The Cheesecake Factory is still digesting its $353 million purchase of Fox Restaurant Concepts, but the brand’s belief in the group is as strong as it was four years ago when the acquisition was finalized.
The biggest target is North Italia, which ended Q2 with 33 restaurants; that’s a positive net of 12 locations since October 2019. Same-store sales rose 8 percent year-over-year in the quarter and 30 percent versus Q2 2019. AUV is annualizing at $8 million, sales to investment ratio is 2:1, margins hover around the mid-to-upper teens, and cash-on-cash returns range in the low-to-mid 30s. Systemwide sales in Q2 were $65.9 million, a 17 percent increase compared to 2022.
The brand is now fully integrated under The Cheesecake Factory’s umbrella. Of the 20 restaurant openings planned for fiscal 2023, five are for North Italia. The casual-dining concept is based in Alabama, Arizona, California, Colorado, Washington, D.C., Florida, Georgia, Kansas, North Carolina, Nevada, Pennsylvania, Texas, Tennessee, and Virginia.
“There’s a lot more whitespace to work with to operate a little bit more contemporary and benefit from the scale, but still have people believe it’s their local Italian concept,” CFO Matthew Clark said during the Piper Sandler Growth Frontiers Conference. “The margin profile looks very strong. The alcohol is 25-30 percent—that definitely supports it. At the same time, that margin includes making all the pasta fresh in-house every day and all the culinary aspects that we bring. So it’s a pretty good balance.”
Then there’s the roughly 30-unit Flower Child, which president David Gordon described as a high-end fast casual with a healthy halo. The brand is scheduled to be fully integrated with The Cheesecake Factory by the end of 2023. Customers order at the counter or via a self-order kiosk. Plated meals are brought to guests in the dining room and removed when they’re finished. AUV is more than $4 million inside roughly 3,500 square feet, meaning stores earn about $1,200 per square foot. The lunch daypart mixes about 60 percent.
Off-premises accounts for 55-60 percent of sales, but Flower Child remains focused on highlighting its dining room. The company recently finished rolling out a new kitchen management system that puts dine-in throughput at about eight minutes. The margin profile looks similar to North Italia. Also, Flower Child envisions 20 percent annual unit growth like its Italian sister concept.
“Over the past couple of years, we’ve been really focused on refining the business model to get the margin structure right,” Clark said. “So keep in mind that while North Italia has been around for over two decades, it hasn’t even been quite one decade for Flower Child. So it’s still an emerging brand in that respect.”
Fox Restaurant Concepts, which operates 50-plus restaurants across more than a dozen concepts nationwide, was founded by industry veteran and James Beard Award nominee Sam Fox. In addition to North Italia and Flower Child, Gordon said Culinary Dropout and The Henry are two concepts primed for expansion in the coming years.
Culinary Dropout is a classic American concept with nearly 10 locations in Alabama, Arizona, Colorado, and Texas, according to its website. Gordon said the chain has proven itself to be “the next horse in the race” thanks to strong AUVs and high guest acceptance in new markets. There’s also The Henry, an all-day fare American restaurant that has four outlets in Arizona, California, Florida, and Texas.
“Most important is that we have a plethora to choose from,” Gordon said. “They’re all ones that from a consumer standpoint, there seems to be—no matter where we’ve gone—a lot of excitement around. We’ll continue to refine them and make sure the financial model is in the right place if we want to pull the trigger on one of them and grow it as a growth vehicle domestically.”
As for The Cheesecake Factory business on its own, same-store sales lifted 1.5 percent in Q2 year-over-year and 14.1 percent compared to Q2 2019. That’s with AUVs of $12.4 million. Off-premises sales mixed 22 percent, just below Q1 levels. At the same time, On-premises visits remained above 2019, with no material change to daypart mix. On June 1, the company nationally launched its rewards program, which it created to gather as much data as possible about the customer and to develop targeted marketing relationships. It’s still early days, but guest acquisition is above expectations. The primary draw for consumers is not points per purchase, but other amenities like access to reservations and a free slice of cheesecake on their birthday. The rewards program is exclusively integrated with DoorDash.
The Cheesecake Factory finished Q2 with 211 company-owned stores in the U.S.
“Business is booming,” Clark said. “The demand is there so it gives us a lot of confidence that the real estate selections we’re making, we’re going to have the returns that we’re targeting.”