The Dynamic, Challenging, Innovative World of Risk Management

A Conversation with Kurt Leisure of The Cheesecake Factory

EDITOR’S NOTE: Kurt Leisure is vice president of risk services for The Cheesecake Factory Incorporated where he is responsible for risk management, insurance claims, safety, and loss prevention.

EDITOR: Thank you for the opportunity to learn about The Cheesecake Factory and a little bit about you as well. Let’s start with telling our readers the wonderful story about The Cheesecake Factory that most people may not know.

Kurt Leisure

LEISURE: The Cheesecake Factory story began in Detroit, Michigan, in the 1940s. Evelyn Overton found a recipe in the local newspaper that would inspire her “original” cheesecake. Everyone loved her recipe so much that she decided to open a small cheesecake shop, but she eventually gave up her dream of owning her own business in order to raise her two small children. She moved her baking equipment to a kitchen in her basement and continued to supply cakes to several of the best restaurants in town while raising her family. In 1972, with their children grown, the Overtons decided to pack up all of their belongings and move to Los Angeles to make one last attempt at owning their own business. With the last of their savings, they opened The Cheesecake Factory Bakery and began selling cheesecakes to restaurants throughout Los Angeles. Through hard work and determination, their business grew to a modest size, and Evelyn was soon baking more than twenty varieties of cheesecakes and other desserts. With great foresight and intuition, their son David decided to open a restaurant to showcase his mother’s selection of cheesecakes. It was 1978, and he opened the first The Cheesecake Factory restaurant in Beverly Hills, California. The restaurant was an immediate success, and today there are more than 200 Cheesecake Factory restaurants around the world that share the Overton’s commitment to quality and spirit of innovation and hard work.

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Most restaurant operators think that running a restaurant concept with more than 250 menu items made from scratch every day is impossible. It’s sort of the funny part about our business. We really don’t have direct competitors because of the way we make our food and the many, many menus items we have; it is impossible, but we do it every day.

Not only did the restaurant take off, but so did the bakery business. We have the capacity to make 50,000 cheesecakes a day, and they are shipped all over the world.

EDITOR: And you have two distribution bakeries?

LEISURE: We do. We have one in Calabasas Hills, California. The other one is in Battleboro, North Carolina.

EDITOR: So from that small restaurant in Beverly Hills grew what we know as The Cheesecake Factory, and Mr. Overton is currently the CEO?

LEISURE: David is the founder, chairman of the board, and CEO. He is an actively working CEO and the one and only person, really, who decides what goes on the menu. He has restaurant blueprints on his desk, I’m sure, right now. We have a design department, but he is actively involved with the lighting, sconces, tables, and the look and feel of every restaurant, every menu item, every site selection around the world.

EDITOR: One of the things a bit unique about your business is that there are no franchises, correct? They are all company owned.

LEISURE: Within the US, they’re all company owned. We have one restaurant in Toronto that’s extremely successful for us that we own and operate, and one in Puerto Rico as well. And the rest of our international restaurants are what we call “licensed partners.” We support almost everything, including the site and design. Initially, our management team was trained and sent to our international locations to preserve the culture of the concept. We don’t like to call it a franchise model because of our level of engagement with our business partners.

EDITOR: How did you first get into the restaurant business?

LEISURE: When I graduated from the University of Oregon as an economics major, I had no idea what I wanted to do. I went to work for an insurance company selling life and disability insurance, calling a hundred people a day, which to say the least I didn’t love. So I engaged a recruiter and said, “Look, there are five companies in the Irvine, California, area that I would consider working for. Find me a job at one of these companies.” They called the next day and said, “We have a temporary position at El Torito Restaurants working in their benefits department. Go in there and see if you like it.” I tried it and stayed. I worked my way up the risk management corporate structure and jumped from that company over to The Cheesecake Factory because I was a loyal guest and wanted to be a part of the Cheesecake culture; the rest is history.

