as a hobo before taking various restaurant jobs in Wichita, Kansas. By the time he joined the Army in 1918, Tandy had served a full apprenticeship as a chef, and he got further training under European chefs while on his duty tour in France. After the war, Tandy returned to Oklahoma, where he met his future wife, Tela Meier, a court clerk in Shawnee. After they married, the couple moved to Wichita Falls, Texas, where Hamilton secured a job as sous chef in the deluxe Kemp Hotel. Because of the oil boom and the scarcity of inexpensive housing, the Hamiltons had to live in a tent city set up for oil-field transients near downtown Wichita Falls. Their daughter, Julia, was born there.
In 1923, the Hamiltons moved to Kansas City, where The Forum Cafeterias chain had its central office. At the time, The Forum operated 15 units in Midwestern states. The operation intrigued Hamilton, and he sought and secured a chef’s position through the company’s president, C. M. Hayman. Within just a couple of years, Tandy advanced into management, moving from one operation to another, until, in 1934, he became the chain’s general manager and settled in Kansas City. He spent the next ten years learning the cafeteria business inside and out. By 1941, partly because nepotism in The Forum organization limited his prospects for further promotion, he had also decided that he wanted to begin his own cafeteria chain. The first step in his dream of owning and operating a 40-unit cafeteria chain was taken when he purchased the Piccadilly from Costas in 1944.
Hamilton began building the business immediately, despite the wartime difficulties imposed by food rationing and equipment shortages. He contacted several friends and associates, some still in the service, encouraging them to join the operation. He also opened a small cafe just across Third Street from the Piccadilly, naming it Tandy’s Eat Shop. He opened the cafe to provide temporary employment for those he was hiring as future chefs and managers as his Piccadilly chain expanded, and the establishment was sold off soon after the chain’s expansion got under way.
Hamilton and his family partners set up business headquarters in the limited office space on the second floor, above the Third Street cafeteria. Tandy put together a small but dedicated staff whose primary function was to facilitate his expansion plans. H.J. DeBlanc and Allen Dyer were his key headquarters personnel.
As a way of accommodating the planned growth, Hamilton chartered individual corporations for funding the start-up of new units in the Piccadilly chain. He believed that key personnel should invest in the business, so he sold part interest in each of the five corporations he created for the company’s expansion. In the basic plan, Tandy and his wife owned 25 percent, his daughter Julia and her husband Bill Richards owned 25 percent, and the remainder was sold to employees selected to participate in ownership. Upon occasion, Hamilton lent the purchase money to his associates, convinced that they would have no problem in repaying the loan from their corporate earnings.
The first corporate group put the second Piccadilly Cafeteria into operation in Beaumont, Texas, in October of 1946, under the management of Frank Emmer, who would later become Piccadilly’s first district manager. The next year, a Memphis corporation was chartered to open a new unit in that city. It started up in 1948, under the management of Meredith Curtis, assisted by Phil Listen, an old Navy friend of Bill Richards. In that same year, Hamilton organized a third corporation to start up a fourth Piccadilly, in Waco, Texas. It opened its doors in January, 1949, under the management of Jim Sorrells. Dick Quick, another of Richards’s service friends, became Sorrells’s assistant.
To ensure quality control, Tandy Hamilton insisted on consistency throughout the burgeoning chain of cafeterias. He personally developed and field-tested most of the recipes used in each of the Piccadilly locales, but he also encouraged chain managers to submit their own recipes for his approval. Any such approved recipe would then be used at each establishment. Hamilton was also a great proponent of efficiency, partly because he was determined to keep his prices fair, the quality of the food high, and the portions generous. To that end, he and his staff worked out a fairly rigorous and complicated system of purchasing and kitchen control designed to avoid food waste and other unnecessary expenses.
Systemization in the 1950s
By the 1950s, Hamilton and his son-in-law, Richards, had instituted “standard recipe costing,” involving an exact determination of cost per serving for each of the chain’s standard recipes, with some allowance for food cost variations at the individual cafeterias. By the end of the decade, they had issued various company manuals to ensure uniform practices in such diverse policies as meat cutting procedures and purchasing and pricing specifications. They also encouraged individual managers to make suggestions for cutting or controlling costs, incorporating some of these into standard, chainwide policies.
