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Running head: BUSINESS ANALYSIS – THE CHEESECAKE FACTORY

Business Analysis – The Cheesecake Factory

Megan M. Miller

Arizona State University

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BUSINESS ANALYSIS – THE CHEESECAKE FACTORY
Report Contents

This report contains information relative to The Cheesecake Factory Incorporated. The primary

source of information used to complete this report was the 2018 Annual Report. The Cheesecake

Factory Inc. is a publicly traded company and it adheres to GAAP reporting standards (The

Cheesecake Factory, 2019, pg. 47). Financial audit performed by KPMG LLP, an independent

registered public accounting firm located in Los Angeles, California. KMPG LLP stated they

completed the company’s audit as of January 1, 2019 for “the related consolidated statements of

income, comprehensive income, stockholders’ equity, and cash flows for the year then ended,

and the related notes (collectively, the consolidated financial statements)” (The Cheesecake

Factory, 2019, pg. 52). Based on the criteria established in Internal Control – Integrated

Framework issued by the Committee of Sponsoring Organizations of the Treadway

Commission,, KMPG LLP also audited the Company’s internal control over financial reporting.

(The Cheesecake Factory, 2019, pg. 52). It is important to note that The Cheesecake Factory

operates under the governance of a Board of Directors consisting of: David Overton – Chairman

of the Board and Chief Executive Officer, Edie A. Ames – Chief Executive Officer, Alexander

L. Cappello – Chairman and Chief Executive Officer, Jerome I. Kransdorf – President Emeritus,

Laurence B. Mindel – Managing Partner, David B. Pittaway – Vice Chairman, Senior Managing

Director, Senior Vice President and Secretary, and Herbert Simon – Chairman Emeritus.

Purpose of this Analysis

In this paper, I examine the way in which The Cheesecake Factory addresses and utilizes

various resources as well as its value creation process. I will also expand on the relationship The

Cheesecake Factory has established with its community, its stakeholders, and its environment.
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To conclude this report I will provide recommendations on how to enhance the company’s

consumer and shareholder impact.

The Heart of The Cheesecake Factory

The Cheesecake Factory Incorporated describes themselves as the leaders in experiential

dining (Investor Relations, n.d.). With a focus on innovative, unique dining experiences The

Cheesecake Factory Incorporated has placed an extreme emphasis on providing elite customer

service through its food service, customer interaction, and community engagement.

In the 1940s a woman by the name of Evelyn Overton found a recipe that would inspire

her now incredibly famous, original cheesecake. Evelyn Overton and husband, Oscar packed up

their family in the early 1970s and moved to Los Angeles to pursue their dream of opening a

bakery that would be called, The Cheesecake Factory bakery. It didn’t come easily to the

Overton family, but with a lot of hard work and a bit of intuition, the Overton’s son, David,

decided to expand the business and open an accompanying restaurant. This restaurant was

formally established in 1978 in Beverly Hills, California and became known as The Cheesecake

Factory restaurant (Our Story, n.d.).

According to the 2018 Annual Report, The Cheesecake Factory restaurant has 217

restaurants opened as of fiscal year end (The Cheesecake Factory, 2019, pg. 2). The mission of

The Cheesecake Factory is, “to create an environment where absolute guest satisfaction is our

highest priority” (Investor Relations, n.d.). With a lofty consumer promise, The Cheesecake

Factory shares its vision with consumers and shareholders. “Through a shared commitment to

excellence, we are dedicated to the uncompromising quality of our food, service, people and

profit, while taking exceptional care of our guests and staff. We will continuously strive to
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surpass our own accomplishments and be recognized as a leader in our industry” (Investor

Relations, n.d.).

Value Creation Process

The Cheesecake Factory restaurants strives to serve guests through its unique, high-

quality dining experience. The restaurants work to provide this experience by offering guests an,

“extensive, innovative, and evolving menu in an upscale, high-energy setting with attentive,

efficient and friendly service” (The Cheesecake Factory, 2019, pg. 2) all at a moderate price. The

Cheesecake Factory focuses on the details from its intricate restaurant layouts to offering more

than 250 menu items; the restaurants appeal to diverse basis of customers. Creating value for its

customers, the Company has focused on providing something for everyone at nearly all dining

parts throughout the day. Capitalizing on something that other restaurants lack, The Cheesecake

Factory found a way to continue to attract and serve guests during the ‘shoulder’ periods of the

day, including mid-afternoon and late-night. Further creating customer appeal, all menu items

are available for consumption off-site except alcoholic beverages. In fiscal year 2018 off-premise

consumption such as catering, events, and to-go orders comprised approximately 14% of

restaurant sales. Alcoholic beverage sales followed representing approximately 12% of The

Cheesecake Factory restaurant sales for fiscal year 2018 (The Cheesecake Factory, 2019, pg. 2).

