Inflation eases for The Cheesecake Factory, but so does customer spending

The chain said business is returning to its pre-pandemic rhythms: "It feels like a relatively normal year."
The Cheesecake Factory foresees an end to big price hikes as inflation slows. | Photo: Shutterstock

The third quarter felt oddly familiar to The Cheesecake Factory, for better and for worse.

Wage inflation, which has been on the rise for years, is now trending below pre-pandemic levels, and commodity prices are also stabilizing, executives said Wednesday, foreshadowing an end to quarter after quarter of big price hikes.

At the same time, customers are pulling back their spending after a couple years of going all out. They’re ordering fewer appetizers and less alcohol at Cheesecake than last year, reverting back to their habits circa 2019.

More generally, the casual-dining chain said the regular ebbs and flows of the calendar are falling back into place. Business slowed down a bit in late summer and early fall as kids went back to school, but has picked up again recently. 

“It feels like a relatively normal year,” Cheesecake CFO Matt Clark said Wednesday. “Certainly, it feels like next year could be more normal with respect to pricing.” 

While calmer waters may lay ahead, the chain’s third quarter results bear the marks of stormy seas. For the three months ended Oct. 3, Cheesecake’s same-store sales rose 2.4% year over year. Prices were 9.5% higher, traffic was down 1% and mix was down 6.1%. 

Clark attributed the harsh drop in mix to customers ordering less alcohol and appetizers, which are now selling at around pre-pandemic levels. It “feels a lot like 2019 to us,” he said. 

So, if Cheesecake is truly turning back the clock, what does that mean going forward?

For one thing, inflation easing should keep a lid on price hikes. Historically, the chain has raised prices twice a year, by about 1.5% or 2% each time, or just enough to offset inflation. For next year, it is expecting total inflation in the low- to mid-single-digit range. That could equate to about a 4% price increase in the first part of 2024, Clark said.

“We'll see how all the pieces come together, but it feels like that's going to be in a more normal range at that point,” he said.

But a slowdown in inflation doesn’t mean consumers will start throwing their money around like they did last year. Prices will still be elevated, and the chain is still projecting combined traffic and mix to be negative in 2024, “probably in the low single-digit range,” Clark said.

That said, it is expecting a modest increase in total revenue for next year, between $3.6 billion and $3.7 billion, up from an expected $3.5 billion to $3.6 billion for this year. Net income margin could also rise slightly, from a projected 4% this year to 4% to 4.5% next year.

Given the sluggish environment, Cheesecake is also looking for new ways to drive traffic. A recently launched loyalty program is one of them. Currently, Cheesecake Rewards is luring members with what the chain calls “published offers”—blanket perks that everyone gets, like access to reservations and a free slice of cheesecake on their birthday. But it is testing rewards that are targeted to certain segments and dayparts in hopes of driving traffic on a more granular level.

“I think that's why we launched rewards, right, as a means to drive incremental visitation,” Clark said.

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