Cheesecake Factory Sees Opportunities for Culinary Dropout
The Cheesecake Factory Inc. continues to expand the brands acquired with its acquisition of Fox Restaurant Concepts, bringing the fast-casual Flower Child to join North Italia under the corporate umbrella, executives said Wednesday.
The Calabasas Hills, Calif.-based company, which reported earnings Wednesday for the third quarter ended Oct. 3, said it continued to see growth for various concepts within the FRC portfolio, including Culinary Dropout, as potential growth concepts. Cheesecake Factory agreed to buy Sam Fox’s Phoenix, Ariz.-based restaurant incubator company in July 2019 in a deal valued at $353 million.
“We just opened our newest Culinary Dropout in Charlotte, N.C., to strong demand with average sales of $175,000 over the first couple of weeks,” said David Gordon, president of Cheesecake Factory, on an earnings call. “We now have nine locations open, averaging over $200,000 per week so far this year.”
“Culinary Dropout’s strong cash-on-cash returns position this concept as one of the more promising experiential concepts within FRC’s portfolio, given the attractive unit economics,” he said. “We are testing the geographic portability and currently have plans to open another location this year in Atlanta as well as another two to three locations a year over the next two years across the Southeast, Texas and Southern California.” The company in September had said it anticipates growth prospects for North Italia and Flower Child.
David Overton, The Cheesecake Factory chairman and CEO, said the company was on track to bring the fast-casual Flower Child concept under the corporate umbrella this year.
“We are looking forward to accelerating the pace of openings next year,” Overton said. “We would anticipate over time that it too would be a 20% grower year-over-year. The portability of the concept continues to be very promising. It’s doing well in new markets — very strong infrastructure — and the teams there are very focused on developing management to enable that growth.
“I think we would anticipate some of the same scale advantages that we have with the other concepts with Flower Child, whether that’s supply chain, some of our HR infrastructure, etc.” Overton said. “But thus far, we have seen good availability of sites. Landlords are excited about the concept. We continue to feel it’s differentiated in its space. And certainly, the guest demand and the traffic has been fantastic.”
The company in June debuted its first loyalty program for The Cheesecake Factory.
“Our overarching objective is to leverage data analytics and insights to engage more effectively with our guests and drive incremental sales while maintaining our restaurant level margins,” Gordon said. “While we are just now entering our fifth month of the program following the national launch of Cheesecake Rewards on June 1, we continue to be encouraged by the level of member activity and engagement we are seeing.
“As we have previously stated, we’re taking a very deliberate approach as we expand the program and therefore, do not anticipate seeing a measurable impact to sales for the first year or so,” Gordon said. “That being said, early demand continues to exceed our internal expectations and member satisfaction scores are over-indexing, reinforcing our belief that we are on the right path.”
During the fourth quarter, Cheesecake Factory will be testing additional acquisition tactics and activation campaigns to better understand the key strategies that resonate well with rewards members and are the most effective in increasing membership enrollment and engagement and driving frequency, he said.
For the third quarter ended Oct. 3, The Cheesecake Factory swung to a net income of $17.9 million, or 37 cents share, from a loss of $2.4 million, or five cents a share, in the same period a year ago. Revenues increased to $830.2 million from $784 million in the year-ago quarter.
Same-store sales in the quarter were up 2.4% at Cheesecake Factory and up 8% at North Italia over the prior year, said Matt Clark, the company’s chief financial officer.
The Cheesecake Factory said off-premises sales for the third quarter were 21% of total sales, just below second quarter levels, which it said potentially indicated a return to more normal seasonal patterns.
The Cheesecake Factory owns and operates 325 restaurants in the United States and Canada under brands including The Cheesecake Factory, North Italia and a collection within Fox Restaurant Concepts. Internationally, 31 Cheesecake Factory restaurants operate under licensing agreements.
Cheesecake’s bakery division operates two facilities that produce quality cheesecakes and other baked products for its restaurants, licensees and third-party bakery customers. In October, the company announced plans to build a third bakery facility in Charlestown, Ind.