Item 1. Business
ITEM 1. BUSINESS
General
The Cheesecake Factory Incorporated is a leader in experiential dining. We are culinary forward and relentlessly focused on hospitality. We currently own and operate 306 restaurants throughout the United States and Canada. Internationally, 29 The Cheesecake Factory ® restaurants operate under licensing agreements. Our bakery division operates two facilities that produce quality cheesecakes and other baked products for our restaurants, international licensees and third-party bakery customers.
Our business originated in 1972 when Oscar and Evelyn Overton founded a small bakery in the Los Angeles area. In 1978, their son, David Overton, our Chairman of the Board and Chief Executive Officer, led the creation and opening of the first The Cheesecake Factory restaurant in Beverly Hills, California. In 1992, the Company was incorporated in Delaware as The Cheesecake Factory Incorporated (referred to herein as the “Company” or as “we,” “us” and “our”). Our executive offices are located at 26901 Malibu Hills Road, Calabasas Hills, California 91301, and our telephone number is (818) 871-3000.
We maintain a general website at www.thecheesecakefactory.com, as well as websites for our bakery and other subsidiaries, including www.northitalia.com and www.foxrc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, all amendments to those reports and our proxy statements are available on our general website at no charge, as soon as reasonably practicable after these materials are filed with or furnished to the SEC. Our filings are also available on the SEC’s website at www.sec.gov . The content of our website is not incorporated by reference into this Form 10-K.
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of FRC, including Flower Child and all other FRC brands (the “Acquisition”). The results of operations, financial position and cash flows of the acquired businesses are included in our consolidated financial statements as of the acquisition date.
We utilize a 52/53-week fiscal year ending on the Tuesday closest to December 31 for financial reporting purposes. Fiscal years 2021, 2020 and 2019 each consisted of 52 weeks and fiscal year 2022 will consist of 53 weeks.
COVID-19 Pandemic
Beginning in March 2020, COVID-19 and measures to prevent its spread led to significant disruptions to our business as suggested and mandated social distancing and shelter-in-place orders led to the temporary closure of a number of restaurants across our portfolio while our remaining locations shifted to an off-premise only operating model on an interim basis. Reopening of restaurant dining rooms resumed, generally at reduced capacity, at various points since May 2020. While restrictions on the type of permitted operating model and occupancy capacity may continue to change, currently nearly all of our restaurants are operating with no capacity restrictions on indoor dining. The ongoing effects of COVID-19 and its variants, including, but not limited to, consumer behavior, capacity restrictions, mask and vaccination mandates, wage inflation, our ability to continue to staff our restaurants and disruptions in the supply chain, will determine the impact to our operating results and financial position. The impact to our operations has been most notable during the periods of greatest accelerating COVID-19 case counts. We have incurred and will continue to incur additional costs to address government regulations and the safety of our staff members and customers. The impacts of the COVID-19 pandemic on our business are discussed in further detail throughout this Business section, Item 1A — Risk Factors, and Part II — Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-K.
The Cheesecake Factory
The Cheesecake Factory restaurants strive to provide a distinctive, high-quality dining experience at moderate prices by offering an extensive, innovative and evolving menu in an upscale casual, high-energy setting with attentive, efficient and friendly service. As a result, The Cheesecake Factory restaurants appeal to a diverse customer base across a broad demographic range. Our extensive menu and strategic selection of locations enable us to compete for substantially all dining preferences and occasions, from the key lunch and dinner day parts to the mid-afternoon and late-night day parts, which are traditionally weaker times for most casual dining restaurants, as well as special occasion dining. The Cheesecake Factory restaurants are generally open seven days a week for lunch and dinner, and we offer additional menu items for weekend brunch. Most of our locations are closed on Thanksgiving and Christmas. All of our restaurants offer a full-service bar where our entire menu is served. Alcoholic beverage sales represented 11% of The Cheesecake Factory restaurant sales for fiscal year 2021 compared to 9% in fiscal 2020 and 12% in fiscal 2019. These fluctuations were primarily due to higher alcoholic beverage incident rates associated with on-premise dining.
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All items on our menu, except alcoholic beverages where disallowed by regulation, are available for off-premise consumption. Sales through the off-premise channel comprised approximately 32% of our restaurant sales during fiscal 2021 as compared to 43% in fiscal 2020 as many customers have returned to on-premise dining, whereas consumer behavior had shifted towards the off-premise channel during the prior year period due to the pandemic. However, off-premise sales mix remains higher than the pre-pandemic level of 16% during fiscal 2019. We work with a third party to provide delivery service, which is now available at all of our restaurants. In addition, we offer online ordering for to-go sales at all of our domestic locations. Currently, we operate 208 The Cheesecake Factory locations.
The Cheesecake Factory menu features approximately 235 items, including items presented on supplemental menus, such as our SkinnyLicious ® menu that offers innovative items at 590 calories or less. Our 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. Examples of menu offerings include Chicken Madeira, Cajun Jambalaya Pasta, Thai Lettuce Wraps, Avocado Eggrolls, Vegan Cobb Salad and our Bacon-Bacon Cheeseburger.
Our ability to create, promote and attractively display our unique line of desserts is also important to the competitive positioning and financial success of our restaurants. We offer approximately 45 varieties of proprietary cheesecake and other desserts in our restaurants. Our brand identity and reputation for offering premium desserts results in a significant level of dessert sales, representing approximately 19%, 21% and 16% of The Cheesecake Factory restaurant sales for fiscal 2021, 2020 and 2019, respectively. These fluctuations were primarily driven by the varying proportions of off-premise sales which generally carry higher dessert incident rates, as compared to on-premise sales.
Competitive Positioning
The restaurant industry is comprised of multiple segments, including fine dining, casual dining, fast casual and quick-service. The Cheesecake Factory restaurants operate in the upscale casual dining segment, which is differentiated by freshly prepared and innovative food, flavorful recipes with creative presentations, unique restaurant layouts, eye-catching design elements and more personalized service. Upscale casual dining is positioned above core casual dining, with standards that are closer to fine dining. We believe that we are a leader in upscale casual dining given the historically high average sales per square foot of our restaurants as compared to others in this segment.
The restaurant industry is highly competitive with respect to menu and food quality, service, access to qualified operations personnel, location, decor and value. We compete directly and indirectly for customer traffic with national and regional casual dining restaurant chains, as well as independently-owned restaurants. In addition, we face competition for customer traffic from fast casual and quick-service restaurants, home delivery services, mobile food service, grocery stores and meal kits that are increasing the quality and variety of their food products in response to customer demand. We also compete with other restaurants and retail establishments for quality sites and qualified staff and managers to operate our restaurants. (See Item 1A — Risk Factors — “Our inability to grow comparable restaurant sales could materially adversely affect our financial performance.”)
