Questions for ... Cheesecake Factory's David Overton

  @FortuneMagazine January 16, 2014: 7:46 AM ET
QUE03 cheesecake factory david overton

Cheesecake Factory founder and CEO David Overton

(Fortune)

David Overton says he believes necessity is the mother of all invention. As CEO of the Calabasas Hills, Calif.-based restaurant chain The Cheesecake Factory (No. 92 on Fortune's 100 Best Companies to Work For list), Overton is responsible for more than 33,000 workers serving more than 250 menu items at nearly 200 restaurants, from San Francisco to Dubai. Since opening the first restaurant -- really a bakery in his mother's kitchen -- in 1978, Overton has grown the company into a $1.8 billion business by making changes exactly when his customers and the market demand it. From updating his menu biannually to taking advantage of a growing customer base in the Middle East, Overton is constantly adapting the restaurant's strategy. After 15 consecutive quarters of positive same-store sales, he explains why customers keep coming back for everything from ahi carpaccio to cheesecake. Edited excepts:

Americans are eating out less and yet you have not responded by offering more low-price deals and discounts. Why?

We think that we are high-end casual dining and not really in the same league as Chili's (EAT), Red Lobster (DRI, Fortune 500), or Olive Garden. Our guests are much better economically. As the stock market goes so do most of The Cheesecake Factory's guests. We just want to get better, give people more of a reason to come back. Rather than discount our way into doing that, we concentrate on the total experience for customers.

Dessert is your namesake -- how do you square that with affluent, health conscious customers?

We like to think that there is no reason for anyone not to want to come to The Cheesecake Factory (CAKE) because our menu is so large. There is nothing Americans want to eat that can't go on our menu. Besides changing our menu twice a year, which we have done for 35 years, we now have more than 60 gluten-free items. We also have a separate menu, which we call our "SkinnyLicious" menu, and it has more than 50 items with 590 calories or less. That is very popular for those who are health conscious and I think that 10% of people order off the "SkinnyLicious" menu.

You spend more than 120 hours training the average full-time hourly employee. Why is all the training time up front worth the investment?

Sometimes necessity is the mother of invention. I have really no choice. When you have 250 menu items you must serve they have to be able to recommend to the guests. They have to become tour guides not just servers.

You're seeing success with four locations in the Middle East and have plans to create 22 restaurants spread across the United Arab Emirates, Kuwait, Bahrain, Qatar, and Saudi Arabia. What is it about the brand that translates well in that region?

They are some of the highest grossing restaurants in the whole company because there are so many items for them to order. We have hour waits at those locations. People asked if we were going to cut out portions down for the Middle East, but they eat family style so that is so perfect for The Cheesecake Factory because the portions are so large. The Cheesecake Factory in the Dubai Mall has been open over a year and just had a record-breaking day for the region.

Your restaurant chain is not franchised at all in the United States, but you have pursued licensing agreements with other companies in the Middle East and Latin America. Has it been hard to give up that control?

We are working so closely with our licensees that I know our concept is being executed to our high standards, so it has not been difficult to give up any control.

The Cheesecake restaurant family has expanded in the U.S. to include 11 Grand Lux Cafes. Why create restaurants outside of the well-known Cheesecake Factory brand?

As a public company we have to grow. You have no choice but to grow. Rather than build Cheesecake Factories in places that we don't want just for growth's sake, we want to open other brands that help us grow but won't hurt our original brand. For example, the people at Venetian wanted to open a Cheesecake Factory, but it was too close to one of our other locations. Usually we open our restaurants minimally five miles apart, so we created a Grand Lux Cafe for them.

Social Questions

Maxwell Strachan: What do you think of Atul Gawande's suggestion that the health care industry should mimic your company in certain ways?

His underlying premise of what impressed him the most as a guest in our restaurants is our ability to deliver a consistent guest experience across all of our restaurants throughout the country. Our extensive menu of more than 250 made-from-scratch items and our high volume operations create a very complex operating environment, and Dr. Gawande recognized that it's our consistent use of perfected systems, technology, and the development of our people that enables our guests to have consistently memorable dining experiences -- just as Dr. Gawande is striving to provide consistently excellent health care to patients in hospitals throughout the country.

Alex Ocean: Any marketing advice for a startup?

I've always felt that word of mouth was the strongest form of advertising -- especially in the early days when we didn't do any form of advertising and social media hadn't come about yet. It's essential to make your product and/or service as great as you possibly can so that people have such a wonderful experience they'll want to tell others about it.

Tim Maguire: Did you have a business mentor early on or did you have to figure a lot out in your own?

On the financial side of things I learned a lot in the early days from my CPA, Bill Kling, who also became our first CFO. Other than that I really figured out a lot of things on my own -- from the food to our culture and restaurant operations, I relied a lot on my own vision and intuition about what felt right to me.

Juhani Polkko: How did your vision grow along the way? At what point he realized this is going to be BIG?

I've always believed in the step method -- where you put one foot in front of the other, seeing where you are while looking towards the horizon and moving toward it, trying to get better every day. It wasn't until 1991 when we opened our fifth restaurant, which was our first restaurant outside of California (in Washington, D.C.) and we went public, that I really knew that our company could really grow into something big.

Zulmira Almeida: When are you coming to France?

I think it will be a long time before we open in Europe, but I hope we'll be there one day.

Rhonda McFadden: Why such large portions?

Our guests really appreciate our large portions because of the perceived value. Also, our large portions allow guests to share with other people in their party. We've always said that the "fun is in the food" and sharing food with others really changes the dynamic of a meal -- adding a lot of fun. Even people who aren't normally inclined to share their meals will often do so at The Cheesecake Factory -- it's all part of the experience.

@wes_robertson233: Why does Cheesecake Factory not take reservations?

We find that it's more efficient to seat guests in the order that they arrive, which allows us to give more value. To top of page



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