The Difference Maker

For 25 years, David Overton has kept The Cheesecake Factory apart from the field

By Scott Hume, Senior Editor -- Restaurants & Institutions, 7/1/2003

What the Hummer is to automobiles, The Cheesecake Factory is to restaurant concepts, which is to say it is oversized, tricky to navigate and impossible not to notice. More importantly, both define their product categories. The Cheesecake Factory occupies a niche its executives call high-volume casual dining, and they have a right to name it as their concept is the segment’s sole entry.

Uniqueness is not in itself a supreme virtue, however. It is conceivable that someone will open a restaurant entirely devoted to artichoke dishes and be alone in having done so. What is unlikely is that such a concept could sustain more than 60 locations, as The Cheesecake Factory does.

The complexity of The Cheese-cake Factory—with huge menus that stretch kitchen capabilities and dining rooms averaging 3,500 covers daily (see “By the Numbers” on opposite page)—sets it apart. The abilities to refine without simplifying the concept, to maintain its enormous popularity with diners in good times and bad and to create a strong sub-brand with Grand Lux Cafe are why the editors of Restaurants and Institutions selected David Overton, The Cheesecake Factory’s founder, chairman, chief executive officer, chief taste-tester and brand guardian, as 2003’s Executive of the Year.

Talk to the 56-year-old Overton about the concept he created in 1978 and his dedication to it immediately is evident. But it is not a passion of ownership or of creation so much as a respect for something that exists apart from him. He speaks as its steward, not its boss, though without him there would have been no first location nor any of the dozens of recreations of the original that have followed. Where Overton has been a successful executive has been in ensuring that all decisions, menu changes, site selections and staff hires have been worthy of The Cheesecake Factory brand.

“We have struggled all these years to manage up to the popularity of the concept and never brought the concept down to our level of management,” Overton says, explaining that the operations-management structure always has raced to keep pace with rapid growth in the restaurants’ popularity and sales.

INNOCENCE REWARDED
The Cheesecake Factory’s beginnings are a case study in succeeding because you don’t know enough to fail.

San Francisco in 1968 was a year beyond the Summer of Love concerts in Golden Gate Park and still grooving to the Grateful Dead and Jefferson Airplane. Overton jettisoned plans for a career as a lawyer, walking away from the University of California’s Hastings College of Law to devote his time more completely to music. The Billy Roberts Blues Band was one of the groups that would benefit from his drumming.

In 1971, Overton convinced his parents to move to the West Coast, and Oscar and Evelyn Overton relocated the cheesecake-baking business they had run since 1949 in the basement of their Detroit home to a leased, 700-square-foot commercial space David found for them in North Hollywood, Calif. At the time, it was a simple operation: His mother baked cheesecakes while his father sold them to local restaurants. David occasionally commuted from San Francisco to help out.

When in 1975 the flourishing business moved to larger quarters in Woodland Hills, Calif., the Overton’s son put down the drumsticks, moved south and joined the family business full time. He opened the first The Cheesecake Factory restaurant in 1978, a 100-seat operation on North Beverly Drive in Beverly Hills, with a two-page menu and the sole intention of showcasing his mother’s dessert prowess. That the concept blossomed into the 19-page-menu behemoth it has become is a case study in trial-and-error success.

“It took me a year to learn what I was doing. The whole concept was built around the cheesecakes and it was just a fun, eclectic menu,” he says. “I had no culinary training, but I had to cook everything because I didn’t want a chef to walk out on me. If I couldn’t cook it, I didn’t put it on the menu.”

Overton didn’t know how to work a fryer, so the first restaurant offered hash browns but not french fries. “I had no idea we would be a chain, so I just kept adding [to the menu]. There was no thought of ‘Keep it simple’ or ‘How am I going to replicate this?’

“But eventually I learned more, and understood that I did have some talent in recognizing what people want to eat, that if it was simple and straightforward with real quality, customers would like it. As people responded, we kept putting more items on the menu.”

His initial innocence was crucial in shaping the distinctiveness that is central to The Cheesecake Factory’s success, he says. “I was so naïve in the beginning—I never worked in a restaurant, I never was a waiter—that I had a fresh approach. I didn’t know what others were doing or what I couldn’t do or shouldn’t do, so I just kept doing what I was doing.”

A TASTE FOR SUCCESS
While he deflects much of the credit for his chain’s success, Overton does allow that his “everyman’s palate” has been an asset he still trusts.

“I do think I’ve been given great taste buds. What I love, other people usually love,” he says. “I don’t have rare taste. I don’t love a lot of unusual foods, but what I think is delicious, many others do too. I’ve trusted my instincts all these years.”

That has served the company well, says Senior Vice President Howard Gordon, because Overton understands people—both the chain’s guests and its employees—deeply and democratically. “David talks to executives and dishwashers with the same level of respect,” which makes him an effective leader, says Gordon.

The Cheesecake Factory menu is evaluated, top to bottom, at least twice a year. Corporate Executive Chef Bob Okura creates dishes for possible inclusion that reflect the latest trends or those that are classical dishes with updated flavor profiles. Usually 10 to 20 items are added with a like number of slower sellers removed.

