642 Yale Street
Company Perspectives:
Pappas Restaurants strives to be a superior restaurant company throug h constant innovation, attention to detail, and a focus on quality in all that we do. We believe that the greatest strength of Pappas Rest aurants lies within our people. Committed to providing an exciting wo rk environment that recognizes initiative and performance, we offer o pportunities for growth, and we challenge individuals to achieve thei r best. In addition, we are dedicated to greeting each of our guests with warmth and friendliness. By identifying and fulfilling the expec tations of our guests, we create an outstanding dining experience for them. We also build relationships within our communities through par ticipation and service as we work together to help meet community nee ds.
The family-owned Pappas Restaurants, Inc., chain operates in more tha n 60 locations in Houston, Dallas, Austin, San Antonio, Beaumont, Atl anta, Chicago, Denver, and Phoenix. The restaurants encompass a varie ty of concepts, including Pappas Bros. Steakhouse, C&H Steakhouse , Pappadeaux Seafood Kitchen, Pappas Seafood House, Pappasito's Canti na, Pappas Bar-B-Q, Pappas Burger, Pappas Pizza, Yia Yia Marys. The c ompany is run by brothers Christopher and Harris Pappas, who also ser ve as the executive team at Luby's, Inc., a cafeteria chain in severa l states.
Origins
The origins of the family-operated Pappas Restaurants date back sever al generations, beginning with H.D. Pappas, who emigrated from Greece in 1897 and opened restaurants in Arkansas, Tennessee, and Texas. In 1945, H.D. Pappas's sons, Pete and Jim, moved to Houston where they obtained a franchise to sell beer coolers in South Texas. The brother s eventually built the venture into a successful restaurant supply bu siness, selling chairs, booths, refrigerators, and other kitchen equi pment. The business was cyclical, however, and the brothers soon deci ded to try the restaurant field in 1967 with the opening of a Dot Cof fee Shop in downtown Houston. In 1970, Jim Pappas's son, Harris, join ed the family business, soon followed by his other sons, Christopher and Greg. Although the 1970s proved to be a heyday for the restaurant business, the Pappas family largely sat out the prosperous times, pr eferring a more conservative approach of buying and owning property r ather than leasing it. The company also pursued a strategy of expandi ng during economic downturns when land prices were relatively cheap a nd startup costs were affordable.
Beginnings of Company Growth
The company had modest success in opening and operating several casua l dining spots, including two Dot Coffee Shops, a Brisket House barbe cue, and the Strawberry Patch American bistro. The Pappas family also continued to operate the restaurant supply business, becoming its so le client. With the attitude that they could do things better themsel ves, the Pappas family built and supplied their own equipment, includ ing wood-burning grills, chairs, sinks, and stoves. A business owned and operated by a sister, Victoria Giannukos, supplied the uniforms a nd awning designs. With the 1980 opening of the first Pappas Seafood House, the company realized that it had entered a lucrative market. H owever, the business also had its failures. In 1979, the family opene d the Circus Restaurant with a Barnum & Bailey theme but terminat ed the venture in 1985. The company's taqueria concept called Pappata cos also proved a failure.
New Markets in the 1980s
After Jim Pappas's death in 1982, his sons aggressively expanded the business, opening up more seafood restaurants, in addition to profita ble Mexican and cajun restaurants. The Pappas family eventually turne d their business into a 50-unit chain worth hundreds of millions of d ollars. The Pappas brothers grew the business on a tireless attention to detail, value, and service. The brothers also made their mark by offering large portions at moderate prices at restaurants with highly visible locations. What the restaurants tended to lose in higher foo d costs, they made up for with volume and considerable customer turno ver. The company had a competitive edge on publicly owned restaurant chains, which were under pressure to build new units in a hurry and t o improve their bottom lines from one quarter to the next. Unlike the se competitors, the Pappas business could take its time in building a high quality restaurant, devoting as much labor to the project as wa s required.
In 1989, after concentrating their business in Houston where they had more than 25 Pappas dining spots, the family began expanding into Da llas and Austin. The company had several firmly established and profi table concepts, including Pappas Seafood House, Café Pappadeau x, Little Pappas Seafood Kitchen, Pappamia Cucina Italiana, Pappasito 's Cantina, and Pappas Brisket House barbecue place. In 1992, the bus iness broke into the San Antonio market with one of its Pappasito's C antina Mexican food eateries. The company planned to open another Pap pasito's and the Pappas' Cajun seafood concept, Pappadeux Seafood Kit chen, in San Antonio by the fall of 1993. Each of these restaurants i ncluded 10,000 to 12,000 square feet of space, was designed by the Pa ppas' architectural staff, and was built by the company's in-house co nstruction crew.