EDITOR: How did the opportunity at The Cheesecake Factory come about?

LEISURE: While I was working at El Torito Restaurants’ parent company, they owned and operated up to thirty different brands. They had some small concepts and some very large restaurants like Chi-Chi’s. Most were full-service, casual dining, some breakfast houses, with a heavy concentration on the West Coast. The company’s model was to purchase a struggling restaurant concept, improve the financial and operational model, and then sell them. For me it was an unusual relationship because I was the risk manager for so many different concepts. I had to build the risk management program, then turn it over to the new owner. Every concept had its own spin based upon its unique culture. A risk and safety program is not a one-size-fits-all approach.

We were always analyzing other restaurant concepts, one of which was, at the time, a little restaurant company called The Cheesecake Factory. The restaurants were running two-hour waits with no marketing, no social media, no radio or television support, only word of mouth from prior guests. Everything at The Cheesecake Factory was made from scratch, and they consistently had two-hour waits at every restaurant almost all the time. The Cheesecake Factory had a heavy emphasis on dessert sales, while most other restaurant companies viewed dessert as an afterthought. We could not understand how this little restaurant company could operate so successfully under this model.

Well, the more we studied it, the more excited I got about The Cheesecake Factory, so in 1995 I bought CAKE stock thinking it was going to be a great investment. As a stockholder, I watched the stock and my investment grow. The next year I sent Mr. Overton a letter with my resume not really expecting a response due to their small size; they only had a dozen or so restaurants at this point. I said, “You don’t need me today. But at some point, you are going to grow to the point of needing a risk manager because of how phenomenal you’re doing. The significant growth in multistate restaurants and all the complexities that come with casual-dining restaurants will someday drive the need for a formal risk management department.”

For the next few years, I kept in touch with The Cheesecake Factory executive team until they called me and said, “OK, we’re ready. Come join us.” In reality, it was a three-year interview, so to speak, mostly due to their size at the time I initially approached them. They needed to grow a bit bigger to justify having one person launch their risk management program.

EDITOR: That is a fascinating story. How long ago was that?

LEISURE: That was in 1999, I have been a part of their amazing team for twenty years now.

EDITOR: Now you have a mature risk services program. What are your responsibilities as the vice president of risk services?

LEISURE: The company right now has over 200 restaurants and close to 40,000 staff members. I have an incredible team, and we are responsible for about twenty different insurance procurements. We have to understand what the risk is, attempt to engineer out risk, and purchase insurance coverage to protect the company from catastrophic issues, such as the wildfires that threatened our corporate support center and West Coast bakery last November.

Our focus is always on accident avoidance, but when something does not go as planned, we take an active approach to resolving claims, which are a natural part of running a growing, upscale, casual-dining restaurant company. Most of our general liability claims are resolved by our corporate liability team. Our philosophy is that a guest continues to be our valued guest, even if something does not go as expected and a claim is filed against our company. We also work very closely to ensure that our injured staff return to work quickly and receive the appropriate medical care they need to recover quickly. As a result of our hands-on approach, our litigation rate is very low.

We also have a fleet of over 300 BMWs, so there is exposure with the fleet as well. Our restaurant general managers appreciate the benefits of our BMW program and drive these vehicles accordingly; it is a very nice program that we offer to them.

I also have the honor of supporting our enterprise risk management program and our business continuity program. My favorite part of my job is engaging with every aspect of our business and the unique potential risks that are inherent in so many areas that people don’t think of on a daily basis. Our business is dynamic, and new emerging risks are being identified almost every day, including food-delivery programs.

EDITOR: Really? How so?

LEISURE: We had a campaign with one of our delivery services that created a huge one-day demand for food through this service. The drivers were literally lined up down the block to pick up orders, and in one location, police were called to manage the crowds.

 

EDITOR: I would imagine that supply chain is a major risk.