Further adding value to the Company, with more than 250 menu items, The Cheesecake

Factory can almost positively say it has something for everyone. “Core menu offerings include

appetizers, pizza, seafood, steaks, chicken, burgers, small plates, pastas, salads, sandwiches and

omelettes, including “Super” food choices and a selection of gluten-free items” (The Cheesecake

Factory, 2019, pg. 2). In addition, the Company also has dining options on their supplemental

menus such as their SkinnyLicious® menu featuring items containing 590 calories or less.
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Rounding off ones meal with dessert brings the company back to its roots. For a company that

started with a mom and a great dessert recipe, The Cheesecake Factory boasts in its 2018 Annual

Report that it offers, “approximately 50 varieties of proprietary cheesecake and other desserts”

(The Cheesecake Factory, 2019, pg. 2). As it is known for its sweet treats to end a meal, 16% of

The Cheesecake Factory sales for the 2018 fiscal year can be attributed to a significant level of

dessert sales (The Cheesecake Factory, 2019, pg. 2).

Resources

When reviewing the resources pertanenet to The Cheesecake Factory, it is important to

note that a resource can be defined as a tool used with the result of something created or a value

added. There are many different resources that The Cheesecake Factory uses each and every day;

and frankly, without many of these resources, the company would not be in the position of

growth that it is in today. For this analysis, we are going to use the word ‘capital’ to describe

resources used by The Cheesecake Factory.

Financial Capital

When addressing financial capitals, the company uses different financial statements to

provide up to date information to shareholders. As a publicly owned company, these statements

are available on the company’s investor relations internet page. Within the financial section of

this webpage the Company provides quarterly reports, annual reports, and access to SEC filings.

When comparing company metrics, the data is reported referencing the current fiscal year

(Investor Relations, n.d.).

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Figure 1

Financial Standings – 2018 Annual Report

Note: This image was taken from the 2018 Annual Report to provide a snapshot of the financial standings at year-end.

Manufactured Capital

There are many different forms of manufactured capital for The Cheesecake Factory as

every restaurant has its own physical location. On average, the company spends between $1.7-$2

million dollars in pre-opening costs for each location. This can vary, but costs include physical

space, renovations, unique dining layout, machinery, and equipment (The Cheesecake Factory,

2019, pg. 7). Other manufactured capital includes two bakery production facilities. These

bakeries operate to produce all of the desserts sold in The Cheesecake Factory restaurants as well

as to its international licensees and third-party bakery customers. As stated in the 2018 Annual

Report, the company “completed an infrastructure upgrade of our West Coast bakery. The new

facility features additional automation, as well as state-of-the-art baking and refrigeration

technology” (The Cheesecake Company, 2019, pg. 1).

Natural Capital

The Cheesecake Factory places a major emphasis on the focus of sustainability and

working with natural capital. As part of The Cheesecake Factory’s commitment to respect their
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employees and the people who grow or produce the products they source, the Company has

created a Sustainability Code of Conduct. The Sustainability Code of Conduct sets expectations

and creates a level of transparency between the company, its stakeholders, and its consumers.

The Sustainability Code of Conduct also, “seek[s] to ensure that suppliers meet our expectations

for doing business with us as they relate to legal requirements, ethical practices, human rights,

and environmental standards” (Summary of Our Sustainability Code of Conduct, n.d.). The

company has a lengthy, in depth commitment to sustainable sourcing which outlines their

specific goals in relation to working with sustainable vendors. These categories of focus include:

social responsibility, sustainable environmental sourcing, and the wholistic approach to animal

welfare (Sustainable Sourcing Policy, n.d.). As an added support to their commitment to animal

welfare, The Cheesecake Factory has partnered with World Animal Protection, Monterey Bay

Aquariun, and Liberty Shared partners to work to ensure animal wellbeing, appropriate seafood

farming, and safe employment for the seafood business.

