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Shopping Centers Today -> September 2003
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SWEET TASTE OF SUCCESS
Landlords drool over The Cheesecake Factory’s high volume
BY MAURA K. AMMENHEUSER
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| Selling cheesecake and much besides, each of these restaurants generates sales of $11 million on average, observers say. |
Don’t let the name fool you. It began as a mom-and-pop bakery, but today a better name for The Cheesecake Factory might be The Everything Factory. The restaurant boasts more than 200 items on its menu, including some 40 variations of cheesecake and other desserts, plus pizza, seafood and various Asian culinary specialties.
Mike and Sherri Putney of Mission Viejo, Calif., are Cheesecake Factory regulars, thanks to the “good food, good atmosphere,” Mike Putney says. Ironically, “we hardly eat cheesecake,” he said. His wife’s favorites are the salads. “The whole thing’s good,” she said.
Cheesecake Factory’s good for more than just hungry diners. It hits the spot with shopping centers, too. The Calabasas Hills, Calif.-based chain pulls in tons of traffic. It generates $1,000 per square foot in sales, according to company spokesman Howard Gordon, twice the average for casual dining chains. Nation’s Restaurant News calls Cheesecake Factory “the big-box paragon of high-volume dining.”
And while patrons are waiting for a table, sometimes for up to two hours (Cheesecake doesn’t take reservations — “We want to make sure tables are full all the time and all people are taken care of the same,” Gordon said), they’re likely to browse a center’s stores. That’s icing on the cake for landlords.
“They’re a draw,” said Sam Rovit, a director and restaurant expert at Chicago consulting firm Bain & Co., Chicago. “People will go out of their way to go to a Cheesecake Factory. … They do a fantastic job at offering a diverse selection of food. The menu is like an encyclopedia. It’s really hard to do that well.”
Karen Maurer, senior marketing manager at Westcor Shopping Centers, agrees. “The selection is incredible,” she said. Nearly two years ago Westcor opened Chandler (Ariz.) Fashion Center, a 1.3 million-square-foot center anchored by Dillard’s, Nordstrom, Robinsons-May and Sears, where Cheesecake Factory has custom-built 12,600 square feet of space. “There’s a dish with Mexican flavor, a dish with Cajun flavor, a dish with seafood flavor or whatever you’re hungry for. That has a lot to do with their success.”
The first Cheesecake Factory restaurant opened in 1978 in Beverly Hills, Calif. David Overton, now CEO, created it as a showcase for the goodies his parents were producing at their bakery. Today the company operates 63 restaurants under the Cheesecake Factory name (it also runs a smaller, upscale restaurant chain as well as wholesaling merchandise for other retailers), and it has plans to open 11 more this year and an additional 14 in 2004. Ultimately, company executives expect to be operating 200 Cheesecake Factories in the United States, according to financial reports. So far, the chain has funded its own growth, and it remains debt-free.
To the diner, the restaurants’ Italian-inspired design comes across as rich as the menu. Dark woods, painted frescoes and elegant lighting make customers forget not only that they are eating at a chain, but also that the economy is sluggish.
“People always go out to eat,” Gordon said. “No matter how much money they have or don’t have, they look for price value.”
The average Cheesecake Factory tab is $15.80. The portions are huge, so Gordon points out that people also get a second meal for their money, by taking home the leftovers.
Landlords crave this tenant as much as consumers do its delectable desserts.
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“They’re probably one of the most coveted restaurants in the industry,” Maurer said. They provide good food and service, and “they’re not oversaturated.”
Cheesecake Factory functions as a de facto Chandler Fashion Center anchor, “because they draw a lot of people and they do great volume,” said Greg Cochran, vice president of leasing for Macerich-Westcor.
Few restaurants can fill that role, says Monty Daniels, leasing director at Plaza Associates, the company that owns and manages the 1.3 million-square-foot, enclosed Crabtree Valley Mall, Raleigh, N.C., where Cheesecake Factory was scheduled to open late this summer. “Cheesecake Factory is a category of their own,” Daniels said. “In addition to what [traffic] they deliver, the restaurant will probably sell about $1 million worth of cheesecake [alone] this year.”
Sources cite Outback Steakhouse, P.F. Chang’s China Bistro, Spaghetti Warehouse and even Applebee’s as being among Cheesecake Factory’s competitors, given that they, too, are popular occupants of the casual-dining niche. But none of these approaches Cheesecake’s per-unit sales volume, which amounts to an average of $11 million annually (most units achieve $2 million to $5 million per property), observers note. Neither do these competitors offer as broad a menu.
The flagship restaurants are the company’s major focus, but not its only business. The company also sells a variety of desserts wholesale under The Dream Factory label as well as peddling Cheesecake Factory goods retail through warehouse clubs. It makes the desserts in its own bakery, and has one self-serve, Cheesecake Factory Express operation at DisneyQuest, a family entertainment center in Orlando, Fla. (The company plans no more of those units, because Disney has decided against expanding the DisneyQuest concept, Gordon says.)
Cheesecake Factory will expand Grand Lux Café, however, its second restaurant concept. Grand Lux is a more upscale version of Cheesecake Factory, with a smaller menu. The concept was introduced in the Venetian Hotel, Las Vegas, in 1999. Because the company chooses not to open two Cheesecake Factory units within five miles of each other, it sought an alternative avenue of growth, says Gordon. Today there are two more Grand Lux Cafés, in Chicago and Los Angeles, and the company will probably open two per year over the next few years, he says.
Grand Lux boasts 120 menu items, an in-house bakery, made-to-order desserts and prices that are about 10 percent higher than at Cheesecake Factory.
Restaurants accounted for 95 percent of the company’s $652 million in revenue last year, which was up 21 percent from $539.1 million in 2001. For the first quarter of 2003, revenue was up 15 percent over the same period in 2002, to $172.9 million from $150.2 million. Same-unit sales, however, dropped by $2.5 million, or 2 percent, during the quarter. Company officials blame bad winter weather countrywide for lost operating days.
The chain looks unbeatable right now, but challenges do lie ahead, says Rovit. Cheesecake must take steps now to ensure future growth after it saturates the U.S. market, he says. Typically, when restaurants exhaust their flagship concepts, they tend to introduce new ones to ensure sales growth. That generally doesn’t work, he notes; the more successful companies continue developing a proven concept, rather than relying on a second brand.
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For now, however, developers are drooling over Cheesecake Factory, though not all will get a taste. This is just not an easy tenant to snag. Cochran wooed the chain for a decade before he got a unit at Chandler Fashion Center, for example.
“They’re sought after, so they have a lot of opportunities on their plate,” said Daniels, of Plaza Associates.
Cheesecake Factory restaurants range from 5,400 to 17,300 square feet. The chain seeks sites with 250,000 residents within five miles and average annual household income of $50,000 to $75,000, Gordon says. It likes shopping centers — 80 percent of the restaurants are in a center of one type or another. “We’re very site-driven [though],” Gordon said. “ [We have] very controlled growth. We don’t go, well … Mission Viejo — we have to be there.”
Apparently, though, some diners have to be at Cheesecake Factory. Troy and Julia Past, for example, drive 45 minutes from their Carlsbad, Calif., home to eat at the Cheesecake Factory at Shops at Mission Viejo, an upscale mall anchored by Macy’s, Nordstrom, Robinsons-May and Saks Fifth Avenue. “We’ve probably eaten here every weekend for the past three years,” Troy Past said, to which his wife added, “We’ve tried pretty much every item on the menu.”
“If I had a restaurant,” he continued, “I’d want to copy these guys.”
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