LEISURE: With the ingredients that we have for both our cakes and restaurant menu items in the restaurants, supply chain is a huge risk for us. We source from only respected food suppliers that meet our stringent criteria. If we can’t get product within our specifications, we risk impacting our guests’ dining experience. We absolutely will not compromise with inferior-quality products, so we have to carefully monitor the food supply chain and variances in inventory and quality. Weather changes can have a significant change on produce quality, supply, and pricing; it is imperative that we stay ahead of these potential issues.

EDITOR: Does loss prevention fall under risk services?

LEISURE: It absolutely does. There were no surveillance systems in place when I came on board. So we put a fairly aggressive surveillance system in place, being cognizant of the fact that our guests might be uncomfortable with cameras all over the dining areas. So we’re clever about where we put our cameras out of respect for our guests. While they are not invasive, they are effective, and we use them for multiple things. Operationally, we use the system to understand the flow of guest traffic, efficiency on the cook and prep line, delivery of products by our suppliers, and management of the back door. If something goes wrong, the system is used as an investigation tool. It’s a robust system. We like it, but we keep improving it as technology continues to improve.

EDITOR: What other asset protection responsibilities do you have?

LEISURE: My team is also responsible for anything having to do with theft, cash-handling issues, gift-card fraud, and security within the walls of our restaurants. Technology has come a long way in protecting some of the exposures I have seen over the past thirty years. “Smart safes” are incredibly effective at reducing the amount of exposed cash in our business. Being in casual dining, most of our transactions are by credit card. We were one of the first companies to implement end-to-end encryption. We now never actually have a guest’s credit card number. It’s all encrypted. The risk of compromising a credit card has basically been eliminated with this technological advancement.

Full-service restaurants are one of the remaining places where guests still give their credit card to someone who takes it away from the table to run the transaction. Although the swipe at our point-of-sale system is encrypted, until the industry moves to pay-at-the-table, there remains a potential risk that a credit card number could be captured by a server. Credit card companies monitor transactions for unusual activity and are quick to question or shut down a credit card that may have been used without being swiped or where a PIN number has not been used. I am honestly not seeing a lot of credit card fraud, unlike what was seen several years ago. The risk is at an all-time low, again, due to technological advancements.

EDITOR: What are the issues internally that are challenging to make that progression from the way you’re currently handling credit card payments to moving to pay-at-the-table?

LEISURE: We’ve been looking at the technology for a long time. There are a couple components. One is the service component, where we feel it’s still a bit cumbersome to hand somebody a device that they then swipe at the table. It lacks that attention-to-detail service that The Cheesecake Factory is known for. We actually have pay-at-the-table in our Toronto, Canada, restaurant, and it’s working out well, but it is also the industry standard outside of the United States. We’re learning from that and will likely adopt this process at some point. We’re waiting for the technology to improve, so it is a smoother process without the possibility of cyber attacks. As mentioned previously, the risk of credit card compromise is very low due to the banks’ efforts to closely monitor unusual transactions.

EDITOR: Are individual restaurant managers held accountable for losses that occur in their stores, be it theft, accidents, or other losses?

LEISURE: Yes. On the risk side, we have what we call a claims-allocation report. Once a month, I pool all the claims that were reported in workers’ comp and general liability over the last thirty days. I have an initial allocation that can be as high as $10,000. It has to be robust enough that it impacts the restaurant’s P&L.

Within that same timeframe, I’m giving credits off that $10,000 for efforts that the management team has done to mitigate the cost of the claim. That can include reporting the claim within twenty-four hours, sending the injured worker to the correct medical center, holding safety meetings and inspections at the restaurant, participating in our company-endorsed shoe program, and managing the injured worker’s return-to-work effort.

Every one of those has a credit that’s applied to it if the manager hits our threshold. That may mean, for example, that initial $10,000 allocation now becomes a $4,500 allocation. Our goal is to keep the manager focused on prevention but not give up once an injury happens, to keep them engaged in that claim until it’s closed. It has been a highly effective program. While it takes a lot of work every month from an analytical perspective, it is the single most effective tool I have to motivate our operators to think about risk management.