Human Capital

In addition to natural capital, The Cheesecake Factory expands on their dedication to

providing elite experiences not just to customers, but also to its employees. The Company

commits to providing a place of employment with promotional opportunities, thorough training

programs, fair compensation, and an inclusive benefit package to all who are employed

(Employment Policy, n.d.). They, “Treat all workers with dignity and respect, including unbiased

conflict resolution processes, non-discrimination policies, voluntary and safe housing (when

provided), and access to necessary services” (Summary of Our Sustainability Code of Conduct,

n.d.).
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The Cheesecake Company illustrates their investment to their employees by offering all

employees health and medical insurance, paid time off, schedule flexibility, and training and

experiential learning. In addition, the Company also offers all employees a dining benefit as well

as an internal magazine acting as a platform to feature employee ideas. Employees at The

Cheesecake Factory range from hourly staff, to Executive Kitchen Managers, to General

Managers, to Area Director of Operations and beyond.

Relationship Capital

Relationship capital is defined by the relationships the company depends on to create

value. The first, and possibly most obvious, form of relationship capital is the relationship The

Cheesecake Factory has with its stakeholders. As a public company, The Cheesecake Factory is

responsible for sending out certain financial statements to keep stakeholders informed of

decisions being made. After looking through their 2018 Annual Report and reviewing the

Company’s specific investor portal on their website, it is clear that the Company has high regard

for its stakeholders. In the humblest manner, The Cheesecake Factory would not be in the same

place it is today without the commitment and dedication of its stakeholders. Creating a sense of

transparency with its stakeholders, the Company conducts Quarterly Factory Incorporated

Earnings Conference Calls as well as provides customized investor alert options relating to press

releases, SEC filings, events, presentations, and annual reports (Investor Relations, n.d.).

Secondly, The Cheesecake Factory is, “relentlessly focused on hospitality” and has the

goal of creating, “an environment where absolute guest satisfaction is [their] highest priority”

(Investor Relations, n.d.). Without the business created by its customers, The Cheesecake

Factory would not be in business. Take note that The Cheesecake Factory does not refer to its

customers as such, rather, they refer to them as their guests. This indicates that they care for each
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person who comes through their door and it is their intention to not only serve them a meal or

provide them with a service. Instead, the intention of The Cheesecake Factory is to immerse their

guests in a unique, yet delicious, dining experience. Placing emphasis on their consumer

relationship, the Company offers innovative and evolving menu options. These options include

specialty items, dietary restrictions, and choices that create customer attraction for the ‘shoulder’

periods of the day including mid-afternoon and late-night (Investor Relations, n.d.).

Finally, The Cheesecake Factory also creates relationships with the communities it is

established within. Through their Give Back Team Sponsorship, the Company grants volunteer

time to employees to volunteer within their local communities. In addition, The Cheesecake

Factory also participates in a gift card donation program to benefit schools and fundraising in

various communities. The Company has specific partnerships with: the Salvation Army’s

Thanksgiving Feast, the Food Waste Reduction Alliance, funding to the South Los Angeles

Youth and Community Center, ‘Feeding America’, the Harvest Food Donation Program, as well

as a Golf Tournament Fundraiser for the City of Hope Comprehensive Cancer Center in Duarte,

California.

Symbolic Capital

Being a direct consumer goods and experience company, does not mean The Cheesecake

Factory is void of symbolic capital. One example of symbolic capital for The Cheesecake

Factory is the multiple websites the company has, both consumer facing and investor facing. The

Company has also developed a mobile payment application, known as CakePay. CakePay allows

the guest to pay their bill through their mobile device while at their table. As a result, CakePay

has contributed to the rising NPS scores for the company since being launched as it has improved

the customer dining and payment experience. Another example of symbolic capital comes in the
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form of a mobile ordering application to expand operations for carry-out orders. In addition, The

Cheesecake Factory has also invested in state-of-the-art baking and refrigeration technology to

help maintain food freshness, decrease food waste, and decrease costs associated with excess

wasted product.

Another form of symbolic capital that has been created by The Cheesecake Factory is

their brand as a whole. The Cheesecake Factory is not just known as a restaurant, instead it is

known as an innovative company providing opportunities. One example of this is through their

recently acquired, Fox Restaurant Concepts, that serves as, “an incubation engine, innovating

concepts for the future” (Investor Relations, n.d.). Fox Restaurants Concepts has partnered with

The Cheesecake Factory to open additional unique experiential dining restaurants, fast-casual

concepts, and more in an effort to continue expansion across the globe.

