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The Cheesecake Factory
Off-premises sales surpassed 16 percent of total sales during Q1.

The Cheesecake Factory Puts the Focus on Employees

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The polished brand believes it can win the labor battle with better retention.
By Rachel Taylor May 2019 Finance

In an industry where labor costs continue to strain operating margins, The Cheesecake Factory is trying to gain an edge by focusing on staffing and employee retention.

According to a study conducted in 2017, a whopping 72 percent of all restaurant workers left their jobs compared to a 47 percent rate across all industries. As other restaurants struggle to retain qualified workers, the polished-casual brand said it’s turning the conversation around.

At the end of 2019, Forbes named The Cheesecake Factory one of the “Best Companies to Work For,” for the sixth year in a row. The company is using the momentum to fuel employee programs and improve operations for employees, it said.

Staff retention began to stabilize for the Cheesecake Factory midway through last year, president David Gordon noted during a May 1 conference call.

“We believe our staffing success is contributing to the consistent trend in our guest satisfaction scores as industry research continues to confirm the importance of service to the guest experience and the overall restaurant's performance,” Gordon said.

The major factor driving the high turnover rate in most restaurants starts with “not having training and bad supervision,” David Scott Peters, who runs the Restaurant Expert, a Phoenix-Arizona-based restaurant training and consulting firm, told FSR earlier.

One key issue, he added: The majority of restaurant employees depart in the first 90 days of being hired “because they don’t know what their job is and are tired of having a bully manager yelling at them. Instead of asking for help, they leave.”

The Cheesecake Factory puts an emphasis on the employee-manager relationship, and helps engage staff members as soon as they’re hired. Gordon did not go into specifics about the restaurant’s retention rates, but did note that management retention is at an all-time-low, hovering around 1-2 percent.

Having a strong employee backbone continues to aid positive results at the 219-unit chain. Same-store sales lifted 1.3 percent during the first quarter, beating internal expectations.

Labor costs, as they are for many full-service chains, challenged costs. Total revenue for the quarter was $599.5 million. Labor costs increased about 40 basis points compared to this time last year, taking up 36.2 percent of The Cheesecake Factory’s revenue, the company said. Chief financial officer Matthew Clark attributed this increase to higher hourly wage rates and management labor.

Check averages are also steadily increasing. Analyst David Tarantino pointed out The Cheesecake Factory will cross the $23 average check total and questioned whether there was any resistance as the company tries to reach $25 and beyond. Clark said the company kept an eye on its competition and is tracking normally. Additionally, it’s moving to protect margins in order to benefit from the higher check totals.

Menu mix and pricing are contributing to growing totals. “I think when we look at the mix, we feel very good about the elasticity of our pricing power, how guests are navigating,” Clark said. “They continue to order across the spectrum, which is very positive.”

With the significant growth of the off-premises segment factored in, check totals are slightly distorted because the growth is happening so rapidly, Clark added.

While sales inside the four walls of the restaurant continue to increase, off-premises is also gaining ground. The segment grew 2 percent from 14 to 16 percent during Q1. Delivery makes up 30 percent of off-premises, and with the exclusive partnership with DoorDash, executives believe growth will continue into the near future.

The Cheesecake Factory is capitalizing on DoorDash’s creative marketing to show customers they don’t have to dine exclusively in the restaurant.

“Along with being able to be at the top of the app with DoorDash and having the awareness of the brand top of mind when somebody goes in just through the DoorDash app to begin with, along with the marketing that we've done with DoorDash,” Gordon said. “The TV marketing that they've done most recently has continued to grow that channel in a pretty strong and meaningful way.”

Data collected from the partnership revealed customers are very attracted to the brand and aware of its delivery platform, Gordon said. One of the latest marketing campaigns that ran on April Fool’s Day gave 10,000 people $25 of free Cheesecake Factory delivery through DoorDash. All 10,000 rewards were claimed within just eight minutes, Gordon said.

Delivery and digital check totals are higher on average than in-store checks. Customers are also spending more on dessert when they place an online order than if they were to dine in the restaurant. Online sales of desserts made up between 17-20 percent of online sales. Gordon believes delivery sales will continue to grow.

“Whether we're mature in markets or in some of the newer markets that we launched towards the end of last year, the popularity of delivery continues to grow,” Gordon said. “The guests continue to be as pressed, if not more pressed for time than they have been in the past.”

The Cheesecake Factory
The Cheesecake Factory is capitalizing on DoorDash’s creative marketing to show customers they don’t have to dine exclusively in the restaurant.

As The Cheesecake Factory breaks into new markets, off-premises will remain a major part of the brand’s growth strategy.

For 2019, the company expects to open six new restaurants domestically and another five internationally. 

Last month, a new location featuring a smaller footprint opened in Oxnard, California. The company is testing the smaller prototype, which is about 5,500 square feet, for international growth opportunities.

“We opted to build a smaller restaurant to determine if this business model can capture sufficient productivity and efficiencies in a smaller footprint,” Overton said. “If we are successful, we would look to export the model to our international partners as it could support additional real estate opportunities, particularly in Asia, where larger locations are difficult to find.”

If the smaller restaurants could operate as fluidly as a normal restaurant, which tend to be between 7,200-7,500 square feet, then it would be a viable idea to grow with global partners. The testing is ongoing as the new location only opened a couple of days ago, but so far is beating sales expectations, Gordon said.

“We wanted to be able to prove out that we can execute the menu in a little bit of a smaller kitchen design,” Gordon said. “We want to prove out the feel of a Cheesecake Factory when you walk in, everything at the guest experience is still there in 5,500 square feet.”

Gordon noted that the smaller footprint is only being developed for international restaurants and they don’t have any plans to open them domestically for the time being. The growing popularity of off-premises and ghost kitchens also are of no interest for The Cheesecake Factory.

“We can execute what we need to do off-premises and even grow those sales in the kitchen designs that we have today due to their size,” Gordon said. “So we would look to continue to do that and not add any additional costs or any other additional complexity.”

The Cheesecake Factory dipped its foot in the fast-casual sector during Q1 with the opening of Social Monk Asian Kitchen in California. So far customers are responding well to the concept, but the company is working to balance food and labor costs to make it successful, Overton said. A second location could come soon if the kinks are worked out.

The deal to acquire North Italia and Flower Child should be completed in Q3. Clark confirmed the transaction will cost the company about $150 million. North Italia continues to open locations and grow its footprint. The brand now has 18 locations. Clark said the company is allocating between $90­–100 million for anticipated growth and maintenance needs across both brands.

“Everything that's going on at North [Italia] today is why guests love it so much,” Gordon said. “We will look to leverage our supply chain scale, our IT infrastructure, some of our HR practices, whatever we can do to add more value in the concept, we will.”