On the LP side, we do hold them accountable for cash over/shorts in the safe. But that amount of cash flow variance on a month-to-month basis is minimal because of our volume of credit card transactions and the smart safes that we put in place.

EDITOR: I would imagine that when it comes to employee theft, for example, that the stealing of food probably is a bigger issue than stealing money.

LEISURE: I tell this story because it sends the message that we want our staff members to understand. Several years ago, I was talking to a staff member when the conversation turned to the amazing iced tea served in our restaurants. She said, “I absolutely love our iced tea. In fact, I take an iced tea bag home with me every night.” Obviously, she thought that the company would not care because it was just one little tea bag. But as I explained to her, if you do the math—40,000 employees times 364 days a year of operation, that tea bag starts to add up to a significant amount of money.

I think it’s few and far between that people walk away with bottles of liquor, bags of shrimp, or things like that. We do a weekly inventory of all our food; everything is measured. It’s a tight system. If we see something that’s outside our parameters, we go back and look at our metrics and drill in to understand where that theft is happening.

EDITOR: Have you developed education programs for new restaurant employees that include work safety habits and how to maintain an honest working environment?

LEISURE: We do have orientation videos that speak to our safety culture and proactivity. We have learned that almost 97 percent of all injuries are behavioral based and not due to design flaws within the restaurant. We have worked really hard to engineer out almost all the risks in our restaurants. You can see much of this as a guest walking through a restaurant. If there is a short stairwell, for example, we change the color of the stone flooring toward the top of the stair to draw your eye down to the change in elevation. We also use big, bold railings. We do everything we can do to draw your eye down to the fact that there’s a change in elevation approaching.

To address the behavior aspects of accidents, we focus our training on communication and knowledge of hazards, and ask that staff not cut corners when executing a task. They are also encouraged to ask for help from their peers. As most companies do, we have an 800 anonymous-reporting line. If there’s suspicion of drug use, theft, or managers asking people to do things that are not consistent with our culture, we ask that they pick up the phone, call us anonymously, report it, and let us investigate it. I think it’s an effective program. People these days feel very empowered to speak up, and we encourage it. Our staff members feel like they can speak up without retaliation. We get quite a bit of feedback, and we are better operators because of it. We don’t sweep things under the rug, and we address things quickly. We have an amazing staff relations team that jumps on issues that are reported and solves any issues that might arise.

We are proud to be the only restaurant company on the Fortune “100 Best Companies to Work For” list. We have made the list for the past six years and continue to move up the rankings. We were number 25 this year.

EDITOR: You’ve touched on many things that are very progressive and proactive in terms of reducing risk. Let me ask you a more general question. What makes one risk department better than another? Are there two or three things that a risk services executive must have to make his or her program stronger than other companies?

LEISURE: There are two key components that I have top of mind all the time. One is I cannot do my job from behind a desk. I have to be out in operations. I have to be talking to the management teams and every server, dishwasher, and prep cook. I need to know every component of the business to truly understand what risks they are seeing on a day-to-day basis. I think a lot of risk managers don’t do that. They try to do their jobs from behind a desk. And that’s not, in my mind, the way to be successful.

EDITOR: You mean not just managing by the numbers.

LEISURE: Right. It takes energy to be on the road all the time, but I have to maintain that connectivity. Our business is dynamic. It moves. The guests move. The food changes, and I’m not going to pick up on that from behind my desk.

The second thing is innovation. I am not complacent. I push my team to innovate. One of my workers’ comp managers was interviewed recently and said, referring to me, “My manager pushes us all the time to continue to innovate. To be cutting edge. To push those parameters. We’re never complacent.”

