Sam Nguyen is just the kind of customer that Cheesecake Factory Inc.’s Grand Lux Cafe chain is looking for.
The 26-year-old USC graduate student likes to go to Grand Lux when he’s not in the mood for Cheesecake Factory’s signature cheesecake and long lines. “It tastes good, and it is different. The atmosphere is a little bit nicer, more European,” said Nguyen, while waiting last week for his dinner guest at the Beverly Center location.
Grand Lux’s expansion was put on hold to concentrate on the company’s namesake restaurants, but it’s now moving forward. The Calabasas Hills-based company plans to more than double the size of the Grand Lux Cafe chain by the end of next year to 11 restaurants, and, ultimately, dot the country with up to 150 locations.
The expansion comes as Cheesecake, a Wall Street darling, is seeking to identify ways to continue growing even if its core concept approaches saturation. But questions remain about whether spreading Grand Lu Cafes is the right move.
“There is jeopardy of cannibalization,” said Robert Benson, president of Beverly Hills-based restaurant company Open Menu Inc., who thinks that Grand Lux could have been a more high-end concept. “The concepts are too close for the same market.”
Grand Lux was launched out of necessity. In 1999, a prime spot had opened up in Las Vegas at the Venetian Resort Hotel Casino, but a Cheesecake Factory was already nearby. Rather than create a completely different menu, the company decided that there was a big enough market to stick with what it knew.
In addition to Las Vegas and the Beverly Center, there are two Grand Lux Cafes in Texas and one in Chicago; Cheesecake Factory has 98 locations.
“The casual dining segment is a very under-penetrated market,” said Jill Peters, Cheesecake Factory’s vice president of investor relations.
The company doesn’t overtly advertise that Grand Lux is related to Cheesecake Factory, although it does note on its menu that desserts are created by its sister restaurant chain.
The differences between the two restaurants are minimal. Grand Lux is larger (more than 13,000 square feet, compared to Cheesecake Factory’s 10,500). It’s also more upscale, with a dolled-up interior filled with enormous booths, high ceilings and marble floors.
The menus cover similar ground burgers, steaks, seafood, pasta, pizza and salads. Few menus items are exact duplicates. Average bills are slightly higher at Grand Lux.
For all the concerns about cannibalization, Cheesecake Factory has racked up positive same-store sales increases a crucial measure of sales growth at units open at least one year almost every quarter since it went public in 1992. In the third quarter, Grand Lux had a 3.8 percent same-store sales increase, even after an estimated 1.1 percent same-store sales hit from the hurricanes.
Average annual revenues at each Grand Lux Cafe are $11.2 million, compared with Cheesecake Factory’s $11 million. That’s up to triple the amount that most casual dining restaurants expect to generate in a year.
Grand Lux Cafes are intentionally being placed in locations where a Cheesecake Factory is in the vicinity. Upcoming units are being put in Boca Raton, Fla., Sawgrass, Fla., Scottsdale, Ariz., Garden City, N.Y. and Atlanta, where Cheesecake already has a built-in customer base.
Peters said the idea is for Grand Lux to eventually stand on its own apart from the Cheesecake Factory. That way, it can amass its own following and eventually be placed in geographic areas without its sister chain.
