To-go and delivery currently account for a third of The Cheesecake Factory’s total sales. That was about 40 percent last quarter, suggesting there’s significant staying power for the channel, even in the face of recovered consumer mobility. It’s almost sure to slide back further as dine-in capacity lifts, but imagining it going all the way back to pre-virus norms is difficult at this point.
The brand curtailed off-premises marketing recently as sales strengthened in March and April. Basically, The Cheesecake Factory has gotten far enough and crossed enough adoption gaps that it doesn’t have to. “We believe the appeal, quality, and increased awareness of our offering has enabled us to drive the highest level of off-premises sales dollars and maintain the highest level of off-premises sales when indoor dining rooms reopen relative to our publicly traded casual-dining peers,” Gordon said. “And our ability to sustain off-premise sales around these levels for over a year reinforces our belief that a meaningful increase in off-premise sales could be a longer-term sales driver for The Cheesecake Factory as we emerged from the pandemic.”
Executives have talked at length about the topic over the past year, as you might expect. What’s to credit for the sustained volume? There are several triggers. One being the brand did not scale back its menu in any fashion. The breadth of offerings, Gordon said earlier, enabled it to differentiate in the off-premises channel, just like it did with dine-in before coronavirus. The reasons are just a bit different.
With off-premises, it unlocks order frequency and repeat business since the company doesn’t bank on one product. Also, variety allowed Cheesecake Factory to target dayparts at its own directive. It could market and push awareness toward burgers, for instance, if it wanted to compete at lunch. In Q4 2020, the brand tried a $15 lunch special that included a slice of cheesecake—an effort that drove higher incremental sales attachment compared to a September pilot. It also diverted sales to late afternoon shoulder periods.
Broadly, including dine-in, the daypart conversation has evolved for the brand of late.
“One of the things that I would point out that I think is good positive for us is the biggest growth we've had in dayparts, if I look at the most recent trends is the midafternoon,” Clark said. “And so, lunch was even slightly bigger than dinner, too. And have been two areas rebuilding the shoulders, right? And then, the other thing I would say is that from a comp perspective, we are seeing outsized performance in the middle of the week. So that's also positive because were the areas of pressure have been for us at the middle of the day and in the middle of the week. And we are seeing outsized gains there recaptured.”
One of the most notable off-premises levers for The Cheesecake Factory might actually be value, which generally isn’t a company hallmark. The sheer size of the brand’s off-premises lineup gives it the ability to present value across the menu and offer flexibility with pricing, particularly in markets where wage pressure continues to ratchet up.
A range of price points and offerings made it so families can order, “easily one, two or three times a week,” Gordon noted.
Additionally, The National Restaurant Association said in its 2021 State of the Industry Report that 52 percent of adults, including 63 percent of millennials, said they’re more likely today to incorporate restaurant fare into their home-prepared meal.
In other terms, “blended meals” are on the rise—the idea of adding a main dish, side, or dessert, into an at-home occasion. And The Cheesecake Factory was built for such a movement.
But the pricing note can’t be understated, either. The company runs low single digit, 2–5 percent or so, on its delivery menu specifically. Clark was asked Wednesday by Wells Fargo analyst Jon Tower, “why not make that transaction itself either margin or penny—profit accretive, or even margin neutral to accretive to an in-store transaction.”
Or, phrased another way, why not raise delivery prices to offset margin pressure?
“The way we think about it is agnostic to the guest’s experience,” Clark said. “I mean, I think that David has grown this company targeting absolute guest satisfaction. And we think that if it's basically margin neutral, it is a fair proposition and will drive the business, and we'll make our money that way.”
“And that's where we're at today,” Clark continued. “And so, the more that other companies take more pricing, the better off we're going to be actually, is where we sit. So I think it's a little bit of a contrarian view, but it seems to be working pretty well for us.”
The Cheesecake Factory can also take this approach because of scale and leverage, and its partnership with DoorDash. For example, when the company mentioned curtailing marketing, that doesn’t include top-of-app preference and some of the normal considerations it gets as an exclusive partner. Cutting back instead referred to promotional activities, like discounting cheesecakes.
But the overall off-premises flow has been relatively consistent in terms of where sales are coming from.
It’s stemmed 40 percent delivery, 30 percent online ordering, and 30 percent pickup. “And we do take a little bit of extra pricing as was referenced low-single business for delivery,” Overton said. “So when you put all of those pieces together, the off-premises business, it basically ends up around the same margin as on-premises. And so, we're pretty agnostic about where we drive the sales as long as we're getting them.”
Another thing helping the brand, Overton said, is that it’s at 90–96 percent of pre-COVID staffing levels, despite the challenged hiring market. It was recently recognized as one of the Fortune 100 Best Companies to Work For for the eighth consecutive year. The company ranked No. 35 and was the only restaurant brand included.
“Fortunately, we made the strategic decision on the management staff inside to keep all of our managers in place, which is enabling us to be able to execute, I think, as well as the operators are executing today,” Overton said.
On the current state and being above 90 percent, he added, “I don't know that we have as much catch-up to do, perhaps as some others in our space. We've always paid a very competitive wage. We have a very strong career continuum that shows advancement opportunities. We've also taken this opportunity to bring back a couple of our recruiters to help at the hourly level, the restaurants so they can stay focused on operations. So, really good about our plan in place.”
Overton said he doesn’t see the current staffing situation negatively impacting sales moving forward.
“Our operators are doing a great job of retaining the people that we have,” he said. “And that's been something that we've talked about since the beginning of COVID—that retention will be key once we get to this point.”