Expansion accelerated in the 1950s, and then boomed in the next three decades. By the end of 1959, 11 units were operating in three states: Louisiana, Texas, and Tennessee. After 1956, thanks to the great success of a unit located in the Gulfgate Shopping Center in Houston, the company elected to locate new cafeterias in the proliferating suburban malls located in or near larger southern and southwestern cities. It proved to be a wise move, for, from 1960 through 1969, Piccadilly was able to add 25 units, operating in a range that then extended from Jacksonville, Florida to Phoenix, Arizona. That growth and obvious success prompted J. C. Penney, in 1969, to offer $30 million for the whole 36-unit chain. While rejecting the offer, the Piccadilly front office began to reappraise its self-image as a family business. A new sense of being a large and valuable corporate entity would force policy and organizational changes during the 1970s.
“It’s the food. No, it’s the people. It’s the food and the people. At a time when people are eating out and taking out more and more, Piccadilly has all the ingredients for success. The flexibility of our menu, our years of cooking experience, our face-to-face contact with our customers—all have prepared us to respond quickly to customer preferences. A reputation for excellent food. The counsel of experienced employees. A growing customer base. It’s an enviable combination.”
New Leadership in the 1970s
In 1971, Hamilton met his personal goal of developing a 40-unit cafeteria chain, when, on November 27, the 40th Piccadilly Cafeteria opened its doors at the South DeKalb Mall in Decatur, Georgia. In the same year, at age 75, Tandy Hamilton assumed the title of chairman of the board and, although he remained active until his death in 1981, he turned the day-today operations over to Bill Richards, his successor as president. Hamilton served largely in an advisory capacity, giving Richards free rein.
In 1974, three years before Richards’s death in a bicycling accident, Piccadilly moved its central operations into its current corporate headquarters, a 45,000-square-foot building on Sherwood Forest Boulevard in Baton Rouge. In addition to an office complex, the new center housed a test kitchen and an archive for its collection of more than 1,000 current Piccadilly recipes. Piccadilly also maintained a 26,500-square-foot storage facility or commissary in Baton Rouge. Much of the seafood bought in season for off-season use in both cafeterias and restaurants was stored there, in a $2.5 million inventory. It allowed even the more remote cafeterias to serve some dishes at standard prices, even when the food was either not available from wholesalers or was too inflated in cost.
Corporate restructuring was completed in 1979, when Piccadilly went public. It made its first stocking offering on January 30,1979. Until then, the Piccadilly chain had operated under the auspices of two partnerships and five corporations, the last of which, the Louisiana Corporation, was chartered in 1965. Employee participation in ownership had worked well, but toward the end of the 1970s, stock transfers made through inheritance to outside owners was pushing the legal limit for private corporations. In addition, the complex corporate structure had become unwieldy, and consolidation into a single corporate entity helped streamline operations. The move forced a new employee incentive plan, however, and in 1981 a bonus plan went into effect that within a year doubled the pay of unit managers and associate managers.
Phenomenal growth in the Piccadilly chain continued through the 1980s. At the time of Hamilton’s death in 1981, the 40 units of his original dream had doubled to 80. By 1984, all cafeterias and restaurants had also been newly constructed or remodeled. Further, the company reopened the door to partial employee ownership in 1987, when it adopted a stock purchase plan allowing employees to buy up to 1,500 shares of common stock annually. In December of 1988, Piccadilly purchased six Ralph and Kacoo’s restaurants, some properties, and all shares of the common stock of Cajún Bayou Distributors and Management, Inc., for barely more than $38 million.
But there were also problems. In 1986, in a move to cut costs, Piccadilly began reducing the quality of its foods. In protest, James W. Bennett, the financial officer, resigned and sold off his Piccadilly stock. The recipe skimping at first paid off. Between 1987 and 1989, profits increased 24 percent, but, noticing the decline in quality, long-standing customers began staying away, and their boycott was soon reflected in declining earnings. In the fall of 1991, Piccadilly suffered its first quarterly loss in its 48-year history. In 1992, with the approval of the board of directors, Julia Hamilton induced Bennett to return to Piccadilly as CEO.
Retooling for the 1990s
Bennett’s strategy was to return to the old Hamilton recipes to restore quality. He attempted to offset rising food and utility costs by improving the efficiency of the units in other ways. For example, by changing some of the flatware in use, Piccadilly was able to increase the hourly number of customers it could pass down its cafeteria line from 260 to 400. Bennett also began an aggressive remodeling campaign to refurbish about 25 cafeterias a year at a half-million dollar cost per unit. Customer counts immediately started up again, and so did profits. In fiscal 1993, the company turned a $4.8 million profit on gross sales of $271 million. But the rise was short-lived, and in 1994 Bennett resigned when further implementation of his five-year, $65 million makeover plan was blocked by his board of directors.
