The Cheesecake Factory Prepares to Launch Fast Casual Spinoff
More than a year after the company hinted at a limited-service spinoff, The Cheesecake Factory is making good on its word with plans to open a pilot fast casual later this year.
The news came amid the casual-dining chain’s fourth-quarter earnings report Wednesday, February 21. As CEO and chairman of the board David Overton pointed out, the final quarter of fiscal 2017 showed signs that sales were beginning to stabilize. Although profit, revenue, and earnings per share declined from the same quarter the previous year, key metrics either met or surpassed analysts’ estimates. Earnings per share decreased from $0.53 to $0.67 in the fourth quarter of 2016, but the former did match industry forecasts. Revenue was expected to post at $567 million but instead grew to $571.8 million, and same-store sales, which were predicted to slip 1 percent, dipped 0.9 percent.
The notable portion of the investor call resided not in the numbers, but rather in Cheesecake Factory’s plans for the quarter and year ahead, including a new, limited-service iteration. In December 2016, the company reported it was internally developing a fast-casual concept, but any hype around the announcement quickly subsided. Now it appears the project is well underway; the company is finalizing lease negotiations for a space in Los Angeles and is projected to launch later this year. The yet-unnamed fast casual will, with any luck, not be a one-off store. Overton estimated it would only take six months to monitor the new concept and ensure its profitability.
“Then we would look for another site once we feel really good about it and make sure that we've done all the right things operationally,” Overton said. “We're excited. We're working on a little bit everyday, and we'll see where it goes.”
Cheesecake Factory has proven its mettle in ideating and creating new concepts beyond its flagship namesake, namely through sister brands Rock Sugar and Grand Lux Café. The former opened its second location during the last quarter, while the company plans to add another Grand Lux Café to the system in 2018. The brand has yet to venture beyond the full-service format and consumer-packaged goods, so fast casual would mark a new chapter in diversifying its portfolio.
One update playing to Cheesecake Factory’s favor is its thriving off-premises business—often an essential feature in limited service. Takeout grew to 12 percent of total sales in 2017 with 90 percent of locations offering delivery services by third-party provider. Online ordering will also play a crucial role in growing that side of the business, and the brand expects all domestic locations to offer this capability by the end of March.
“We believe delivery is a driver of the total off-premise sales. If you go back and look at 2016 there were about 11 percent, 2017 it moved up to 12 percent, and even north of that in the fourth quarter of last year. So we do believe that a portion of that is being driven by the delivery business,” said brand president David Gordon. “It’s the beginning of this delivery journey, and we're going to continue to execute at the highest level because we know it's where the guest demand is.”
In the year ahead, Cheesecake Factory will celebrate its 40th anniversary. The company also stands to benefit from the recently enacted tax reform, and part of those savings, Overton says, will be invested in its staff—not necessarily by raising wages but rather through enhanced benefits. Given the company’s track record, those perks could set new benchmarks for the greater industry. Earlier this year, Cheesecake Factory was included in Fortune magazine’s 100 Best Companies to Work For. It marked the brand’s fifth consecutive appearance on the list.
“Once again, we were the only restaurant company on the list, solidifying our position as an employer of choice in this tight labor environment,” Overton said.