Casual-dining companies, such as Cheesecake Factory Inc. (CAKE) and Texas Roadhouse Inc. (TXRH), are experimenting with smaller restaurant prototypes as a way to improve margins coming out of the recession.
Cheesecake Factory is working on a new 8,000-square-foot model, which it expects to generate similar cash flow margins as its typical 10,000-square-foot locations. The cash investment required for the smaller-format restaurants is reduced by more than 20%, allowing the restaurant to reach peak margin levels with lower sales. With the new model, Cheesecake Factory said it can exceed 20% return on investment with sales volumes of just over $8 million.
The smaller prototype also provides more site-selection flexibility, said Chief Executive David Overton, during a conference call. “We don’t require only new mall development or expansion of malls to build new restaurants,” he said. ” This is a big advantage.”