Chuck E. Cheese returns after bankruptcy

Four years after emerging from bankruptcy, Chuck E. Cheese is back thanks to a dramatic makeover to introduce its games and pizza to a new generation.

In June 2020, just as some states began lifting their pandemic lockdowns, Chuck E. Cheese's parent company, CEC Entertainment, filed for Chapter 11 bankruptcy protection. Months later it emerged from bankruptcy with new leadership and free of around $705 million in debt.

Even as Covid subsided, the company faced another existential threat: figuring out how to entertain kids (and their paying parents) in the age of iPads and smartphones. The company has spent more than $300 million in recent years to meet that challenge, and the investment has begun to pay off.

CEC Entertainment, which also includes Pasqually's Pizza & Wings and Peter Piper Pizza, has seen eight consecutive months of same-store sales growth, according to CEO Dave McKillips. The company is not publicly traded, but discloses its financial results to its bond investors.

CEC Entertainment's annual revenue grew from $912 million in 2019 to about $1.2 billion in 2023, according to Reuters. And that's with fewer Chuck E. Cheese locations open. The chain currently has 470 U.S. locations, up from 537 in 2019.

Maintaining growth will not be easy. Like all restaurants, the chain has to win over consumers who eat out less frequently as costs rise. Chuck E. Cheese also has to attract the attention of children and parents in a fragmented media market.

Since Atari founder Nolan Bushnell opened his first location in 1977 in San Jose, Chuck E. Cheese has grown to become a staple of many childhoods, known for its pizza, birthday parties and its mascot and band. animatronic mouse.

After emerging from bankruptcy, Chuck E. Cheese and its stores were renovated, giving the current locations a very different look. Gone are the animatronics, SkyTube tunnels and physical entrances of yesteryear. Instead, they have been replaced by trampolines, a mobile app, and floor-to-ceiling JumboTrons.

Those changes came from McKillips, a former Six Flags executive. He joined the company in January 2020, just months before lockdowns temporarily closed all of its locations. In April 2021, the company raised $650 million in bonuses, which it has been spending on its restaurants.

“The company was starved of capital for many, many years. It hadn't been remodeled. 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. But the deal was scrapped without explanation.

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

“We brought out animatronics. It was a hot debate for a lot of traditional bands, but kids were consuming entertainment in a very different way, you know, growing up with screens and ever-changing entertainment,” McKillips said.

The chain also redid its menu, updating it to made-from-scratch pizzas. Kidz Bop became an official music partner. Other kid-oriented brands, such as Paw Patrol, Marvel, and Nickelodeon, became partners in their games.

And then came the trampolines.

“We found a great opportunity for us…active play,” McKillips said. He added that growth in the family entertainment category is largely coming from activity-based businesses, such as trampoline parks and climbing walls.

The company tested the trampolines first in Brooklyn and then in Miami, St. Louis and Orlando. As of December, 450 Chuck E. Cheese locations now have trampolines for kids. And unlike the SkyTubes or ball pits of the past, customers have to pay more to use the trampolines. (Ball pits disappeared from Chuck E. Cheese locations in 2011, while SkyTubes lasted about another decade.)

After the company spent $350 million to remodel Chuck E. Cheese locations, McKillips now says the process is over.

“We needed to fix the product. The product is fixed,” he said.

Another goal has been to reintroduce the brand to customers, especially adults who only know Chuck E. Cheese from their childhood.

“You come in around age three, leave around age eight or nine, and don't come back for 15 years. We had to go and talk to a whole new generation of kids, and we were off the air during Covid. I had to build everything that,” McKillips said.

For example, Chuck E. Cheese's birthday business, one of the company's best marketing tools, struggled in the wake of the pandemic. Today it has returned to pre-pandemic levels.

And when Chuck E. Cheese began to see the pullback in consumer spending that hit many restaurants last year, from McDonald's to Outback Steakhouse, the chain had to come up with a way to appeal to the value-oriented customer.

Over the summer, Chuck E. Cheese launched a two-month tiered membership program that offered unlimited visits and discounts on food, drinks and games. Members encouraged families to visit more frequently than the typical two or three visits annually. Subscription starts at $7.99 per month, with additional tiers of $11.99 and $29.99 that promise deeper discounts and more games played.

“In 2023, we sold 79,000 passes. This year, we sold close to 400,000 passes over the same period,” McKillips said, referring to 2024. “This shows the value that the consumer will seek and spend if they get great results.” return on your spending.”

In the fall, the company followed the success of the passes with a 12-month membership and has already sold more than 100,000.

McKillips' biggest dreams for the chain and its mascots lie outside the four walls of its restaurants.

“There's another nice mouse in Orlando that does this pretty well, so I see us the same way, but we're just getting started,” McKillips said.

In addition to 30 licensing deals for everything from frozen pizzas to clothing, Chuck E. Cheese is also exploring different entertainment partnerships that would make its mouse mascot a starring character, according to McKillips.

And that's not all. The company has studied the possibility of making a game program. He has a prolific YouTube channel, with videos focused on his characters, not his pizza or his games.

Additionally, Chuck E. Cheese himself has six albums available on streaming platforms and his band plays live choreographed concerts.

“My dream would be to have a movie,” McKillips said.

Correction: An earlier version of this story misstated the company's current debt load and its investment in redeveloping locations.