Prompted by reported efforts of Luby Cafeterias, Inc. to buy the Piccadilly chain and his personal belief that he could lead the business out of it stagnant condition, Bennett then led a consortium of investors in an attempt to negotiate a friendly buyout. He was convinced that his group could return the business to its former glory and bring its stock value up from $8 to $13 per share. The board of directors under Chairman Paul Murrill, and the new CEO, Ronald A. LaBorde, refused to consider any of the offers.
LaBorde inherited major problems. Despite Bennett’s 1993 success, over four years, from 1990 to 1994, Piccadilly sales had dropped 11 percent and profits had declined sharply to an average of barely more than $2.75 million per year, down 69 percent from the previous four years. In contrast, in the same period, Luby’s sales grew by 25 percent to $390.6 million, and its profits increased 22 percent to $39.3 million. Piccadilly was simply no longer an attractive business for investors. Its market value had dropped from about $227 million in 1986 to $86 million in 1995, and its stock showed no signs of breaking out of its doldrums. The chain’s problems seemed to have stemmed from investing too much money in the purchase of the Ralph & Kacoo’s restaurants and overestimating potential earnings from their operation. In addition, a rapid changeover in top management led to too many policy changes, including the termination of Bennett’s remodeling plan upon his resignation. Also blamed were Piccadilly’s “tired assets” and underchallenged employees.
In an effort to turn things around, LaBorde took some aggressive steps to reduce costs through improved efficiency. He cut some jobs and improved purchasing through a more centralized system. Piccadilly also downsized its prototype cafeteria from 10,000 square feet to 6,000 square feet, a move designed to allow the company to develop new market options. On October 1, 1996, the company also raised its prices to offset the rising cost of food and the impact of the minimum wage increase. The meal costs to patron remained low, however, with a check average of between $5 and $6 at the cafeterias and $15 to $17 at the Ralph & Kacoo’s restaurants. Some improvement in the company’s earnings followed. Its end-of-year earnings for 1996 rose 22 percent over the same period of the prior year, though its net sales increased only one percent.
As LaBorde and the Piccadilly directors see it, tapping new markets seems to offer the best hope for future growth in sales and profits. In the mid-1990s, Piccadilly developed plans for a new type of unit, the Piccadilly Express, offering a takeout and pickup service located within retail stores. In May 1997, it announced a joint venture with Associated Grocers, Inc., a distributor of foods to 230 retail food stores. The two companies planned to place Piccadilly Express units in Associated member supermarkets in Louisiana, east Texas, and Mississippi. Each of the mini-cafeterias is to feature hot entrees prepared on the site, providing costumers with convenient meals to take out or eat during a shopping break. The first of the units was scheduled to open in the Hi Nabor Supermarket in Baton Rouge. Piccadilly’s directors and upper management believe that this fast-food marketing strategy and other streamlining policies will get the company moving again.
Alexander, Kelly King, “Facing a Full Plate,” Greater Baton Rouge Business Report, April 7, 1992, p. 34.
Bennett, Fran, Tandy: T. H. Hamilton and the Founding of Piccadilly Cafeterias, Baton Rouge, La.: Piccadilly Cafeterias, 1995.
Hayes, Jack, “Piccadilly’s Bennett Exits Chairman, Chief Exec Post,” Nation’s Restaurant News, October 10, 1994, p. 3.
Law, Dennis, “This Is a Cafeteria?,” Restaurants and Institutions, February 1, 1994, p. 22.
Mukul, Verma, “Piccadilly Rejects Offers To Buy Cafeteria Chain,” Greater Baton Rouge Business Report, November 14, 1995, p. 16.
Nao, Philippe, “Too Many Cooks?,” Forbes, February 13, 1995, p. 19.
Ruggless, Ron, “Cafeterias Struggle as Market Dwindles,” Nation’s Restaurant News, September 18, 1995.
Spence, Holly, “Hearty and Healthy,” Restaurants and Institutions, July 15, 1995, pp. 142–144.
Stern, William M., “Lumpy Mashed Potatoes, Yuck,” Forbes, March 28, 1994, pp. 63, 66.
Walkup, Carolyn, “Piccadilly Banks on Deluxe Unit To Step Up Traffic,” Nation’s Restaurant News, February 21, 1994, p. 7.
—John W. Fiero