A great example is telemedicine, which is just now evolving. This is one of those concepts that, to me, even in the early stages of development, made perfect sense for our operations. I wanted to be the first out the door with telemedicine for workers’ compensation. It had been tested in the group insurance arena but never really as a workers’ comp medical solution. We’ve made our telemedicine program better by pushing back on certain components that others hadn’t thought of—our staff benefits, our management benefits. It creates a win all the way around.

Of course, not everything I try to pioneer is a success. But I’m not afraid to take risks on things that make sense to our business and for the benefit of our staff. I don’t mind going out on a limb and pushing the limits to see what happens. Fortunately, I’m with an organization that lets me do that. As a result we’re recognized as a fairly progressive risk management department.

EDITOR: Talk about how you maintain relationships with your peers at other restaurant chains.

LEISURE: I’m very active in a number of organizations. One is the Food Industry Risk Management Association or FIRMA. I was one of the founders, and it’s a strong organization. Another group I spend time with is called NRRDA, the National Retail Restaurant Defense Association. It’s a very progressive group that gets peers together to talk about what’s keeping us up at night and what we’re doing to respond to issues.

I’m also the chairman of the group called the California Coalition of Workers’ Compensation that lobbies to change workers’ comp and reform workers’ compensation laws for the benefit of injured workers. We’re trying to take a balanced approach between making sure that the workers’ comp system is fair to employers while still paying appropriate benefits to injured employees. The catalyst behind this organization came from my CFO. Our workers’ comp rates were going up, and he asked me what I was doing about it. I looked at him and thought, “It’s workers’ comp. It’s just the cost of doing business. What am I supposed to do?” His question got me thinking that there was more I could do. I could prevent the claims, and I could help reform the laws to reduce friction within the system. So I took an active position in doing that, and it’s a fantastic organization.

EDITOR: The laws in California in workers’ comp are somewhat different than other states, correct?

LEISURE: Yes. The scales are tipped more in favor of the injured worker. There is a lot of litigation in the system, and there are a lot of frictional costs that make it just very expensive for the employer. Unfortunately, a large amount of what the employer pays into their workers’ comp program does not directly go back to the injured employee. That’s what we’re trying to fix. We’re trying to get out all the frictional costs and reduce the litigation, so more of what the employer is paying goes toward their direct medical care and back to the injured employee so that they can get back to work.

EDITOR: Are you a member of the Restaurant Loss Prevention and Safety Association?

LEISURE: I’ve been involved in RLPSA for about five years. I would say it is my number one loss prevention networking group. I’ve learned almost everything I know from an LP standpoint through my affiliation with RLPSA. What I’m really pleased with is that they are now broadening their scope through their national conference and their regional networking events to encompass more risk management.

The reason I believe that is beneficial is that more and more risk managers are also overseeing loss prevention and vice versa. The head of LP is now covering risk management. More and more companies are asking their people to do more with fewer resources, so risk management and loss prevention are starting to blur.

EDITOR: It sounds like managing risk and loss prevention in restaurants is evolving like it is in traditional retail.

LEISURE: Yes, risk management and LP are changing very quickly—what we’re asked to do, the changing behavior of our guests, the fact that everything is now recorded either on a mobile device or on our own security systems, the expectations of food quality and people’s preferences on what they’re consuming, whether it’s vegan or gluten free or allergies. People are just very, very aware of what’s going on around them, which is changing that risk management mindset.

Think about data security. We never talked about cyber risk ten years ago, and now it’s one of the top topics. We’re managing the unwanted and the disruptive guest; how do you do that in a way that is respectful to that guest but also removing that risk issue from your restaurant? It takes a very delicate approach.

That’s why I am very excited about my job. Every day, something different is going on. It’s a very dynamic position, and I love it. It’s not for everybody. Some people prefer to do the same thing every day—don’t disrupt my world. But the risk management industry is all about change, being dynamic, being innovative, and thinking things through in a different perspective every single day. It’s extremely rewarding, while very challenging twenty-four hours a day, seven days a week.

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