The key elements that drive our total customer experience and help position us from a competitive standpoint include the following:
Extensive and Innovative Menu, Made Fresh from Scratch . Our restaurants offer one of the broadest menus in casual dining and feature a wide array of flavors with portions designed for sharing. In contrast to many restaurant chains, substantially all of our menu items, except those desserts produced at our bakery facilities, are prepared from scratch daily at our restaurants with high-quality, fresh ingredients using innovative and proprietary recipes. One of our competitive strengths is our ability to anticipate customer preferences and adapt our expansive menu to the latest trends. We regularly update our ingredients and cooking methods, as well as create new menu items and new categories of food offerings at our restaurants, such as our SkinnyLicious® menu, “Super” food selections and gluten-free choices, further enhancing the variety, quality and price points offered and keep our menu relevant to our customers. All new menu items are selected based on anticipated sales popularity and profitability. We also regularly introduce new and innovative cheesecakes and other baked desserts. In 2021, we launched the Coconut Cream Pie Cheesecake in conjunction with National Cheesecake Day.
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We generally update The Cheesecake Factory menus twice each year, and our philosophy is to use price increases to help offset key operating cost increases in a manner that balances protecting both our margins and customer traffic levels. We have historically targeted menu price increases of approximately 2% to 3% annually, utilizing a market-based strategy to help mitigate cost pressure in higher-wage geographies. Due to the cost pressures we are currently experiencing, particularly in commodities, in the first quarter of fiscal 2022, we implemented price increases above our historical levels to protect margins. We will continue to consider the cost environment and consumer price sensitivity when evaluating future menu price increases.
Value Proposition. We believe our restaurants are recognized by customers for offering value with a large variety of freshly prepared menu items across a broad array of price points and generous portions at moderate prices. The average check for each customer, including beverages and desserts, was approximately $29.30, $28.90 and $23.50 for fiscal 2021, 2020 and 2019, respectively. We account for each off-premise order as one customer for traffic measurement purposes. Therefore, a higher mix of off-premise sales produces a higher average check as most off-premise orders are for more than one customer. Fiscal 2020 average check reflects the impact of higher off-premise channel mix, as most of our restaurants shifted to an off-premise-only operating model at the beginning of the COVID-19 pandemic and consumer behavior has shifted toward off-premise dining during the pandemic. The increase in average check from fiscal 2020 to fiscal 2021 reflects the impact of menu price increases, partially offset by lower off-premise mix as many customers have returned to on-premise dining.
Commitment to Excellent Service and Hospitality through the Selection, Training and Retention of High-Quality Staff Members. Our mission is to “create an environment where absolute guest satisfaction is our highest priority.” We strive to consistently exceed the expectations of our customers in all aspects of their experiences in our restaurants. One of the most important aspects of delivering a consistent and dependable level of service is having a team of experienced managers who can successfully operate our high-volume, complex restaurants. Our recruitment, selection, training, retention and internal promotion programs are among the most comprehensive in the restaurant industry, helping us to attract and retain qualified staff members who are motivated to consistently provide excellence in restauranteuring and customer hospitality. By providing extensive training, our goal is to encourage our staff members to develop a sense of personal commitment to our core values and culture of excellence. (See “Restaurant Operations, Management and Staffing” below.) Our commitment to people-focused programs and creating a great workplace for all of our staff and managers contributed to The Cheesecake Factory being named to Fortune magazine’s list of “100 Best Companies to Work For ® ” in 2021, for the eighth consecutive year.
High-Quality, High-Profile Restaurant Locations and Flexible Site Layouts . We target restaurant sites in high-quality, high-profile locations with a balanced mix of retail shopping, entertainment, residences, tourism and businesses. We have the flexibility to design our restaurants to accommodate a wide array of urban and suburban site layouts, including multi-level locations. Our restaurants feature large, open dining areas, high ceilings where available, a contemporary kitchen design and a bakery counter that features our desserts while also serving as a strategic location to facilitate our off-premise sales. The layouts are flexible, permitting tables and seats to be easily rearranged to accommodate small and large parties, thus permitting more effective utilization of seating capacity. Interior and exterior patio seating, either or both of which are available at approximately 95% of our restaurants, allow for additional customer capacity at a comparatively low occupancy cost per seat. During the COVID-19 pandemic, we have also been able to access additional space to augment our outdoor seating capacity in some locations where indoor dining spaces were restricted. Exterior patio seating is generally available as weather permits. (See “New Restaurant Site Selection and Development” below.)
Distinctive Restaurant Design and Decor. We place significant emphasis on the contemporary interior design and decor of our restaurants, which create a high-energy ambiance in a casual setting and contribute to the distinctive dining experience enjoyed by our customers. We have evolved our restaurants’ design over time to remain current while retaining a similar look and feel to our earlier restaurants. Our restaurants feature large, open dining areas, and where feasible, both exterior and interior patios. We apply high standards to the maintenance of our restaurants to keep them in “like new” condition.
Integration of our Bakery Operations . The primary role of our bakery operations is to produce innovative, high-quality cheesecakes and other baked desserts for sale at The Cheesecake Factory restaurants and those of our international licensees, which is important to our competitive positioning. Integration of this vital part of our brand gives us control over the creativity and quality of our desserts and is also more profitable than buying from a third party.
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New Restaurant Site Selection and Development
The Cheesecake Factory concept has demonstrated success in a variety of layouts (e.g., single or multi-level and varying interior square feet), site locations (e.g., urban or suburban shopping malls, lifestyle centers, retail strip centers, office complexes, entertainment centers and urban street locations — either freestanding or in-line) and trade areas. Accordingly, we intend to continue developing The Cheesecake Factory restaurants in high-quality, high-profile locations that meet our rigorous site standards. In accordance with our broader capital allocation strategy, we plan to open as many locations in any given year as there are sites available that meet our site selection criteria and for which we can obtain goods, materials and adequate staffing. It is difficult for us to precisely predict the timing of our new restaurant openings due to many factors that are outside of our control, including the effects of the COVID-19 pandemic. (See Item 1A — Risk Factors — “Our inability to secure an adequate number of high-quality sites for future restaurant openings could adversely affect our ability to grow our business.”) We have the flexibility in our restaurant designs to penetrate a wide variety of markets across varying population densities in both existing and new markets. We continue to target approximately 300 Company-owned and operated The Cheesecake Factory restaurants domestically over time.
The locations of our restaurants are critical to our long-term success, and we devote significant time and resources to analyzing each prospective site. We consider many factors when assessing the suitability of a site, including the demographics of the trade area such as average household income, and historical and anticipated population growth. Since our restaurants can be successfully executed within a variety of site locations and layouts, we are highly flexible in choosing suitable locations. While there are common decor elements within each of our restaurant sites, the designs are customized for the specifics of each location, including the building type, square footage and layout of available space. Our existing restaurants range from 5,000 to 21,000 interior square feet, and we expect the majority of our new restaurants to vary between 7,000 and 10,000 interior square feet, generally with additional exterior and/or interior patio seating, selected appropriately for each market and specific site.
