The Rise And Fall Of Chuck E. Cheese

[Music] chuck e cheese chuck e cheese when you're hungry for fun it's chuck e cheese chuck e cheese was once the go-to spot for birthday parties marketing itself is a place where a kid could be a kid when my mom asked me where to go for my with its infamous pizza iconic games and this guy people love the rat it was a huge success from the start kind of like living your like seven-year-old dream to just kind of like roll around in a ball pit and play some arcade games through the decades it became a behemoth of a brand in 2019 chuck e cheese saw 913 million dollars in revenue it had about 000 employees and over 600 locations across the globe but with nearly a billion dollars in debt and a 21 drop in sales in the first quarter of 2020 chuck e cheese declared bankruptcy in june so what happened [Music] nolan bushnell the co-founder of the video game company atari came up with the idea for chuck e cheese he felt there was something lacking in restaurants he once told fast company i wanted to add a dimension of fun to the act of having a meal so he put video games into a restaurant and he served pizza so while customers waited for their pies they could play arcade games he is not someone who was coming from this from a pizza angle he's like okay i know video games and i think that i can bring animatronics into the world of pizza which is kind of a crazy idea but clearly it has worked over the years originally bushnell planned to name the restaurant coyote pizza so he ordered what he thought was a coyote costume for his lead animatronic it turned out to be a rat and bushnell decided to run with it first he thought of changing the restaurant's name to rick rat's pizza but his team convinced him that having rat in a restaurant's name wasn't the best idea so they agreed on calling the mascot chuck chucky cheese was originally almost more geared towards adults he smoked a cigar he had a jersey accent it was kind of like an adult night out like happy birthday to you happy birthday to you you got it but pretty quickly it became clear that kids are the ones who actually enjoy being around animatronic animals and thus chuck e cheese's pizza time theater was born with the rat mascot front and center the first restaurant opened up in 1977 in san jose california and the concept blew up thanks to three things chuck e cheese's could fit over 400 guests way more than any other pizzerias and the 20-minute window waiting for pizza was a gold mine for the arcade they could lure people in with a few free tokens with each meal people would stay popping in quarter after quarter into those 75 arcade games restaurants tend to be low margin businesses and those games are very profitable those games accounted for 40 to 50 of chuck e cheese's restaurant profits the iconic chuck e cheese tokens that's where people are spending most of their money to get the tokens to play the arcade games to kind of have this party experience not so much on pizza now before chuck e cheese even launched bushnell sold atari including the chuck e cheese concept to warn our communications in 1976 so in 78 bushnell bought back chuck e cheese for half a million dollars and he quickly expanded into new locations then things got a little complicated chuck e cheese's success caught the attention of businessman robert brock and he signed on to franchise more than 200 locations but that same year brock ended up cancelling the deal finding an engineer for animatronics and launching a family restaurant chain of his own he called it showbiz pizza the concept was pretty much the same it was different characters but the same kind of like pizza arcade games and while chuck e cheese's had been growing alongside the blossoming gaming industry through the early 80s it found itself in a bitter battle with copycat showbiz there was definitely a rivalry between the two at the time and showbiz had arguably better animatronics chuck and his friends were limited to frames on the wall showbiz had an entire band called rockafire explosion made of full body characters by 1981 showbiz locations were raking in nearly 1.5 million in revenue outperforming chuck e cheese's by 260 thousand dollars per store but chuck e cheese still had more locations and was still outpacing pizza hut and mcdonald's at the time so that year bushnell took chuck e cheese's public but there were problems looming on the horizon chuck e cheese's was no longer the best arcade and it definitely wasn't the best pizza restaurant as the market became crowded novelty wore off and things turned sour to try and outpace showbiz bushnell expanded faster and faster opening a new location every five days and driving the company into debt then came the video game industry crash of 1983. as people turned to computer games consoles and arcades were hit hard video game sales dropped 97 nationally and arcades closed across the country it wasn't a great time to have a restaurant centered on arcade games that year chuck e cheese's losses reportedly totaled 15 million dollars and a year later chuck e cheese's declared bankruptcy but its rival showbiz well that company weathered the crash a little better