Structural Capital

The Cheesecake Factory has instilled a hierarchy of leadership throughout all levels

where the top level consists of the senior executive leadership team. “However, the successful

day-to-day operation of our restaurants remains critically dependent on the ability, dedication

and engagement of our General Managers (“GMs”), Executive Kitchen Managers (“EKMs”) and

all other management and hourly staff members working at our restaurants” (The Cheesecake

Factory, 2019, pg. 6). Each restaurant is typically staffed with one GM, one EKM, and 6-10

additional kitchen and front-of-the-house managers who oversee roughly 170 hourly staff

members. The GMs report to an Area Director of Operations (“ADO”) who is responsible for

supervising 7-9 area restaurants. The ADO then reports to one of the four Regional Vice

Presidents of Restaurant Operations. In a similar fashion, the EKMs report to their GM, but also

receive guidance from an Area Kitchen Operations Manager who is responsible for 8-10
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restaurants. The Cheesecake Factory restaurant field supervision organization also includes an

operations services team, performance development department, Chief Culinary Officer, and the

Senior Vice President of Operations.

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Figure 2

Hierarchy of Operations Leadership

Note: This image illustrates the hierarchy of leadership amongst the operations leadership team as described in the 2018 Annual
Report.

Stakeholders and Accountability

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As an industry leader in experiential dining and as a well-known establishment for

providing elite guest service, it is likely The Cheesecake Factory feels as though they are held

accountable by their guests. The Company has set an extremely high bar for themselves and it is

the expectation of their guests that this high level of service is provided at every visit. The

Cheesecake Factory willingly communicates their Sustainability Code of Conduct with guests, as

well as investors and the general public, so it is likely they feel a responsibility to adhere to the

Code they established.

Although there is a sense of responsibility to please the customers, The Cheesecake

Factory is ultimately responsible for partnering with its stakeholders to bring in a profit and to

continue to expand its operations. The Cheesecake Factory is held accountable for its actions by

its stakeholders based on what is communicated as company goals. In the section below I have

compiled different risks The Cheesecake Factory feels could hinder their performance. As a

company it is important to communicate these risks with stakeholders so that they can assist in

combating any potential risks that may occur. When outlining their potential risks, The

Cheesecake Factory is also communicating their plan to prevent these things from occurring.

Consequently, this results in the stakeholders in the position to hold the Company accountable

for their actions.

Risk and Externalities

In the 2018 Annual Report published, The Cheesecake Factory eludes to a sense of

transparency as they outline many potential risks or external threats to the company. The first

risk communicated with investors states, “The impact global and domestic economic conditions

have on consumer discretionary spending could negatively impact our financial performance”

(The Cheesecake Factory, 2019, pg. 15). Changes in the economy, whether domestically or
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globally, to unemployment, consumer confidence, stock market performance, population growth,

home values, general or industry-specific inflation, could result in a change to consumer

spending. Simply stated, dining out is a choice and a discretionary expenditure that can easily be

affected by changes in the economy.

A second risk that is presented in the 2018 Annual Report is the potential for the

Company’s inability to cultivate comparable restaurant sales which would result in an adverse

effect on financial performance. The Cheesecake Factory expands on this risk by acknowledging

the possibility of it occurring and explaining that they, “strive to increase comparable restaurant

sales by improving customer traffic trends and growing average check” (The Cheesecake

Factory, 2019, pg. 15). The Cheesecake Factory states that primary risks to them in relation to

cultivating comparable restaurant sales are other casual dining restaurants, quick-service

restaurants, mobile food service, and meal kits who continue to increase the quality and variety

of their food products (The Cheesecake Factory, 2019, pg. 15).

The third risk to address in this analysis states, “If we are unable to protect our reputation,

the value of our brands and sales at our restaurants may be negatively impacted, which may

materially adversely affect our financial performance” (The Cheesecake Factory, 2019, pg. 15).

The reputation of a company is priceless, and The Cheesecake Factory recognizes that the

greatest asset they have is the combined value of their brands. In order to continue to grow and

find success, it is important that the Company protect their brands at all costs. Any negative

publicity can have a detrimental effect on the success of the business, regardless of whether or

not the publicity is factual.