Nothing gets on the menu without first passing the Overton test. “I am the No. 1 and final taster,” he says. “Bob Okura and I work hand in hand in creating and tasting, but in the end the final OK for the menu items is mine.”

Overton’s inclination is to be adventuresome but not experimental, and that has served the concept well, he says. “We take a lot of classical recipes and Cheesecake-ize them, as we say, to our portions and the way we think flavors should be. So we’re not very of-the-moment. We collect excellent recipes that we can cook fresh with our level of talent on the line.

“However, we never bring any of our flavors down to the lowest common denominator. We always have very distinctive flavors, and you can do that when you have a very large menu. If you have a small menu and strong flavors you may not get all the business that’s out there.”

No one understands The Cheesecake Factory’s guests as completely as Overton, says Okura. “He is relentlessly committed to making everything that’s served the best that it can be. It can’t just be good or even very good. It has to be great.”

The breadth of The Cheesecake Factory’s menu allows Chinolatino Chicken (charbroiled half chicken with spicy, Thai-influenced tamarind sauce) to coexist on the same menu page with Chicken and Biscuits (chicken breast with mashed potatoes, shortcake biscuits, mushrooms, peas and carrots, all covered with thick, country-style gravy). “We want to please as many people as we can,” he says honestly. “We say there are no veto votes when people dine at The Cheesecake Factory.”

As the menu grew longer, so did the line of waiting guests at the first restaurant. “By the time 1979 hit, I think I instinctively knew that if there was a complication factor [to the operation], we couldn’t be copied easily,” he says.

To manage the complexity and volume of its business, each restaurant has a general manager and an executive kitchen manager, along with six to 16 manager-level staffers (plus 200 to 250 hourly employees) overseeing the kitchen and front of the house, a much larger middle-management tier than in any traditional casual-dining concept.

THE FACTORY AND THE STREET
A second The Cheesecake Factory was opened in 1983, a 250-seat restaurant in the Marina del Rey section of Los Angeles. The third didn’t come for another five years, but the Redondo Beach, Calif., location seated 450.

Overton took the company public in 1992, when it had only five units. The opening share price was $20. As locations and revenues grew, The Cheesecake Factory Inc. became a Wall Street favorite. For 42 consecutive quarters following the company’s initial public offering, the chain reported increases in same-store sales, oblivious to the ups and downs of the market and the restaurant industry, leading financial Web site Motley Fool’s Rick Aristotle Munarriz to write, “One had to wonder if the restaurateur was even mortal in a world of fickle dining tastes.”

The 43rd quarter proved to be the toughest, however, and for the fiscal quarter ended April 1, 2003, the company reported a 2% decline in same-store sales. That it also reported a 20% increase in net income for the quarter went largely unnoticed: Analysts at two brokerages (JP Morgan and Stephens Inc.) downgraded the stock and its price fell almost 9% before bouncing back.

“It only took stores closed due to the worst storms in a decade and a war to get us to comp down, and yet there are people who said, ‘Oh my God, this is the worst thing that could happen,’” Overton says.

Wall Street generally has looked very favorably on his company, he allows, although he admits that it “makes me a little crazy” to read analyst reports questioning why The Cheesecake Factory quarterly same-store growth isn’t as great as at casual-dining operators such as P.F. Chang’s China Bistro.

“When an analyst talks about comparable-store sales and compares a company doing $400 a square foot in sales to one doing $1,000 [as The Cheesecake Factory does], then wants you to comp up the same as they do and doesn’t want to see the differences [between such concepts], it can be frustrating,” Overton says.

In that sense, the concept can be its own worst enemy, he says. As soon they open, The Cheesecake Factory units achieve sales other restaurants can’t hope to approach, but so high they make double-digit annual increases nearly impossible.

GRAND ENOUGH?
Mark Kalinowski, restaurant analyst for Smith Barney Citigroup, New York City, has questioned whether The Cheesecake Factory’s three Grand Lux Cafe operations are different enough from the core brand to work as a second concept.

Grand Lux sports a slightly smaller menu (150 items) with marginally higher prices (entrées top out at $26.95 versus $24.95 at The Cheesecake Factory). Overton says that rather than functioning as a pure secondary concept, Grand Lux Cafe has simply allowed the company to take advantage of high-traffic sites close to existing The Cheesecake Factory locations. The Grand Lux Cafe in Las Vegas’ The Venetian Resort Hotel Casino, for example, does quite well despite being across the street from The Cheesecake Factory in Caesars Palace. New Grand Lux openings will be determined by similar opportunities.

That doesn’t mean development of a true flanker brand isn’t being considered. “Probably in about three years it will be time to look for, create or buy another concept,” Overton says. “I doubt it would be straightforward casual dining, but I think every casual-dining operator knows that eventually they’re going to need another concept. Certainly Darden Restaurants and Brinker International have proved that. If you wait too long, you’re too big for another concept to make much of a difference [in total revenues].

He has guided The Cheesecake Factory expansion cautiously, Overton says, because the nature of the concept demands caution.

“A lot of restaurant companies can be marketers because they have a simple product, or they can be [unit] rollout artists, but we truly have to be restaurant operators. We are an operations company. We don’t advertise. We just do the best we can to execute this concept, keep our standards high and never take anything for granted. It seems to work for us.”