The relatively high sales productivity of our restaurants provides opportunities to obtain competitive leasing terms from landlords. Due to the flexible and customized nature of our restaurant operations and the complex design, construction and preopening processes for each new location, our lease negotiation and restaurant development time frames vary. The development and opening process usually ranges from six to eighteen months, depending largely on the type and availability of the leased space we intend to occupy, as well as our ability to obtain goods, materials and adequate staffing, and can be subject to delays either due to factors outside of our control or to our selective timing of restaurant openings.
Unit Economics
The operation of high-quality restaurants in premier locations fitting our criteria contributes to the continuing customer appeal of The Cheesecake Factory. This popularity is reflected in our average sales per restaurant and per square foot, which are among the highest of any publicly-held restaurant company.
Average sales per location for The Cheesecake Factory restaurants open for the full year were approximately $11.1 million, $7.8 million and $10.7 million for fiscal 2021, 2020 and 2019, respectively. Since each of our restaurants has a customized layout and differs in size, an effective method to measure the unit economics of our sites is by square foot. Average sales per productive square foot (defined as all interior square footage plus seasonally adjusted exterior patio square footage) for restaurants open for the full year were approximately $1,019, $716 and $986 for fiscal 2021, 2020 and 2019, respectively. Fiscal 2021 and 2020 average sales per location and average sales per productive square foot reflect the impact of the COVID-19 pandemic on our business. Fiscal 2021 and 2020 average sales per productive square foot adjusted for interior capacity restrictions related to the COVID-19 pandemic was $1,192 and $1,127. Fluctuations in both average sales per location and average sales per productive square foot generally track with comparable restaurant sales trends. (See Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion on comparable restaurant sales.)
We currently lease all of our restaurant locations and utilize capital for leasehold improvements and furnishings, fixtures and equipment (“FF&E”) to build out our restaurant premises. Our distinctive design and decor require a higher investment per square foot than is typical for the casual dining industry. However, our restaurants have historically generated annual sales per square foot that are also typically higher than our competitors. Total construction costs to build our restaurant premises average approximately $1,000 per interior square foot. However, these costs vary depending on a number of factors, including geography, the complexity of our build-out, site characteristics, governmental fees and permits, labor and material conditions in the local market, weather and the amount, if any, of construction contributions obtained from our landlords for structural additions and other leasehold improvements.
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In selecting sites for our restaurants, an important objective is to earn an appropriate return on investment. We measure returns using a cash-on-cash return on investment calculated by dividing restaurant-level profit (earnings before interest, taxes, depreciation and amortization and preopening costs) by our cash investment.
Our new restaurants typically open with initial sales volumes well in excess of their future run-rate levels. This initial “honeymoon” effect usually results from grand opening publicity and other customer awareness activities that generate higher than usual customer traffic, particularly in new markets. During the three to six months following the opening of new restaurants, customer traffic generally settles into its normal pattern, resulting in sales volumes that gradually adjust downward to their post-opening run-rate level. Additionally, our new restaurants usually require a period of time after reaching normal traffic levels to achieve their targeted restaurant-level margins due to cost of sales and labor inefficiencies commonly associated with new, highly complex restaurants such as ours.
Restaurant Operations
Our ability to consistently execute a complex menu offering items prepared daily with high-quality, fresh ingredients in an upscale casual, high-volume dining environment is critical to our overall success. We employ detailed operating procedures, standards, controls, food line management systems and cooking methods and processes to accommodate our extensive menu and to drive sales productivity.
We believe that the high average sales volumes and popularity of our restaurants allow us to attract and retain high-quality, experienced restaurant-level management and other operational personnel. Each restaurant is generally staffed with one General Manager (“GM”), one Executive Kitchen Manager (“EKM”), and an average of six to ten additional kitchen and front-of-the-house managers and approximately 160 hourly staff members, both depending on the size and sales volume of each restaurant. Our GMs and EKMs possess an average of more than ten years of experience with the Company. This tenure and knowledge drives our high productivity and contributes to our ability to deliver an exceptional customer experience. When the closure of our dining rooms in March 2020 due to the COVID-19 pandemic necessitated the furloughing of most of our hourly staff members, we made the decision to retain our restaurant management teams which we believe enabled us to adapt quickly to a mandated off-premise only operating model and reopen indoor dining rooms safely when allowed. All newly-recruited restaurant managers complete an extensive training program during which they receive both classroom and on-the-job instruction in areas such as food quality and safety, customer service, financial management, staff relations and safely serving alcohol. Managers continue their development by participating in and completing a variety of training and development activities to assess and further develop their skills and knowledge necessary for upward progression through our management levels. Our GMs regularly meet to receive hands-on training, share best practices and celebrate Company successes, all of which help to foster the unique culture of our brand.
Each restaurant GM reports to an Area Director of Operations (“ADO”) who supervises the operations of six to eight restaurants within a geographic area. In turn, each ADO reports to one of four Regional Vice Presidents of Restaurant Operations. Our EKMs report to their GMs but are also supervised by an Area Kitchen Operations Manager responsible for between eight and ten restaurants. Our restaurant field supervision organization also includes our Senior Vice President of Restaurant Operations, Senior Vice President of Kitchen Operations, an operations services team and our performance development department who are collectively responsible for day-to-day operations, managing new restaurant openings and training for all operational managers and staff.
To enable us to more effectively compete for, and retain, the highest quality restaurant management personnel, we offer an innovative and comprehensive compensation program for our restaurant GMs and EKMs. Each participant receives a competitive base salary and has the opportunity to earn a cash bonus based on quantitative restaurant performance metrics. GMs are also eligible to use a Company-leased vehicle. In addition, we provide a longer-term, equity incentive program to our GMs and EKMs based on their extended service with us in their respective positions and their achievement of certain performance objectives. We believe that these awards encourage our GMs and EKMs to think and act as business owners, assist in retention of restaurant management and align our managers’ interests with those of our stockholders.
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Preopening Costs for New Restaurants
Due to the highly customized and operationally complex nature of our upscale, high-volume concept and the investment we make in properly training our staff to operate our restaurants, our preopening process is more extensive, time consuming and costly than that of many restaurant chains. Preopening costs for a typical restaurant in an established market average approximately $1.7 million to $2.0 million and include all costs to relocate and compensate restaurant management staff members during the preopening period, costs to recruit and train hourly restaurant staff members, and wages, travel and lodging costs for our opening training team and other support staff members. Also included are expenses for maintaining a roster of trained managers for pending openings, the associated temporary housing and other costs necessary to relocate managers in alignment with future restaurant opening and operating needs, and corporate travel and support activities.
