Can the casual leader continue to soar outside the four walls? Time will tell.
The rise of COVID cases is out of the Cheesecake Factory’s control.
The same is true for decisions by state and local governments and the federal government’s stimulus package response.
So as reopening plans are reversed and capacity limits are shifted, what does remain under Cheesecake’s direction? CFO Matthew Clark said it’s building the off-premises channel, an area in which the brand has thrived throughout the pandemic.
Quarter-to-date, the channel mixes 50 percent. Since reopenings began in mid-May, Cheesecake has held 90 percent of the growth it’s seen in off-premises sales.
At the 146 restaurants that have indoor dining, sales are at 80 percent of prior-year levels, driven by the strength of off-premises. That’s equal to more than $8 million per unit on an annualized basis—even with 50 percent capacity restrictions. Thirty-six stores are serving outdoor diners. In those instances, Cheesecake has expanded patio seating in partnership with landlords and has seen off-premises accelerate. At the 22 units performing off-premises only, weekly sales equate to $4.2 million per unit on an annualized basis.
Quarter-to-date, the brand is down 32 percent.
“The off-premise business we think is going to be sticky,” president David Gordon said during the brand’s Q2 earnings call. “So, as restrictions continue to lift, not just in those 50 percent capacity, but in the 25 percent moving to 50 percent, and who knows when we could even get to 75 percent dining rooms reopen again, we think we'll be able to keep a decent percentage of the off-premise sales, be able to handle that capacity, and get back to where we were before in the dining rooms with the waits on the weekends and even the waits during the week.”
Clark said the demographics of dine-in and off-premises customers is similar. The brand tends to skew toward educated, affluent, and tech savvy guests, which is about the same across all sales channels.
As for how much of the off-premises growth will remain in a post-pandemic world, Clark said that’s the $4.2 million question.
“I think we were pleasantly surprised at the levels that we're maintaining right now, but I think it's very difficult to know where exactly that will land,” Clark said. “I think that you will see the guest behavior does get permanently modified after periods of three to six months out. So, it's good to be elevated. It's just a matter of where it lands.”
Cheesecake said its off-premises performance has been supported by marketing campaigns, including the 4th of July Burger—an item that resonated with new and existing consumers. The promotion was covered in more than 120 media outlets and generated more than four billion media impressions. The response was so overwhelming, that the brand had to reduce the duration of the offer because demand exceeded supply levels.
Most of those sales from the promotion came through online ordering, which has eclipsed delivery in terms of volume. Online comprises 40 percent of off-premise sales while delivery contributes 35 percent.
Cheesecake has also built North Italia’s off-premises business, which was in its infancy prior to its acquisition in the fall of 2019. The company leveraged its relationship with DoorDash and launched an online ordering platform utilizing the same technology used at the Cheesecake Factory. Off-premises now represents more than 30 percent of North’s sales. The Fox Restaurant Concepts have seen strong contributions from off-premises, as well.
“We know that what's in our control—to continue to drive some of the off-premise business. I mean the fact that with those open dining rooms we're keeping 90 percent of our elevated COVID off-premise sales I think is a testament to how we've always talked about the quality and the value of Cheesecake Factory off-premise,” Clark said. “And I think guests are seeing that, and we have really been developing innovative new ways to market that, and I think we can continue to do it. So I think that also that channel will be something that we can continue to grow, and whether that's through our own online ordering or delivery or even guests still calling in the old fashioned way, we're happy to do that.”
Comp sales dropped 56.9 percent in Q2. Through the first and second quarter, same-store sales have declined 35.9 percent. The brand improved from a 66 percent plummet in April to a decrease of 42 percent in June. Total revenue at Cheesecake restaurants dropped from $551.5 million in 2019 to $241.1 million this year, or a 56 percent slide. North Italia’s comps declined 59 percent in the quarter.
At the 33 Cheesecake locations opened at 50 percent for the full month of June, sales were at 87 percent of prior year levels, with a nearly flat margin of 17.5 percent.
The company ended Q2 with 206 Cheesecake and 23 North Italia units. Including other concepts, the brand has a portfolio of 294 restaurants. Roughly 71 percent of the system has reopened dining rooms. About 16 percent have reopened outdoor seating in accordance with guidelines in California, Florida, and New Mexico. Sixteen stores, including one Cheesecake Factory unit in San Francisco, are temporarily closed.
Off-premises has supplemented pent-up demand from dine-in customers, with many locations seeing wait times from 20 to 60 minutes on the weekend. Despite capacity restrictions, the brand’s flexible seating layout has allowed it to recapture meaningful sales levels.
As capacity limits increase and off-premises remains strong, Cheesecake believes total sales could eventually rise above where they were before COVID.
“I'm incredibly proud of how nimble our teams have been, constantly adapting to whatever changes come their way,” Gordon said. "While there is little doubt that 2020 has been the toughest period that the restaurant industry has ever faced, I'm confident in our ability to continue to navigate through this dynamic landscape and we expect to emerge stronger on the other side of the pandemic.”