Latest / Business Strategy Talks with Fexingo: Competitive Advantage, Market Positioning, and Growth Planning / How The Cheesecake Factory Turns a Giant Menu Into a Moat
Transcript
- Lucas: There is a restaurant chain that runs more than two hundred different items on a single menu, from Cajun jambalaya pasta to a thirty-dollar steak to about fifty varieties of cheesecake. Most food operators would tell you that is a recipe for operational chaos. But this company turns that chaos into a genuine competitive moat. Luna: You are talking about The Cheesecake Factory, and I have to say — the first time I saw their menu, it was almost overwhelming. It is literally a booklet. Lucas: It is. And that is exactly the point. The menu is the product, and it is also the barrier. The Cheesecake Factory does not compete on being the best Italian restaurant or the best burger place. It competes on being the place where everyone in a group can find something they want, and that is a surprisingly hard thing to replicate. Luna: So the moat is not the cheesecake itself — it is the sheer breadth of choice? Lucas: Partly. But it is deeper than that. The variety creates what strategists call economies of scope. The same kitchen, the same real estate, the same staff can serve pasta, tacos, and a Cobb salad. That means you only need one location to capture a huge range of demand. And because the menu is so broad, customers have less reason to go anywhere else. Luna: Right, but I have heard the criticism that the menu is just too big to execute well. How do they avoid quality problems? Lucas: That is the operational moat underneath the menu moat. They have built a supply chain and a prep system that can handle the complexity. Most of the ingredients are processed in central kitchens — they chop vegetables, portion proteins, and par-cook sauces off-site. The restaurant itself does mostly assembly and finishing. So the kitchen stays efficient even with a massive menu. Luna: So the complexity is front-loaded into the supply chain, not the store. Lucas: Exactly. And that creates a cost advantage that most competitors cannot match. A Chili's or an Applebee's has a smaller menu because their kitchens are not set up for that kind of throughput. They would need to rebuild their entire supply chain to get there. The Cheesecake Factory has been refining this for over forty years. Luna: Let's talk numbers. How big is the moat financially? Lucas: The company does about two and a half billion dollars in annual revenue, and same-store sales growth has been positive in all but the worst pandemic quarters. Their average unit volume is around eleven million dollars per restaurant — that is nearly double the industry average for casual dining. And their margins are consistently above peers. Luna: Eleven million per location is remarkable. What drives that? Lucas: Two things. First, the broad menu drives higher traffic because groups with diverse tastes can all agree on The Cheesecake Factory. Second, the check average is higher — around twenty-two dollars per person — because the menu has enough premium items to pull the average up. You are not just getting a burger; you might also get a slice of cheesecake that costs nine dollars. Luna: So the menu itself becomes a pricing lever. Lucas: Yes. And that is a moat because it ties the customer's willingness to pay to the variety. A smaller-menu competitor cannot command that same check average because the range of options is narrower. The Cheesecake Factory effectively owns the 'everyone agrees' occasion. Luna: I want to push back a little. Isn't there a risk that the menu gets too big? I read that they occasionally prune items. Lucas: They do. They rotate about twenty percent of the menu every year. They test new items in a few locations, and if something does not sell, it gets cut. But the core — the two hundred or so permanent items — stays stable. That stability is part of the moat. Diners know that their favorite pasta will be there next year. Luna: So the moat is not just breadth, but consistency of breadth. Lucas: Precisely. And that consistency builds a habit. When you know a menu that well, you become a repeat customer. The Cheesecake Factory has one of the highest loyalty rates in casual dining. About sixty percent of their customers come back within a year. Luna: That is impressive. Let's zoom out. Why haven't other chains copied this model? Lucas: A few have tried. At various points, Chili's and Applebee's expanded their menus to compete, but they faced three problems. First, their kitchens were designed for a smaller menu, so adding items caused bottlenecks. Second, their supply chains were not set up for the ingredient variety. And third, the brand itself — customers go to Chili's for ribs or Applebee's for a burger, not for a thirty-item menu. The Cheesecake Factory brand is the menu. Luna: So the brand and the menu are the same thing. Lucas: Exactly. And that is a rare alignment. Most restaurant chains have a signature dish or a category. The Cheesecake Factory's signature is the concept of limitless choice. That is a moat because it is an idea, not a recipe. Luna: You mentioned the brand. How much does the name itself protect them? 'Cheesecake' is in the name, but they sell way more than cheesecake. Lucas: The name is almost a decoy. It signals indulgence, which sets the expectation for a treat. And that expectation makes customers more willing to spend on appetizers, entrees, and dessert. The cheesecake is the hook, but the full menu is the reason they stay. The brand moat is really about the overall experience of abundance. Luna: Is there a weakness? Every moat has a vulnerability. Lucas: The biggest vulnerability is labor. Preparing all that variety takes more skilled kitchen staff. If the labor market tightens, they have to pay more to keep those cooks. That is a real cost pressure. But even then, their margins are strong enough to absorb some of that. Luna: And competition from fast-casual? Chipotle or Sweetgreen are not trying to do two hundred items. Lucas: They are a different category. Fast-casual is about speed and simplicity. The Cheesecake Factory is about the opposite — it is about taking your time, browsing, and indulging. That is a separate occasion. So the moat is not threatened by the Chipotles of the world. Luna: Okay, I want to put this in a broader strategy frame. What type of moat is this? Lucas: I would call it a 'scope moat.' Most moats are about focus — doing one thing so well that nobody else can touch you. This is the opposite: doing many things so well that the combination is impossible to replicate. It is almost like a department store model for food. And department stores have been struggling, but The Cheesecake Factory proves that scope can still work if the execution is tight. Luna: Are there other companies that use a similar strategy outside of restaurants? Lucas: Amazon is the obvious one. Vast selection is their moat. But in physical retail, it is rare. Costco has a different model — limited selection, bulk quantities. The Cheesecake Factory is unique in using breadth as a defense. Luna: Let's talk about the future. Can they expand this moat beyond the US? Lucas: They have started. There are locations in the Middle East, Mexico, and a handful in Asia. But international expansion is tricky because tastes vary. The menu has to be adapted, which weakens the consistency moat. So far, they have been cautious. The real growth is still domestic — they have about 210 locations in the US, and analysts think they can get to 400 over time. Luna: Four hundred locations would still be smaller than Chili's or Applebee's. So the moat is not about ubiquity. Lucas: No. It is about density of demand per location. They want to be the best restaurant in each market, not the most common one. That is a higher-margin strategy. Luna: One more thing: How much of this moat is defensible if a well-funded competitor like Darden Restaurants decided to copy it? Lucas: Darden could try, but they would need to overhaul their supply chain, retrain their kitchen teams, and convince customers that their brand stands for variety. That would take years and billions of dollars. The Cheesecake Factory has a forty-year head start. That is a serious moat. Luna: So the takeaway is that variety, when executed with operational discipline, is not just a feature — it is a fortress. Lucas: Exactly. And it is a reminder that moats can come from unexpected places. You do not always need a patent or a network effect. Sometimes you just need two hundred and fifty dishes that people love. Luna: Alright, so if this episode made you think differently about menus — or if it just made you hungry — and if these conversations have moved your work forward in some small way, there is a simple way to keep them ad-free. Lucas: Yeah, if today was worth a coffee to you, that is the link — buy me a coffee dot com slash fexingo. No pressure, just if it felt useful. Luna: And honestly, every bit helps us keep the show independent. Back to the menu — one last thing I want to ask: Do you have a favorite item? Lucas: I am a sucker for the chicken Madeira. But I think the moat is the real dish worth studying.