Preopening costs can fluctuate significantly from period to period, based on the number and timing of restaurant openings and the specific preopening costs incurred for each restaurant. Preopening costs vary by location depending on a number of factors, including the proximity of our existing restaurants, the size and physical layout of each location, the number of management and hourly staff members required to operate each restaurant, the availability of qualified restaurant staff members, the cost of travel and lodging for different metropolitan areas, the timing of the restaurant opening and the extent of unexpected delays, if any, in obtaining final licenses and permits to open the restaurant, which may also depend on our landlords obtaining their licenses and permits and completing their construction activities. Preopening costs are generally higher for larger restaurants and initial entry into new markets and lower when we relocate a restaurant within its local market. We usually incur the most significant portion of preopening costs within the two months immediately preceding and the month of a restaurant’s opening. Preopening costs per restaurant will also depend on our ability to leverage planned management growth expenses.
Expansion of Licensed Locations
We currently have licensing agreements with three restaurant operators to develop and operate The Cheesecake Factory ® brand restaurants in selected international markets. Our licensees invest their capital to build and operate the restaurants, and we receive initial development fees, site and design fees and ongoing royalties based on our licensees’ restaurant sales. In addition, these licensees purchase bakery products branded under The Cheesecake Factory ® mark from us. Assuming the operating environment continues to normalize from the COVID-19 pandemic and assuming full capacity conditions are ultimately permitted in each jurisdiction, we project each international licensed location to contribute on average approximately $0.01 in annual earnings per share (“EPS”), on average, once the location has been in operation for a full year. As of February 22, 2022, our international licensees operated the following The Cheesecake Factory restaurants:
Licensee Location
Restaurant Location
# of Restaurants
Kuwait (1)
Bahrain
1
Kingdom of Saudi Arabia
4
Kuwait
3
Qatar
3
United Arab Emirates
6
Mexico (2)
Mexico
6
Hong Kong (3)
Beijing
1
Hong Kong
1
Macau
1
Shanghai
3
Total
29
(1) This licensee, or its affiliates, also has the right to develop restaurants in Egypt, with the opportunity to expand the agreement to include Algeria, Hungary, Iraq, Libya, Morocco, Poland, Russia, Slovakia, The Czech Republic, Tunisia, Turkey and Ukraine.
(2) This licensee, or its affiliates, also has the right to develop restaurants in Chile, with the opportunity to expand the agreement to include Argentina, Brazil, Colombia and Peru.
(3) This licensee, or its affiliates, also has the right to develop restaurants in Taiwan, with the opportunity to expand the agreement to include Japan, South Korea, Malaysia, Singapore and Thailand.
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Our corporate infrastructure includes a dedicated global development team that works with our international licensees and coordinates the initial training, ongoing quality control, product specifications and brand oversight at our licensed locations. Our internal audit department also performs periodic reviews of our international licensees’ compliance with our licensing agreements.
As we evaluate other international markets, we will consider opportunities to directly operate certain locations and/or enter into licensing, joint venture or partnership arrangements with established third-party companies. We are selective in our assessment of potential partners and licensees, focusing on well-capitalized companies that have established business infrastructures, expertise in multiple countries, experience in operating upscale casual dining restaurants and sound governance practices. We look to associate with companies who will protect The Cheesecake Factory ® brand and operate the concept in a high-quality, consistent manner.
Due to the complexities of opening The Cheesecake Factory restaurants in other countries, including, but not limited to, the selection and design of appropriate sites, construction of our complex restaurant designs, training of licensees’ staff members, approval of supply sources and exportation of our bakery products to new countries, the number and timing of new openings in foreign countries may vary from expectations. (See Item 1A — Risk Factors — “We face a variety of risks and challenges related to our international operations and global brand development efforts, any of which could materially adversely affect our financial performance.”)
Consumer Packaged Goods
Given the strong affinity for The Cheesecake Factory ® brand, we leverage opportunities in the consumer packaged goods channel by partnering with third-party manufacturers to offer a variety of products marketed under The Cheesecake Factory At Home ® mark, including our Famous “Brown Bread,” refrigerated puddings and ice cream available in select retail stores nationwide. We continue to evaluate other synergistic, on-brand licensing opportunities to add incremental revenue streams to our business.
North Italia and Fox Restaurant Concepts
On October 2, 2019, we completed the acquisition of North Italia and the remaining business of Fox Restaurant Concepts, including Flower Child and all other FRC brands, which we expect will accelerate and diversify our revenue growth. North Italia and the FRC concepts are highly-differentiated and deliver unique customer experiences. With our aligned cultures and philosophies, we believe these transactions are consistent with our long-term strategy of being a leader in experiential dining and provide a significant accretive unit growth opportunity. In addition, we are pursuing a number of synergistic opportunities with our core infrastructure, including payroll and purchasing services.
North Italia is a modern interpretation of Italian cooking in the upscale casual dining segment. Dishes are handmade from scratch daily. The menu features appetizers, salads, fresh pastas, pizzas and entrees. Examples of menu offerings include White Truffle Garlic Bread, Tuscan Kale Salad, Bolognese, Burrata Anolini, Margherita Pizza, Tuscan Half Chicken, Chicken Parmesan and Braised Short Rib. North Italia offers an assortment of wines, beers and house-made cocktails. Alcoholic beverage sales represented 25% of North Italia sales for fiscal 2021 compared to 24% for fiscal 2020. Our North Italia restaurants are generally open seven days a week for lunch, dinner and weekend brunch. Currently, we operate 29 North Italia restaurants.
With Italian cuisine the number one ethnic food category in the United States, coupled with strong national reception of the North Italia concept to-date, we believe there is potential for 200 domestic locations over time, which supports our plan for approximately 20% average annual unit growth. We target an average unit size of 6,000 to 7,000 square feet and average sales per mature location of approximately $7.2 million, or approximately $1,200 per productive square foot. We have implemented a number of integrative initiatives with North Italia, including operations leadership, real estate development and marketing.
FRC operates as an independent subsidiary in Phoenix, Arizona. Its concepts are diverse in industry segment, occasions, square footage and geography. FRC’s largest concept, Flower Child, operates in the fast casual dining segment, offering a customizable menu, made fresh from scratch, featuring locally-sourced, all-natural and organic ingredients. Flower Child is a potential opportunity for us to diversify our portfolio in a strong and growing niche. Other FRC potential growth concepts include Culinary Dropout and Blanco, which together with the other FRC brands, serve as an ecosystem for talent, menu and design development. Currently, we operate 28 and 31 Flower Child and other FRC locations, respectively.
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We target approximately 15% to 20% average annual unit growth for the aggregate FRC portfolio, driven primarily by the anticipated growth of the Flower Child concept, complemented by additional market tests of the potential growth concepts. Unit sizes range from approximately 3,500 to 15,000 square feet. The FRC restaurants target sales of approximately $1,000 per productive square foot, on average.
Bakery Operations
We own and operate two bakery production facilities, one in Calabasas Hills, California, and one in Rocky Mount, North Carolina. Our facility in California accommodates both production operations and corporate support personnel, while our facility in North Carolina houses production operations and a distribution center.
