What Cheesecake Factory is thinking

Cheesecake Factory’s quarterly analysts call revealed some interesting details of the casual-dining giant's post-Recession strategy.

For instance, executives explained why you won’t see frozen Navajo sandwiches, a Cheesecake specialty, in the freezer case of your nearest SuperValue. The company’s menu signatures are usually too expensive to sell well in mass-market supermarkets, explained CEO David Overton.

“That’s why we have done so well in the warehouse clubs,” where the slighter markup makes Cheesecake-branded products a bargain, said Overton. He pegged the company’s sales through that channel at $30 million to $40 million, minimum.

Overton also noted that all of the chain’s salad greens are now organic, and that stores already offer a choice of brown or white rice. Cheesecake Factories also serve sweet potato fries, which some perceive as more healthful than the standard version.

Health will continue to be a concern as the chain evolves its menu, said Overton. But he noted that the effort will be a process, not a wholesale changeover, a reflection of consumer preferences. The company has restaurants in 12 areas that already require chain operations to post calorie counts on the menu, and “there’s been virtually no change in what people are buying,” he said. “They’re not buying less desserts. So when people go out to eat, they really want what they want.”

Portfolio managers participating in the call pressed the Cheesecake officials for their views on buying or starting a new chain with all the cash they have on hand. The executives didn’t respond squarely to the quasi-suggestion that they diversify, noting that the company could double in size just from the expansion of its namesake brand.

Overton did note that a new smaller-sized Grand Lux Café will make its debut later this year, and that a RockSuger Pan Asian Kitchen, Cheesecake’s upstart concept, will add a unit.

In one of the strangest asides I can recall from an analysts’ conference call, Overton also cited a news report that nose jobs are increasing in number and that economists read that as a positive omen for the economy.

Hey, the man has built one of the most phenomenal sales machines in the business. If plastic surgery is a gauge for him, I suggest we start a rhinoplasty index.

A genetically altered Cheesecake Factory?

Cheesecake Factory opened the first of its new downsized restaurants this month, a departure from the pricey cathedrals that’ve been a hallmark of the concept since its earliest days. Now it has a smaller, less-expensive prototype, just like everyone else in casual dining.

That concession to the times follows the addition of a menu section consisting solely of bargains, an asterisk to the chain’s positioning as a place of indulgence, as its luscious cakes or huge portions attest. Now deal hunters will find the same sort of values they might seek on other Friday or Saturday nights at Red Lobster, McCormick & Schmick’s, Outback or Mortons.

Point by point, the once high-flying chain is addressing the issues that have tempered its phenomenal financial success. But, in the process, is it engineering its way into one of casual dining’s biggest problems? Is it sacrificing dramatic points of differentiation to become like everyone else in the pack?

If I’m typical of Cheesecake’s fan base, patrons go there because the experience is over-the-top, from the 200-item menu to the portions, the unusual choices (Navajo Sandwich, anyone?) and the dramatic settings (insider’s note: Look for a sky scene in your local unit, a concession to the religious orientation of longtime leader David Overton). It’s not an overstatement to say it provides a sense of awe.

But awe doesn’t sell in this tight-walleted environment. Bargains, economy and accessibility are today’s stock in trade. Still, by curbing what’s been in its DNA to embrace those head-turning qualities, is Cheesecake thinking merely for the short term? Certainly this economic situation is a crisis, and hence by definition a passing pain.

I’ll be the first to admit that it’s easy for me to second guess one of the industry’s most successful executive teams. I don’t have investors, executives, landlords and employees looking to me to pull the concept out of the doldrums.

But I hope Cheesecake doesn’t sacrifice the counter-intuitiveness that made that brand a stellar success. When everyone was going for streamlined menus, it maintained a tome of fare. When nods to healthfulness were the order of the day, it continued to serve selections that could have fed whole Caribbean islands. When competitors shotgunned units into the market like space invaders focusing on street corners and malls, it grew slowly and with painstaking selection of sites (to the best of my recollection, it’s never had to close a restaurant).

It needs to think in evolutionary terms—how to tailor the brand to the times. Merely co-opting what’s worked for other casual-dining concepts is de-evolution of the worst kind. I hope the folks in Calabasas Hills are careful about how they navigate these perilous times. Otherwise, they’ll just be jumping the shark.