Like many restaurant chains, Cheesecake Factory Inc. faces a situation unlike any previous as it navigates the coronavirus pandemic. With social distancing measures and stay-at-home orders in place, the Calabasas eatery has closed its dining rooms and shifted to a delivery and take out model instead. “The Cheesecake Factory restaurants have a long-standing business in the off-premise channel, with historical sales volumes approaching the size of many stand-alone restaurants, which is enabling the company’s restaurants to operate sustainably at present under this model,” the company said in a March 23 press release. But just four days later, Cheesecake told mall owners it wouldn’t pay rent on April 1. “The severe decrease in restaurant traffic has severely decreased our cash flow and inflicted a tremendous financial blow to our business,” Chief Executive David Overton said in a letter to the company’s landlords. Cheesecake has taken other drastic steps to cut costs. These include furloughs for some 41,000 employees and a 20 percent pay reduction for top executives, including Overton. The company has also closed 30 of its locations, most of them non-Cheesecake Factory brands, such as Grand Lux Café, North Italia, Culinary Dropout, Flower Child and Blanco Tacos + Tequila. The last three are owned by subsidiary Fox Restaurant Concepts. Dining room irrelevance David Henkes, a senior principal at Technomic, a Chicago food industry consulting company, said that the value proposition Cheesecake Factory brought to its customers is irrelvant now that people cannot go inside the restaurants. “The whole differentiation that Cheesecake Factory built over the past many years is, for at least the short term, out the window,” Henkes said. “Everything they did to position themselves is no longer relevant in today’s pandemic environment.” Technomic ranks Cheesecake Factory as No. 33 on its list of the 500 largest restaurant chains. It owns 206 Cheesecake Factory locations, as well as multiple locations of its other brands. It also has three foreign licensees that operate 26 Cheesecake Factory restaurants in Mexico, United Arab Emirates, Saudi Arabia and other foreign countries. Henkes said something to keep in mind is that the Cheesecake restaurants have “huge” footprints that bring in about $11 million on average in annual sales. It will be challenging for Cheesecake Factory to offer takeout and delivery because it won’t be able to offer its full menu, which is filled with pages and pages of appetizers and entrees, he added. “It does not lend itself to what restaurants need to survive right now and that is takeout and delivery,” Henkes said. In a message posted at the Cheesecake Factory website on April 8, Overton and President David Gordon outlined the steps the company was taking to minimize contact between staff and customers and to keep open locations clean. “We are following all local ordinances regarding our restaurant hours, occupancy limits and dining restrictions, and are continuing to follow the guidance of the (Centers for Disease Control) and our local health departments,” the pair wrote in their message. Its off-premises business had increased by 85 percent from the fourth quarter of 2019, the company said, adding, “On an annualized basis, current off-premise sales would equate to over $3 million per unit, on average.” For the fourth quarter ending Dec. 31, the company reported net income of $48.7 million ($1.10 a share), compared with net income of $16.2 million (35 cents) in the same period a year earlier. Revenue increased 18.5 percent to $694 million. Cheesecake Factory’s share price has lost about 48 percent of its value since the start of the year. On April 22, the stock closed at $19.92, two days after it was announced that private equity firm Roark Capital would invest $200 million into the company in exchange for preferred Cheesecake Factory shares. Post-pandemic outlook In a research note on April 6, Brian Bittner, an analyst with Oppenheimer & Co. Inc. in New York, estimated that as of that date Cheesecake’s same store sales will be down in the 70 percent range for the first quarter, while for the second quarter sales will decrease by 55 percent. His model assumes that business will remain negative for the rest of the year, Bittner said in the note. “With the near-term sales environment clearly uncertain, (Cheesecake Factory) has taken many steps to blunt the impact by leaning more heavily into its off-premise sales platforms and reducing expenses,” Bittner added. “To minimize liquidity needs, (the company) has also dramatically slowed near-term unit growth plans.” According to Technomic’s Henkes coming through the pandemic is one thing and then surviving in a post-pandemic world brings a whole other set of challenges. That will include whether consumers are willing to come back to big restaurants and dine around other people. “That is a big question mark for the restaurant industry in general – what consumer sentiment is going to be at the end of all of this,” he said. And then there is the possibility of a lingering recession, which economists followed by Technomic are predicting, Henkes said. “Any kind of economic downturn does not treat casual dining restaurants (such as Cheesecake) as well as more value-oriented dining restaurants and quick service,” he added.