Investor’s Business DailySeptember 8, 2000
Dining Chain Captures Customers - Casually
By Robyn Taylor Parets
When you take all the right ingredients and mix them together, what do you get? A fresh-baked, fabulous cheesecake. You also get a successful restaurant chain like The Cheesecake Factory Inc.
The Calabasas, Ca.-based company has managed to grow its winning chain of restaurants with no promotions or advertising whatsoever. In today’s competitive casual dining market, that’s no easy feat. Yet, with 35 namesake restaurants, there’s simply no stopping this company’s growth. Analysts say the secret to The Cheesecake Factory’s sweet success is pretty simple: the restaurants offer great quality food at a value. Plus, the average 10,000 to 15,000 square-foot upscale restaurants feature huge menus with more than 200 items. Besides the wide range of food selections, the company is also famous for its cheesecakes and other desserts. In fact, 15% of its restaurant sales come from desserts compared to about 3% at most other casual dining restaurants.
For these reasons and more, the restaurants are the “in place to eat” regardless of whether they are located in Providence, R.I., Chicago or Beverly Hills.
“When someone says, ‘let’s go to The Cheesecake Factory,’ you never hear another person say, ‘I don’t want to because I don’t like the food.’ It’s impossible,” said Dennis Forst, an analyst at MacDonald Investments Inc.
Besides its full-service restaurants, the company runs a self-service “express” format inside DisneyQuest locations in Orlando and Chicago. It also licenses three bakery cafe outlets, which are run by Host Marriott. In addition, The Cheesecake Factory operates its own bakery production facility and makes more than 50 varieties of its cheesecakes and other desserts to sell through its own restaurants and other foodservice businesses and retailers.
These other businesses may be icing on the cake, but the true growth for The Cheesecake Factory will come from the expansion of its core restaurant chain, said CFO Gerald Deitchle.
Deitchle said there’s room for at least 150 to 200 more Cheesecake Factory restaurants in the United States.
“If you take a look at the top 100 metropolitan markets in the U.S, they have average annual restaurant sales of about $225 million. We currently only have a presence in 17 of these markets,” he said.
Chicago, for example, has annual restaurant sales of about $3.7 billion. The Cheesecake Factory has its highest grossing eatery in the John Hancock Center on Michigan Avenue. Last year, that one restaurant generated $17 million in sales. It also has a restaurant in Skokie, Illinois. Needless to say, the company could easily open another Cheesecake Factory in downtown Chicago, said Deitchle.
Yet, its lease states that it cannot open another one in the Michigan Avenue area. So, the company plans to open its newest restaurant concept, Grand Lux Cafe, in downtown Chicago sometime next year. Grand Lux opened last year in Las Vegas in The Venetian Hotel & Casino. Grand Lux, a more upscale version of The Cheesecake Factory, was an instant success. This year it should reach $19 million in sales, which will make it one of the highest grossing restaurants on the Las Vegas strip, according to the company.
Besides expanding to Chicago, The Cheesecake Factory plans to open another Grand Lux in the Beverly Center shopping mall in Beverly Hills in 2001, said Deitchle.
Although Grand Lux has been as successful as the flagship restaurant chain, the company does not plan to divert its attention away from The Cheesecake Factory. In fact, it is opening a restaurant in Scottsdale this week and will open another in Indianapolis next month. It also has signed leases for eateries in Dallas; Hackensack, N.J.; West Palm Beach, Fla.; Schaumburg, IL.; Phoenix, and Sherman Oaks, Ca.
In addition, it is currently looking at opening restaurants in Seattle, Orlando, Philadelphia and several other cities, said Deitchle.
“This restaurant concept shows no signs of fatigue. This company is still in its early growth cycle. They are nowhere near where they can be,” said Allan Hickok, an analyst at U.S. Bancorp Piper Jaffray Inc.
In fact, at a time when many restaurant companies are struggling to fill seats, The Cheescake Factory has just the opposite problem. The restaurants are so popular that people often wait for two hours to be seated on weekend evenings.
“It’s not a trendy restaurant business. They don’t rely on selling sweatshirts. The food is the magnet,” said Forst.
“This business has never wavered from being focused on running restaurants,” said Deitchle.
“We offer great food at a great value in a contemporary, high energy dining atmosphere. It’s really that simple,” he said.
During the second quarter, ended June 27, per-share earnings rose 47% to 25 cents from 17 cents. Sales jumped 23% to $105.2 million. Priced near XX, The Cheesecake Factory trades by CAKE.
As long as The Cheesecake Factory continues to deliver great food and service, the restaurants should continue to succeed. Of course, all restaurants could experience a slump during an economic downturn when people generally don’t eat out as much, said Forst.
Besides this, the only real risk could occur if the seasoned management team forgets how to operate restaurants. “But that isn’t likely to happen,” said Hickok.