Let Them Eat Cake..... and Why We Did
In 2022, River Capital acquired 100% of The Cheesecake Shop, Australia & New Zealand’s largest cake retailer. At the time, I thought, who doesn’t love cake? But many asked a different question: of all the businesses out there, why buy this one?
Let’s start with the basics. Over the years, River Capital has invested in several food franchise businesses - sometimes called Quick Service Restaurants (QSR).
Think Domino’s, KFC, or local brands like Brumby’s. These businesses operate on a simple but powerful model: the Franchisor owns the brand, while individual Franchisees run the stores. When done well, it’s a partnership that creates value for everyone involved. Over time, we’ve learned to spot what makes a great franchise business:
- Healthy franchisees who are making money
- A strong brand with loyal customers
- A leadership team that understands the industry inside and out
Franchise businesses also come with a few characteristics we like:
- Sales tend to be stable
- Margins are generally predictable
- Capital can be deployed efficiently
- Store networks become more valuable over time as they scale
- They enable entrepreneurs to leave jobs, become business owners and create wealth
So when we were approached about The Cheesecake Shop, my first thought was, I haven’t heard of this since I was a kid. But when we took a closer look, we saw something more interesting:
- The brand had been around for over 30 years, thriving through every economic cycle
- It had strong brand awareness and a loyal following, especially in suburban and regional areas
- Franchisees were doing well
- The network was selling a lot of cakes - more than five million a year - and sales had been growing steadily
But there was one big challenge: any franchise business that isn’t increasing the number of customers per store each year is, in effect, shrinking. And The Cheesecake Shop had struggled to grow its customer base over the past five years.
As luck would have it, around this time, Andrew Rennie - a globally respected franchise executive and former CEO of Domino’s - had just retired and returned to Australia. We’d known Andrew for a long time, and when we discussed the opportunity with him, we built real conviction that The Cheesecake Shop could grow. When we completed the acquisition, Andrew joined as Chairman.
Since then, our strategy has focused on three key areas:
- Modernising the brand
- Increasing the share of online sales
- Expanding the store network
So, what have we learned three years in?
- Don't dismiss a business just because you haven't been a recent customer
- Never underestimate the power of nostalgia
- Operational change is hard - bring in people who've done it before
- Keep strategy simple, act with conviction, and aim big
We’re still early in The Cheesecake Shop’s transformation, but I look forward to seeing the results of the work we’ve put in. After all, everyone loves cake.
