Consistent with its strategy to expand in the Middle East, The Cheesecake Factory Inc. (CAKE - Free Report) recently ventured into Kuwait. The new 13,160 square feet Kuwait restaurant, opened in association with the Kuwait-based Alshaya group, follows the company’s first overseas opening in Dubai this August.
Cheesecake Factory’s restaurants are primarily located in or near malls and shopping centers. The newest unit, opened in The Avenues, one of Kuwait’s renowned malls, enjoys one of the prime locations in the country. We believe the location is strategically perfect to attract high-end customers.
In January 2011, the company entered into an agreement with the Alshaya group of companies to build and operate 22 Cheesecake Factory restaurants over the next five years in five countries of the Middle East––United Arab Emirates, Kuwait, Bahrain, Qatar and the Kingdom of Saudi Arabia. The agreement also includes expansion plans in other markets of the Middle East and North Africa, Central and Eastern Europe, Russia and Turkey.
The deal affirms management’s plan to make the Middle East as one of the prime destinations for international expansion, as it sees a fondness for American dining brands in that region. It is being witnessed that the young population in that region are more inclined towards western fast-food chains.
Consumer confidence is higher in Kuwait due to a stepped up economy backed mainly by the enormous oil reserve that heavily contributes to rising GDP of the country. Increasing disposable income has enabled the residents to spend big on branded food items. Hence, we believe that Cheesecake seeks to fully capitalize on this trend.
The company aims to open about three locations in the Middle East in fiscal 2012 but does not expect these openings to have a material impact on the financial results of fiscal 2012.
Another U.S. restaurateur Darden Restaurants Inc. (DRI - Free Report) is also foraying into the Middle East market. Other western restaurateurs with prominent presence in the Middle East are Yum! Brands Inc. (YUM - Free Report) and Krispy Kreme Doughnuts Inc. . Cheesecake Factory currently carries a Zacks #3 Rank that translates into a short-term Hold rating.