We produce approximately 60 varieties of proprietary cheesecakes and other baked desserts using high-quality ingredients for The Cheesecake Factory and Grand Lux Cafe restaurants and for international licensees and third-party customers. Some of our most popular cheesecakes include the Original Cheesecake, Ultimate Red Velvet Cake Cheesecake TM , Godiva ® Chocolate Cheesecake, Oreo ® Dream Extreme Cheesecake and Coconut Cream Pie Cheesecake. Other popular baked desserts include Chocolate Tower Truffle Cake TM , Carrot Cake and Black-Out Cake.
The primary role of our bakery operations is to produce innovative, high-quality cheesecakes and other baked desserts for sale at our restaurants and those of our international licensees. Integration of this vital part of our brand gives us control over the creativity and quality of our desserts and is also more profitable than buying from a third party.
We also leverage The Cheesecake Factory brand identity and utilize our bakery production capacity by selling cheesecakes and other baked products to external foodservice operators, retailers and distributors. Current large-account customers include retail and supermarkets, foodservice distributors and operators, a national retail bookstore, other restaurants and national warehouse clubs. Additionally, we currently sell a selection of our cakes online and in catalogs domestically through an agreement with an upscale retailer. Items produced for outside accounts are marketed under The Cheesecake Factory At Home ® and The Cheesecake Factory Bakery ® marks, as well as private labels.
We sell baked goods internationally in approximately 30 countries under The Cheesecake Factory At Home ® mark. Offering our cheesecakes and other baked desserts internationally is important to our branding, creating awareness and driving demand, not only for bakery products but for the international expansion of our restaurants.
Other Concepts
We also operate Grand Lux Cafe and Social Monk Asian Kitchen. At present, we have no plans to open additional locations of these concepts.
Grand Lux Cafe
Grand Lux Cafe is an upscale casual dining concept that offers globally-inspired cuisine with an ambiance of modern sophistication. Using fresh ingredients, the menu offers classic American dishes and international favorites, including appetizers, pasta, seafood, steaks, chicken, burgers, salads, specialty items and desserts. Examples of menu offerings include our Cedar Planked B.B.Q Salmon, Buffalo Chicken Rolls and Shrimp Scampi. Each Grand Lux Cafe features an on-site bakery which produces a selection of signature desserts, and a full-service bar. Currently, we operate nine Grand Lux Cafe locations, having closed two locations subsequent to the end of fiscal 2021.
Social Monk Asian Kitchen
Social Monk Asian Kitchen is a fast casual Asian concept with a modern urban feel. The menu features the cuisines of Thailand, Vietnam, Malaysia, Singapore, China, Indonesia and India in made-to-order starters, salads, soups, sandwiches, rice and noodle bowls, classic entrees, vegetables and sides and house-made frozen custard. The restaurant also offers beer and wine. Examples of menu offerings include Crisp Vegetable Spring Rolls, Asian Chicken Salad, Thai Basil Cashew Chicken, Shaking Beef and Dan Dan Noodles. Currently, we operate one Social Monk Asian Kitchen location.
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Human Capital
At the heart of our culture is the belief that our people are our most important resource. We depend on our staff members to successfully execute all aspects of our day-to-day operations that differentiate our concepts. Our ability to attract highly-motivated staff members and retain an engaged, experienced team is key to successful execution of our strategy. While we continue to operate in a competitive labor environment, we believe our people practices contribute significantly to our ability to attract talent and to The Cheesecake Factory restaurants’ industry-leading retention rates, which are consistently in or near the top tenth percentile of the upscale casual dining industry with respect to both restaurant management and hourly staff. (See Item 1A — Risk Factors — Risks Related to the Restaurant Industry — “If we are unable to successfully recruit and retain qualified restaurant management and operating personnel in an increasingly competitive market, we may be unable to effectively operate and grow our business and revenues, which could materially adversely affect our financial performance.”)
Retention and engagement of our staff members, one of our top priorities, is fostered by our investment and support particularly in the following areas:
Culture
Cultivating and maintaining our culture is a key strategic focus. Our core values and purpose reflect who we are and how our staff members interact with one another, as well as with our customers and other external stakeholders.
Our purpose – to nurture bodies, minds, hearts and spirits – and our values – quality in everything we do; passion for excellence; integrity, respect and responsibility; people – our greatest resource; service-mindedness; dynamic leadership; high performance and create a sustainable future – are the foundation of our company culture. We seek to embed our purpose in everything we do by cultivating a sense of pride and belonging to the Company and our brands. We are proud of the way our people nurture one another and extend that nurturing to our customers and communities.
Diversity, Equity, Inclusion and Belonging
We strive to offer an atmosphere of inclusion and belonging for all. We believe the cultural alignment we cultivate around respect and inclusion builds trust and promotes teamwork to achieve our common goals. Furthermore, when our people feel valued and respected for their worth as individuals, they are better able to maximize their potential at work and more likely to share their perspectives, opinions and ideas, which contributes to our ability to innovate. Our Diversity, Inclusion and Belonging Steering Committee is responsible for establishing strategy, goals and accountability around this important area of focus. In 2021, key activities included conducting an assessment of our diversity and inclusion efforts and providing in-depth diversity, inclusion and bias training to our above-restaurant operational leadership.
We are committed to providing equal opportunities and seek to ensure there is equity in hiring, development and advancement. We sponsor developmental support groups, such as The Cheesecake Factory Women’s Network Group, with the goal of advancing women into senior-level positions. Our Female Kitchen Leader’s Program pairs new female managers with an advisor to provide extra support with navigating kitchen environments, which tend to be predominantly male. The Leaders of Color Program provides networking and development opportunities for managers from diverse racial or ethnic groups. As of December 28, 2021, approximately 47% of our staff members were women and approximately 67% of our staff members were racially or ethnically diverse. We annually conduct pay studies among our restaurant management and corporate teams to help ensure that we are paying fairly and equitably. In addition, we review pay parity for hourly staff on an annual basis.
Development and Training
We invest significant resources to ensure our people receive, what we believe is industry-leading training in order to maximize their potential. Our hourly staff members and managers receive a considerable amount of training through a combination of in-person learning and development and online coursework. In addition to company-provided job training, we encourage the pursuit of educational opportunities at The Cheesecake Factory, North Italia and Grand Lux Cafe restaurants through our tuition reimbursement and free high school equivalency and associate degree programs. We also strive to provide our staff with career advancement opportunities, and our internal management promotion rate for fiscal 2021 was 53%.
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Benefits and Wellness
We believe access to healthcare is a compelling benefit for many staff members, and we offer healthcare benefits to our hourly staff members who work a minimum of 25 hours per week, on average. We provide a robust suite of benefits and wellness offerings, including free mental health resources, free tutoring to support our staff and managers, and access to chronic disease care management, a maternal health program, financial wellness resources and adoption assistance. All staff have paid sick time available to them starting at hire and are eligible to earn vacation time.
