Chuck E. Cheese comes out of bankruptcy

Four years after emerging from bankruptcy, Chuck E. Cheese is making a comeback thanks to a dramatic makeover designed to introduce gaming and pizza to a new generation.

In June 2020, just as some states were beginning to lift their pandemic lockdowns, Chuck E. Cheese’s parent company, CEC Entertainment, filed for Chapter 11 bankruptcy protection. A few months later, the company emerged from bankruptcy under new management and was freed from approximately $705 million in debt.

Even after the coronavirus subsided, the company faced another existential crisis. The challenge was how to entertain children and their paying parents in the age of iPads and smartphones. The company has spent more than $300 million in recent years to address that challenge, and that investment is starting to pay off.

CEC Entertainment, which also owns Pasqually’s Pizza & Wings and Peter Piper Pizza, has seen same-store sales increase for eight consecutive months and is no longer in debt, according to CEO Dave McKillips. That’s what it means. Although the company is not publicly traded, it does disclose its financial results to bond investors.

CEC Entertainment’s annual revenue rose from $912 million in 2019 to about $1.2 billion in 2023, according to Reuters. As a result, the number of Chuck E. Cheese stores is decreasing. The chain now has 470 U.S. stores, down from 537 in 2019.

Sustaining growth is not easy. Like other restaurants, chains need to attract consumers who eat out less often as costs rise. Chuck E. Cheese also needs to capture the attention of children and parents in a fragmented media market.

Since Atari founder Nolan Bushnell opened his first store in San Jose in 1977, Chuck E. Cheese’s has been known for its pizza, birthday parties, animatronic mouse mascot and band, and has inspired many children. It has grown into a staple of the times.

After emerging from bankruptcy, Chuck E. Cheese and its stores underwent renovations that changed the look of the current store. Gone are the animatronics, skytube tunnels, and physical tickets of yesteryear. Instead, trampolines, mobile apps, and floor-to-ceiling jumbotrons have replaced them.

These changes were brought about by McKillips, a former Six Flags executive. He joined the company in January 2020, a few months before all locations were temporarily closed due to lockdown. The company has raised $650 million in bonds by April 2021, which will be used for its restaurant business.

“The company had been undercapitalized for years. It hadn’t been retrofitted, it hadn’t been touched,” he said.

Apollo Global Management took Chuck E. Cheese private in 2014. Five years later, CEC Entertainment attempted to go public through a merger with a special purpose acquisition company. However, this contract was canceled without explanation.

The new cash prompted a candid look at the Chuck E. Cheese model, including the iconic animatronic band featuring Charles Entertainment Cheese and his friends.

“We pulled out the animatronics, which was a heated debate for a lot of legacy bands, but as you know, kids consume entertainment in a very different way, and with screens and ever-changing “I grew up on bite-sized entertainment that was fun to play,” McKillips said.

The chain has also revamped its menu, upgrading to handmade pizzas. Kidz Bop is now our official music partner. Other children’s brands also became partners in the game, including Paw Patrol, Marvel, and Nickelodeon.

Then came the trampoline.

“We found some bright spots for us… active plays,” McKillips said. He added that growth in the family entertainment sector is primarily due to activity-based businesses such as trampoline parks and rock climbing walls.

The company first tested the trampoline in Brooklyn, then in Miami, St. Louis and Orlando. As of December, 450 Chuck E. Cheese stores had children’s trampolines. Also, unlike previous skytubes and ball pits, you have to pay extra to use the trampoline. (The ball pit disappeared from Chuck E. Cheese stores in 2011, but the SkyTube lasted about another decade.)

The company spent $230 million renovating its Chuck E. Cheese stores, a process that is now complete, McKillips said.

“The product had to be fixed. The product was fixed,” he said.

Another focus is reintroducing the brand to customers, especially adults who only know the Chuck E. Cheese of their childhood.

“They start school at about 3 years old, leave home at 8 or 9 years old, and don’t come back for 15 years. We had to go and talk to a whole new generation of kids. But during the coronavirus, there was no broadcasting. We had to build it all up,” McKillips said.

For example, Chuck E. Cheese’s birthday business, one of the company’s best marketing tools, struggled during the pandemic. It is now back to pre-pandemic levels.

And as Chuck E. Cheese began seeing a decline in consumer spending last year that hit many restaurants, from McDonald’s to Outback Steakhouse, the chain began thinking about how to appeal to value-conscious customers. I had to figure it out.

During the summer, Chuck E. Cheese launched a two-month tiered subscription program offering unlimited visits and discounts on food, drinks and games. Members encouraged families to visit more frequently than the usual two or three visits a year. Subscriptions start at $7.99 per month, with additional tiers at $11.99 and $29.99 that promise deeper discounts and more games to play.

“In 2023, we sold 79,000 passes. This year, in the same period, we sold nearly 400,000 passes,” McKillips said, referring to 2024. “This shows that consumers want good value and will spend it if it’s great.” ”

In the fall, the company built on the pass’s success by offering 12-month memberships and has already sold more than 100,000 passes.

The biggest dreams for the McKillips chain and its mascot lie outside the four walls of the restaurant.

“We’re looking at it as well because we have another cute mouse in Orlando that’s doing this very well, but we’re just getting started right now,” McKillips said.

In addition to 30 licensing deals for everything from frozen pizza to clothing, McKillips said Chuck E. Cheese is also considering various entertainment partnerships that would feature its mouse mascot as a featured character.

That’s not all. The company is considering the possibility of a game show. The company has an extensive YouTube channel with videos that focus on characters rather than pizza or games.

In addition, Chuck E. Cheese himself has six albums available on streaming platforms, and his band performs live choreographed concerts.

“My dream is to make a feature film,” McKillips said.