Legal Challenges and Expansion
Amidst the company's growing success, it ran into legal woes. In 1995 , the company settled a class-action complaint by the U.S. Equal Empl oyment Opportunity Commission, claiming that four Pappas restaurants in Houston had discriminated against Hispanics, African Americans, an d workers older than 40 in better-paying dining-room jobs in favor of younger, white workers. The lawsuit also alleged that the company hi red mostly Hispanic workers for such jobs as dishwashers and busboys. The company settled the suit without admitting any wrongdoing. The a greement provided that Pappas Restaurant, Inc., offer dining room job s to as many as 1,073 African Americans and 1,177 Hispanics who appli ed for those positions between January 1, 1988, and February 28, 1993 . The agreement also stipulated that older and minority applicants wh o were denied jobs during that period might be eligible for monetary damages.
The company was also shaken when Greg Pappas died in a car accident o n a Houston highway. With his death in February 1995, the company los t an important member of its executive team as well as its main archi tect.
In 1996, the company's gamble on a new concept--an upscale steakhouse with a cigar room, impressive wine cellar, and playful art--raised t he business to new heights. The company opened its first Pappas Bros. Steakhouse on the spot of the Strawberry Patch American bistro, an e atery they opened in 1975 and closed in 1993 after the venture had ru n its course. The steakhouse represented a departure from its other c ausal dining restaurants and poised the company for future growth. An other Pappas Steakhouse was opened in 1998, located in the restaurant row that had developed along Northwest Highway in Dallas. The compan y took more than a year to build the restaurant, spending $6 mill ion on the wine inventory alone. With a wine list of 1,600 selections , a cigar room, and other amenities, the restaurant proved a success in catering to business executives and others with a taste for fine f ood. At the same time, the company continued to expand its family emp ire with the opening of new restaurants in Chicago and Atlanta.
The company ran into more legal trouble in 1997 after a three-year fe deral investigation found the 54-unit restaurant chain to be in viola tion of federal immigration laws. In a plea bargain signed August 13, 1997, the company agreed to pay a $1.7 million fine, the largest ever in an Immigration and Naturalization Service enforcement case. Federal raids at six Pappas-owned restaurants in the Dallas area had found more than 100 undocumented workers, primarily from Mexico and C entral America. In the plea bargain, the company admitted that it had hidden illegal aliens during raids and altered personnel records by changing the names of undocumented workers as they were moved from on e restaurant to another.
Luby's Acquisition in the 2000s
In December 2000, the Pappas brothers acknowledged the purchase of mo re than a million shares of Luby's Inc., a financially troubled San A ntonio-based business with a chain of cafeteria-style restaurants in ten states. Brothers Christopher and Harris Pappas bought 1.3 million shares, nearly 6 percent of Luby's stock, in increments between Octo ber 16 and December 22. At the same time, the Pappas brothers began n egotiating for possible board seats, an active role in its management , and possible further investment in the company. The deal marked the Pappas brother's first ownership in a publicly traded company. Luby' s stock value had plunged by more than 75 percent in three years. It had further suffered from high management turnover, declining sales, a controversial president who resigned in September 2000, and a proxy fight with a small group of shareholders who had tried to oust some of company's board members at its January annual meeting.
In March 2001, with Luby's in dire financial straights, the company n amed Christopher J. Pappas as company president and CEO and Harris J. Pappas as chief operating officer. The Pappas brothers also joined L uby's board of directors and agreed to invest an additional $10 m illion in the company. As the brothers stepped into their respective management roles, Luby's posted a second-quarter loss of $9.4 mil lion and was in default with its syndicate of lenders. Luby's financi al fortunes continued to plunge with its stock price bottoming at 95 cents a share on May 7, 2003. By August 2005, however, the Pappas bro thers had begun to turn the troubled company around by investing in b etter kitchen facilities, introducing new food selections, and launch ing a new marketing campaign. When the brothers took over the company in 2001, the chain had 190 cafeteria restaurants and was assuming de bt that eventually totaled $108.6 million. They decided to close 50 of the chain's worst performers and worked to cut debt to $29. 8 million. In June 2005, Luby's third-quarter sales had increased 6.5 percent to $77 million, fueled primarily by the introduction of new combo plates such as lemon basil salmon, Cajun etoufee, and sweet sesame pork. Christopher and Harris Pappas also moved Luby's headqua rters from San Antonio to Houston, where the Pappas chain of restaura nts was based. Although growth for the cafeteria chain remained in th e distance, the Pappas brothers sought to improve profitability throu gh increasing same store sales, improving brand through advertising, and introducing new entrees. Along with the success of their Pappas r estaurant chain, the Pappas brothers appeared to be making headway in improving Luby's prospects as well.
Principal Competitors: Brinker International Inc.; Consolidate d Restaurant Operations, Inc.; Landry's Restaurants, Inc.
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