Employee Engagement
As of December 28, 2021, we employed approximately 45,800 people, with approximately 44,500 in our restaurants and the remainder in our corporate support center, FRC headquarters and bakery operations. We believe that engaging our workforce is a key factor in our business success and in turn, have developed programs to promote enthusiasm and commitment, while providing a sense of belonging. We measure our performance in this area through an annual engagement survey and pulse surveys throughout the year. These surveys give staff company-wide the opportunity to share honest feedback about their work experience. Based on survey results, leaders across the Company are tasked with responsibility for creating action plans to address and respond to staff feedback. Listening to our staff members is an essential part of building an engaged workforce, and we provide additional avenues for staff to share their ideas and concerns, including our internal crowdsourcing innovation website and our Careline, which staff can use to confidentially express their concerns. We believe our efforts in developing and engaging our workforce and creating a great workplace for all of our staff members are important, and in 2021, we were recognized by Fortune and Great Place to Work ® as one of the 100 Best Companies to Work For for an eighth consecutive year. Our staff members are not covered by any collective bargaining agreements, and we consider our staff member relations to be good.
Giving Back
Another key aspect of our culture is giving back to the communities where our staff live and work, as well as uniting our staff members around charitable causes personal to them. We provide donations to Feeding America and participate in their annual campaign as an opportunity to engage our teams in a culturally-aligning company-wide service program. We have similarly promoted our teams’ participation in community volunteer events, and through our gift card program, we contribute to local fundraising events for community non-profit organizations. Additionally, we partner with the California Community Foundation to provide a method for our staff members to assist other staff members in need through our The Cheesecake Factory “HELP” fund.
We also participate in a nationwide food donation program which redirects surplus food away from landfills to local food banks and non-profit organizations, and believe our sustainability programs and initiatives like restaurant-based composting and recycling and replacing our off-premise packaging with materials that reduce the use of plastics and improve recyclability serve to foster pride in our staff.
Actions Related to the COVID-19 Pandemic
Our management of human capital related to the COVID-19 pandemic during fiscal 2021 included the following:
● Safety – Continued our compliance with state and local government regulations and health recommendations in an effort to keep our teams and customers safe, including providing personal protective equipment and adhering to local vaccination requirements.
● Benefits – Further expanded our paid time off program so that hourly staff and managers could take time off from work to care for their health, including paid time off to receive COVID-19 vaccines.
● Support programs – Provided a complimentary daily meal and continuation of insurance benefits to provide support to staff members impacted by closures of dining rooms.
● Management – Guaranteed approximately 95% of our restaurant management teams’ annual bonus opportunity.
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Corporate Social Responsibility
For us, the term “Corporate Social Responsibility” or “CSR” informs how we operate in relation to our people and communities, natural environment and our supply chain. We evaluate our business and how we operate our corporate-owned restaurants in an effort to identify, create and implement meaningful and sustained change. During fiscal 2021, in an effort to emphasize the importance of and to align with management, our Board amended our Corporate Governance and Nominating Committee charter to provide for review of the Company’s sustainability and CSR policies. For more information, please review our CSR report on the Corporate Social Responsibility page on our website at www.thecheesecakefactory.com . The contents of the CSR report and our website are not incorporated by reference into this Form 10-K.
Purchasing and Distribution
We strive to obtain quality menu ingredients, bakery raw materials, supplies and services for our operations from reliable sources at competitive prices and consistent with our sustainability goals. We research and evaluate various ingredients and products in an effort to maintain high quality, be responsive to changing consumer tastes and manage costs.
In order to maximize purchasing efficiencies and to obtain the freshest ingredients that meet our required quality and consistency standards, each restaurant’s management determines the quantities of food and supplies needed for their location and orders the items from qualified local, regional, national and international suppliers based upon specifications determined and terms negotiated at a corporate level. We strive to maintain restaurant-level inventories at a minimum dollar level in relation to sales due to the relatively rapid turnover of the perishable produce, poultry, meat, fish and dairy commodities we use in our operations, coupled with the limited storage space at our restaurants. Independent foodservice distributors, including the largest foodservice distributor in North America, deliver most items multiple times per week to our restaurants. During fiscal 2021, we began to experience certain supply shortages and transportation delays largely attributable to impacts of the COVID-19 pandemic, and we expect these shortages and delays to continue in fiscal 2022.
We purchase food and other commodities for use in our operations based on market prices established with our suppliers. Many of these commodities can be subject to market volatility driven by supply and demand factors outside of our control, including the relative availability of labor and distribution, weather, natural disasters, inventory levels, and political and economic conditions. Climate change may further exacerbate a number of these factors. We negotiate short-term and long-term agreements for some of our principal commodity, supply and equipment requirements, such as certain dairy products and poultry, depending on market conditions and expected demand. As a result of recent supply shortages that have affected the restaurant industry and broader economy, we have needed to purchase a greater portion of certain products in the spot market at a significantly higher cost than our historical contracted rates. While we are in the process of contracting for certain key food and non-food supplies for fiscal 2022, these efforts may not be successful or yield our intended benefits.
We continue to evaluate the possibility of entering into similar arrangements for other commodities and periodically evaluate hedging vehicles, such as direct financial instruments, to assist us in managing price risk and variability associated with such commodities. As of the end of fiscal 2021, we had no hedging contracts in place. We may not have the ability to increase menu prices or vary menu items in response to food commodity price increases. (See Item 1A — Risk Factors — “Our inability to anticipate and react effectively to changes in the costs of key operating resources may increase our cost of doing business, which could materially adversely affect our financial performance.”)
Information Technology
Unless otherwise noted, this section titled “Information Technology” relates to The Cheesecake Factory, North Italia, Grand Lux Cafe and Social Monk Asian Kitchen restaurants. We are in the process of implementing similar solutions for the FRC brands other than North Italia where warranted based on our assessments. Our technology-enabled business solutions are designed to provide effective financial controls, cost management, improved efficiencies and enhanced customer experience. Our business intelligence solution and data warehouse architecture provide corporate and restaurant management with information and insights into key operational metrics and performance indicators. This framework delivers enterprise reporting, dashboards and analytics, and allows access to metrics such as quote and wait time accuracy, staff member retention trends, and restaurant quality and service analyses.
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Our restaurant point of sale and back-office systems provide information regarding daily sales, cash receipts, inventory, food and beverage costs, labor costs and other controllable operating expenses. Our restaurants offer online ordering for to-go sales, and the point of sale system is integrated with our delivery provider to drive efficiencies in the restaurants and enhance the customer delivery experience. We utilize a customer satisfaction measurement platform that leverages the “Net Promoter Score” methodology. The data and analytics provided by this software provide us with actionable insights to better understand what customer experience opportunities should be addressed, while reinforcing positive staff behaviors. To enable a safer and improved customer experience in response to the COVID-19 pandemic, we offer QR code menu and touchless payment options.