Recommendations
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Synthesizing the data and information provided in The Cheesecake Factory’s 2018

Annual Report left me with admiration for the company as a whole. In this section I will

however be providing a few recommendations that are not meant to tear down, but rather to

provide insight into potential areas of growth for the Company.

The first thing I found fascinating about the Company is its origin story. Discovering that

The Cheesecake Factory was dreamed up and first pursued in the heart of Detroit is awe-

inspiring to a Michigan native like myself. The origin of The Cheesecake Factory has humble

beginnings and, comparing that to where it is now, shows incredible dedication, perseverance,

growth, and success of the company. I would recommend sharing this information in a more

prevalent manner so that others can see where the company started in comparison to the level of

success it experiences today as an international commodity. Furthermore, this illustrates the

commitment the company has to investing in the communities it is a part of. Sharing this

information with guests and stakeholders through social media or outreach campaigns could lead

to great marketing and foot traffic for the restaurants.

Another recommendation to benefit guests and the consumers would be to summarize the

experience provided when dining at The Cheesecake Factory restaurants. As someone who has

was intimidated by the restaurant before going, the Company would benefit from clarifying what

the intended audience is. With diversity of guests, there can be some confusion as to what

environment is created within the restaurant. Explaining to stakeholders and to guests, or

potential guests, the desired attire and formality of the restaurants could result in less

intimidation from those who have never dined in one of The Cheesecake Factory Restaurants

before.
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The Cheesecake Factory approach to communication with its stakeholders is modern and

tailored in a professional manner. By customizing the Company’s approach to communication, it

shows stakeholders that they appreciate them enough to keep them informed, but they respect

them enough to communicate on their time and to their level of specification desired. According

to the stakeholder portal on the website, The Cheesecake Factory provides quarterly and annual

reports, in addition to a once yearly gathering of stakeholders. The Company might consider

adding an additional event for stakeholders or give stakeholders the opportunity to visit the

corporate offices at certain times to simply become more educated on the business processes.

Giving investors this opportunity will only reflect positively on the Company as it creates

extreme transparency. As a benefit to The Cheesecake Factory, if the stakeholders pursue an

opportunity to visit corporate headquarters, they are likely to become more bought in to the

vision of the Company and as a result, the stakeholders are more likely to invest additional

resources.

My final recommendation would be to include additional integrated reporting features.

The 2018 Annual Report is incredibly detailed, yet difficult to digest as it is very lengthy and

cumbersome. The Company could benefit from creating a visual snapshot of the information

presented so investors could access it more easily. Following the formatting of integrated

reporting, an overview of the 6 capitals referenced displayed in a semi-visual format would allow

the information to be more easily digested. There is a lot of data presented in this Annual Report,

however, the numbers can easily be lost in the summaries so at minimum, it would be of great

help for the data to be presented in graphical format.

Conclusion
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Researching The Cheesecake Factory proved to be incredibly interesting and provided

me with a much deeper understanding of how to truly research the ins and outs of a business and

its accompanying business model. Although I have spent roughly 5 weeks studying this

company, I feel like I have barely scratched the surface on what there is to know and understand.

However, it is evident that The Cheesecake Factory is committed to serving its guests with great

attention to detail leaving them with not just a full belly, but with a fulfilled dining experience as

well.

References:

Charitable Giving. (n.d.). Retrieved from https://www.thecheesecakefactory.com/corporate-

social-responsibility/

Employment Policy. (n.d.). Retrieved from https://www.thecheesecakefactory.com/corporate-

information/employment-policy/

Investor Relations. (n.d.). Retrieved from

https://investors.thecheesecakefactory.com/about-us/international/default.aspx

Our Story. (n.d.). Retrieved from: https://www.thecheesecakefactory.com/about-us/

Summary of Our Sustainability Code of Conduct. (n.d.). Retrieved from:

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https://www.thecheesecakefactory.com/corporate-social-responsibility/summary-of-our-

sustainability-code-of-conduct/

Sustainable Sourcing Policy. (n.d.). Retrieved from:

https://www.thecheesecakefactory.com/corporate-social-responsibility/sustainable-

sourcing-policy/

The Cheesecake Factory Inc. (2019). 2018 Annual Report. Retrieved from:

https://s22.q4cdn.com/604834465/files/doc_financials/annual/2018/CCF_AR18-Final.pdf