Cheesecake Factory Inc. is working to go global, one region at a time.
The restaurant company opened its first international location last fall in the Middle East, and last month announced that it already has decided to expand into Latin America.
The Calabasas company signed a licensing agreement to open at least 12 restaurants in Mexico and Chile in the next eight years, with the potential to open more in Argentina, Brazil, Colombia and Peru.
And it doesn’t stop there.
David Overton, founder and chief executive, has hinted that the company is looking to enter more major markets abroad, including Asia and Europe.
“International growth is a significant opportunity for us and, in addition to the agreements already in place, we are continuing discussions with other potential global partners,” he said in a conference call with investors last month.
Scott Swanson, an analyst at Crowell Weedon & Co. in downtown Los Angeles, sees international expansion as a way for the company to grow revenue. By doing it through licensees, it’s nearly risk free.
“These third parties will develop the locations, assume the operations risk, etc., and Cheesecake will just accept the royalty,” he said. “That could end up being pretty meaningful to the company’s bottom line down the road.”
The company, which last month reported fourth quarter net income of $22 million (40 cents a share), expects royalty revenue from each international restaurant to contribute to earnings by about one cent a share each year. Three Cheesecake Factory restaurants have opened in the Middle East and three more are scheduled to open this year. The first Latin American restaurant is expected to open in Mexico City in early 2014.
But not everyone is optimistic.
Ivan Feinseth, an analyst at Tigress Financial Partners LLC in New York, said he’s skeptical that Cheesecake Factory could flourish in Latin America or Asia, especially considering the income inequality of those regions.
“Most local people may be able to afford fast food, but they really don’t go to the casual dining restaurants,” he said. “I don’t know that the local people will have the budget or the interest, and tourists – why would they eat what they can get in the U.S.? I just don’t think the concept is as portable as everybody believes.”
But even if the restaurants don’t find Latin American markets particularly receptive, Swanson said that shouldn’t be a problem for Cheesecake Factory because it won’t invest its money in the licensed locations overseas.
“If for some reason it doesn’t work, the company’s not out anything,” he said. “But I think that if Cheesecake finds the right partners and operators, certainly there’s no shortage of markets around the world where the right demographics exist to support the stores.”
Cheesecake Factory, which Overton founded with his mother’s cheesecake recipes as a small soup-and-salad restaurant in Beverly Hills in 1978, looks to open its expansive restaurants these days in densely populated high-income areas that draw consumers regionally for shopping, dining and entertainment. That goes for both its domestic and international locations.
The company signed with Alsea S.A.B. de C.V. in Juarez, Mexico, for its Latin American expansion. Overton said he realized that Cheesecake Factory could have wide global appeal after its restaurants in the Middle East opened smoothly to crowds of people willing to wait two hours for a table.
“Once we got going and understood the process, we wanted to go to other areas where we felt we could do business and had excellent operators,” he told the Business Journal last week. “We always heard that Alsea was the best operator in Latin America.”
Alsea, which is publicly traded on the Mexican Stock Exchange, operates 1,421 restaurants in Latin America.
Cheesecake Factory, which owns and operates 175 restaurants in the United States, including 14 Grand Lux Café locations, employs almost 34,000 people. It also operates a 60,000-square-foot bakery near its Calabasas headquarters.
The dessert-focused chain requires strict precision from its staff to maintain high levels of service and quality control. In fact, Overton, known to be a stickler for even the smallest details, said he believes his restaurants are some of the most difficult to operate in the United States.
“We have over 250 menu items, plus 70 desserts, and we make everything from scratch every day,” he said.
By handing the reins over to a licensing partner, Cheesecake Factory risks watching international locations fall short of its standards. But Overton said he has faith in Alsea, which has brought a handful of American food and beverage brands to Latin America, including Starbucks, Burger King, California Pizza Kitchen and P.F. Chang’s.
Cheesecake Factory will be deeply involved in each new international restaurant’s opening efforts, particularly the first few in each region. The company will work closely with managers, cooks and servers to train them as it would in its U.S. restaurants. The chain’s namesake products – the cheesecakes – will be shipped from the company’s U.S. bakery to Mexico, where Alsea will send them to the restaurants.
Other aspects of the restaurant chain’s menu will require more work. In the Middle East, Muslim dietary restrictions had to be taken into account. The company’s meatloaf sandwich, for example, which calls for a Guinness marinade and bacon on top, has to be made using halal beef, nonalcoholic beer and beef bacon.
Similarly, in Latin America, Overton said the authenticity of the menu’s Mexican dishes must pass muster.
“My understanding is that our Mexican is really more like Tex Mex, and down there, that’s not what they really like; they have different taste profiles,” he said. “We’re going to be looking into that this year. We certainly don’t want to go into it with something that might be OK here, but substandard there.”
But after the work that went into opening in the Middle East, Overton said he thinks Mexico will be a cakewalk.
“When you open, you just have to hope that people will love your concept,” he said. “At the moment, there’s nothing we know now that we feel is going to be that difficult. Everything will be easier in Mexico than it was in the Middle East.”
For reprint and licensing requests for this article, CLICK HERE.
Stories You May Also Be Interested In
- Restaurant Chain Looks To Add to Overseas Plate
- Cheesecake Factory Expands Into Asia
- Cheesecake Factory Expands to Puerto Rico
- Cheesecake Sales Fall Due to Sandy
- Cheesecake Factory Profit Misses Wall Street Forecasts
- Earnings Roundup: Cheesecake, ReachLocal
- Cheesecake Factory Shares Fall on Cautious Outlook