Our kitchen management system, which is in place at The Cheesecake Factory, Grand Lux Cafe and Social Monk Asian Kitchen restaurants, provides automated routing and cook line balancing, and synchronizes order completion, ticket time and cook time data, promoting more efficient levels of labor and productivity without sacrificing quality. We leverage our recipe viewer system to ensure timely and accurate recipe updates, and to provide instructional media content and detailed procedures enabling our staff to consistently prepare our highly complex, diverse menu across all locations. We utilize a web-based labor scheduling solution to enhance scheduling precision and staff satisfaction. We also employ a web-based notification and tracking solution to contact our restaurants and monitor progress in the event of a needed product withdrawal or recall.
Restaurant hardware and software support is provided by both our internal support services team as well as third-party vendors. Each restaurant has a private high-speed wide area connection to send and receive critical business data as well as to access web-based applications securely as well as a failover capability whereby a secondary public circuit is used to automatically establish a secure connection to our private network if the primary connection becomes unavailable. We employ modern restaurant switching and routing technology that allows us to leverage and support contemporary security standards and practices and employ wireless capability for a variety of mobile uses. All of our core and critical applications are housed in external tier 3 data centers. To mitigate business interruptions, we utilize a disk-based data backup and replication infrastructure between our onsite and external data centers, so all data is replicated nightly between the sites.
We employ a multi-discipline security incident response plan to recognize, manage and resolve cybersecurity threats, and require cybersecurity awareness training for all staff members with access to our cyber systems. We also maintain cyber risk insurance coverage to further reduce our risk profile. Security of our financial data and other sensitive information remains a high priority for us, led by our information technology department in conjunction with an interdepartmental information security council representing our key functional areas. We utilize a public key infrastructure, ensuring only trusted devices can access our network, employ Intrusion Detection and Intrusion Prevention (IDS/IPS) that scans data in transit detecting and preventing the execution of harmful code and require secure sockets layer (SSL) certificates for access to sites outside our network. To further enhance our cybersecurity protection, we utilize a third-party security operations center (SOC) provider to monitor and analyze internal network traffic for potential malicious content. Also, in an effort to further secure our customers’ credit card information, we employ a robust end-to-end encryption and tokenization platform for all credit card transactions in our restaurants, ensuring no credit card data is stored in our internal systems. This includes equipment that can also process smart payment cards, commonly referred to as EMV (Europay, Mastercard, Visa). (See Item 1A — Risk Factors — “Information technology system failures or breaches of our network security could interrupt our operations and subject us to increased operating costs, as well as to litigation and other liabilities, any of which could materially adversely affect our financial performance.”)
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Marketing and Advertising
The Cheesecake Factory
We rely on our reputation, as well as our high-profile locations, media exposure and positive “word of mouth,” to maintain and grow market share. Historically, we have not used significant paid national advertising through television, radio or print, nor significant discounting for on-premise dining occasions. We utilize a social media and digital marketing strategy that allows us to engage regularly with our customers outside of our restaurants, including communication and paid advertising on Facebook ® , Instagram ® , YouTube ® , Twitter ® , Snapchat ® , Pinterest ® , TikTok ® and other social media platforms, influencer marketing, Google search advertising and direct email to customers. We are in the process of updating our website and implementing a guest rewards program. (See Item 1A — Risk Factors — “Any inability to effectively use and manage social media could harm our marketing efforts as well as our reputation, which could materially adversely affect our financial performance.”)
Public relations is another important aspect of our marketing approach, and we frequently appear on local and national television in connection with a variety of promotional opportunities, such as National Cheesecake Day, to perform cooking demonstrations and other brand-building exposure. We generated approximately 27 billion media impressions in fiscal 2021 at minimal cost to us. To raise awareness in the off-premise channel, we execute marketing campaigns with our third-party delivery provider and through our online ordering platform. In addition, we work with several premiere third-party gift card distributors, contributing to our brand awareness and gift card sales, as well as our consumer packaged goods licensees on co-branded marketing campaigns.
We also attempt to build awareness and relationships with retailers located in the same developments, shopping center operators, local hotel concierges, neighborhood groups and others in the community. For restaurants opening in new markets, we strive to obtain local television, radio station and newspaper coverage in order to benefit from publicity at low or no cost. At times, we also engage in marketing and advertising opportunities in selective local markets.
Our international licensees are committed to opening each new restaurant with marketing that can be comprised of a mix of elements including print, billboards, digital and radio. We maintain final approval of our licensees’ marketing campaigns and social media posts to promote consistency in the look and feel of marketing efforts including our brand, domestically and abroad.
North Italia and FRC
North Italia and FRC execute localized marketing programs focused on awareness, frequency and brand engagement through a variety of channels, including store-level marketing, public relations, in-store events, digital advertising, email programs and social media. Each restaurant is positioned as an individual brand with a neighborhood connection. Additionally, the restaurant interiors and exteriors are utilized for brand engagement and messaging through art and graphics, creating an important part of a brand experience for the customer. We believe minimal discounts ensure compelling brand proposition for experience and value.
Seasonality and Quarterly Results
While seasonal fluctuations generally do not have a material impact on our quarterly results, year-over-year comparisons can be significantly impacted by the number and timing of new restaurant openings and associated preopening costs, the timing of holidays, the impact from inclement weather, the additional week in a 53-week fiscal year and other variations in revenues and expenses, including the impact of the COVID-19 pandemic and results of the Acquisition. Because of these and other factors, our financial results for any quarter or fiscal year are not necessarily indicative of the results that may be achieved for the full fiscal year or subsequent fiscal years.
Food Safety and Quality Assurance
Our food safety processes and systems are designed to mitigate the risk of contamination and illness and to ensure compliance with regulatory requirements as well as industry standards. We continuously seek to improve our food safety and sanitation policies and procedures. Our work and management processes are verified by routine restaurant management reviews, third-party health inspection/food safety audits and regulatory agency inspections, and we utilize a nutritional database consistent with the Food and Drug Administration’s recently-enacted rule regarding food and nutritional labeling of restaurant menu items. In addition, our bakery facilities are Safe Quality Food certified in alignment with the Global Food Safety Initiative’s Global Markets Program.
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In selecting suppliers, we look for key performance indicators relating to sanitation, operations and facility management, good manufacturing and agricultural practices, product protection, government inspections and compliance, compliance with the Food Safety Modernization Act, recovery and food security. We have annual food safety and quality system audits for certain suppliers, while others are audited every other year or as needed. Our restaurants and bakery facilities also follow regulatory guidelines required for conducting and managing ingredient and product traceability. We utilize a web-based notification and tracking solution to efficiently contact our restaurants and monitor our progress in the event of a product withdrawal or recall. (See Item 1A — Risk Factors — “The impact of and our failure to effectively respond to pandemics, epidemics, endemics and other public health emergencies, or food safety and food-borne illness could reduce customer traffic to our restaurants, disrupt our food supply chain or cause us to be the target of litigation, which could materially adversely affect our financial performance.”)
Government Laws and Regulations
Our Company is subject to numerous federal, state, local and foreign laws and regulations. Each of our restaurants is subject to various laws and regulations, including license and permit requirements, that regulate many aspects of our business, including, among other things, alcoholic beverage control, health, sanitation, labor, immigration, zoning and public safety. We are also subject to various environmental regulations governing areas such as water usage, sanitation disposal and transportation mitigation.
Our international business exposes us to additional laws and regulations, including antitrust and tax requirements, anti-boycott legislation, import/export and customs regulations and other international trade regulations, privacy laws, the USA Patriot Act and the Foreign Corrupt Practices Act.
As a provider of food products, we are subject to a comprehensive regulatory framework that governs the manufacture (including composition and ingredients), labeling, packaging and safety of food in the United States , including the Federal Food, Drug and Cosmetic Act, the Public Health Security and Bioterrorism Preparedness Response Act of 2002, the Federal Food Safety Modernization Act and regulations concerning nutritional labeling under the Patient Protection and Affordable Care Act of 2010. (See Item 1A — Risk Factors — “Our inability to respond appropriately to changes in consumer health and disclosure regulations, and to adapt to evolving consumer dining preferences could negatively impact our operations and competitive position, which could materially adversely affect our financial performance.”)
In order to serve alcoholic beverages in our restaurants or off-premise where permitted, we must comply with alcoholic beverage control regulations which require us to apply to a state or other governmental alcoholic beverage control authority for licenses and permits. In addition, we are subject to dram shop statutes in most of the jurisdictions in which we operate, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. Dram shop litigation may result in significant judgments, including punitive damages. We try to mitigate this risk by carrying liquor liability insurance coverage.
Various federal, state, local and foreign laws and regulations govern our operations as they relate to our staff members, including such matters as minimum wages, breaks, scheduling, exempt classifications, equal pay, overtime, tip credits, fringe benefits, leaves, safety, working conditions, provision of health insurance, the COVID-19 pandemic and citizenship or work authorization requirements. In California, we are subject to the Private Attorneys General Act (“PAGA”) which authorizes employees to file lawsuits to recover civil penalties on behalf of themselves, other employees and the State of California for labor code violations. We must also comply with local, state and federal laws and regulations protecting the right to equal employment opportunities and prohibiting discrimination and harassment in the workplace. We regularly review and update our training and awareness programs addressing these concerns. We are also subject to the regulations of the Department of Homeland Security, the U.S. Citizenship and Immigration Services and U.S. Immigration and Customs Enforcement.
Our facilities must comply with applicable requirements of the Americans with Disabilities Act of 1990 (“ADA”) and related federal, state and foreign laws and regulations which prohibit discrimination on the basis of disability with respect to public accommodations and employment. We take steps to ensure our places of public accommodation and our website comply with the requirements of the ADA and related state and local laws and regulations. We also make reasonable accommodations for the employment of disabled persons as required by applicable laws and regulations.
A significant number of our hourly restaurant staff members receive income from gratuities. In the United States, many of our locations participate voluntarily in a Tip Reporting Alternative Commitment (“TRAC”) agreement with the Internal Revenue Service (“IRS”). By complying with the educational and other requirements of the TRAC agreement, we reduce the likelihood of potential employer-only FICA tax assessments for unreported or underreported tips.
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We are subject to laws and regulations relating to information security, privacy, cashless payments and consumer credit, protection and fraud. We make efforts to comply with an increasing number of data privacy laws, regulations and industry standards regarding the protection of personally identifiable information and protected health information.
(See Item 1A — Risk Factors — “Changes in, or any failure to comply with, applicable laws or regulations could materially adversely affect our ability to operate our restaurants and/or increase our cost to do so, which could materially adversely affect our financial performance.”)
Trade Names, Trademarks and Other Intellectual Property
We own and have applied to register trade names, logos, service marks, trademarks and copyrights and other intellectual property (collectively, “Intellectual Property”) in the United States, Canada and in additional countries throughout the world in various categories, including without limitation, restaurant services and bakery goods. We regard our Intellectual Property, including without limitation “The Cheesecake Factory,” “North Italia,” and a collection with the Fox Restaurant Concepts subsidiary, as well as our trade dress, as having substantial value and as being important to our marketing efforts. Our policy is to pursue registration of our important Intellectual Property whenever commercially feasible and to vigorously oppose infringements of our Intellectual Property. The duration of Intellectual Property registrations varies from country to country, and we have not registered all of our trademarks in every country in which we now or in the future may do business. However, registrations of Intellectual Property are generally valid and may be renewed indefinitely as long as they are in use and/or their registrations are properly maintained. We have also registered various internet domain names, including, without limitation, “www.thecheesecakefactory.com,” “www.northitalia.com,” and “www.foxrc.com,” as well as derivations of these and other domain names to include international country codes. (See Item 1A — Risk Factors — “Our failure to adequately protect our intellectual property could materially adversely affect our financial performance.”)
Executive Officers of the Registrant
David Overton, age 75, serves as our Chairman of the Board and Chief Executive Officer. Mr. Overton co-founded our predecessor company in 1972 with his parents, Oscar and Evelyn Overton. He is also a founding member and director of our Foundation.
David M. Gordon, age 57, was appointed President of the Company in February 2013. Mr. Gordon joined our Company in 1993 as a Manager and held operational positions, including General Manager, Area Director of Operations, Regional Vice President and Chief Operating Officer prior to his appointment as President. He is also a director of our Foundation.
Matthew E. Clark, age 52, was appointed Executive Vice President and Chief Financial Officer in 2017. Mr. Clark joined our Company in 2006 as Vice President of Strategic Planning and most recently oversaw the strategy, financial planning, treasury and risk management functions as Senior Vice President, Finance and Strategy. Earlier in his career, Mr. Clark held a number of finance positions of increasing responsibility at Groupe Danone, Kinko’s and The Walt Disney Company. He is also an advisory director of our Foundation.
Keith T. Carango, age 60, serves as President of The Cheesecake Factory Bakery Incorporated, our bakery subsidiary. Mr. Carango joined our bakery operations in 1996 to lead manufacturing and provide continuous improvement to the bakery operation. In his most recent role of Senior Vice President and Chief Operating Officer, he oversaw strategic planning, supply chain, manufacturing, distribution, human resources, quality assurance and finance. Prior to joining the Company, he held manufacturing and finance roles at Frito-Lay, Inc. and Prince Foods.
Scarlett May, age 55, serves as our Executive Vice President, General Counsel and Secretary. Ms. May joined our Company in 2018, from Brinker International, Inc., where she served as Senior Vice President, General Counsel and Secretary from 2014 to 2018. Prior to that, she was Senior Vice President, Chief Legal Officer and Secretary for Ruby Tuesday, Inc. following her earlier career in private practice.
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