and in a wild twist showbiz ended up buying chuck e cheese for 35 million dollars the copycat had bested the original but the acquisition breathed some life back into chuck e cheese by the early 90s all the showbiz restaurants were transformed into chuck e cheese's for some reason chuck e cheese the mascot really did have staying power people loved the rat and those better animatronics over at showbiz got a new life too the rockafire explosion ban was stripped of its costumes and replaced with chuck e cheese and crew the fact that chuck e cheese died and then was reborn and a new company is just very bizarre fast forward to 1998 and chuck got a little bit of a makeover the parent company dropped the name showbiz for cec entertainment by 2000 there were 300 locations and the company was steadily growing i would say the 90s the early 2000s chuck e cheese was really thriving that's when people my age i think like have the memories of childhood the really nostalgic memories the best era for chuck e cheese really this renaissance didn't last long 12 years later even though locations continued to open up they'd hit another sales slump so again chucky the rat was rebranded this time as a rock star mouse with a backstory according to the company's website charles entertainment cheese is an orphan who celebrates other's birthdays to make up for his tough childhood the new mouse came alongside an option of gluten-free pizza two years later despite slumping sales private equity firm apollo global management saw an opportunity chuck e cheese still had brand recognition and locations across the globe restaurants tend to have a short life cycle what's nice here is the children age out and new children come in so that gives the business or gave the business a certain degree of resilience private equity firms they approach the owners with an idea that like hey we're going to expand this business we're going to bring it to overseas to other countries and so that's attractive apollo acquired chuck e cheese entertainment in a leveraged buyout for about a billion dollars in a leveraged buyout private equity firms purchase a company with partly their own money and partly borrowed money that turns into debt the company is responsible for paying ultimately the acquisition saddled chuck e cheese with nearly a billion dollars in debt it was quite a bit of debt for a company like chuck e cheese chuck e cheese already had a lot of expenses monthly rent on all of its locations pricey arcade games and animatronics to maintain they haven't actually paid off any debt but they've been able to service their debt so in other words make the interest payments the company has reported losses five of the six years since the acquisition similar private equity buyouts have contributed to the fall of toys r us gymboree and payless shoe source in the past decade to try and keep up with debt payments chuck e cheese tried revamping again it retired its famous animatronics added an interactive dance floor redesigned the restaurant and replaced the iconic gold tokens with a playpass card but operating income had slowly been declining and the last couple years haven't been much better a 2019 planned reverse merger was going to help them with their debt load but it didn't come through things only got worse when famous youtuber shane dawson posted a video circulating decades old rumors that chuck e cheese recycled pizza chuck e cheese definitely denied that they're recycling their pizza however the pictures make it look like they do despite the company's insistence of zero pizza foul play the damage to chuck e cheese's reputation had been done then as we all know in 2020 the coronavirus pandemic hit forcing chuck e cheese to close down locations for dine in in march when you can't have kids in for parties that is kind of their bread and butter and that's always been their bread and butter so like to lose that during coronavirus it's really the final nail on the coffin by june only about half of the nearly 560 locations had reopened for dine-in delivery or takeout anyone who's in casual dining is much worse off than someone who's like a burger chain has driven whatever little revenue some of these other restaurants are getting from takeout that's not really going to help them so much sales declined by 94 during the last two weeks in march and 21 overall in the first quarter and the company was forced to furlough 65 of its support staff and the majority of hourly employees by june 25th the parent company had filed for chapter 11 bankruptcy with nearly 2 billion in debt an announcement of 34 permanent store closures soon followed [Music] even though this all may look bad experts say chuck e cheese will be fine for one there's its valuable name recognition will the company survive in its current form it's hard to say as we saw even if a concept is not financially viable the brand itself kind of still has power chucky cheese said it's taking the bankruptcy to offload some debt and restructure there have even been reports that the company plans to continue opening stores while going through bankruptcy proceedings the whole purpose of a chapter 11 bankruptcy is to try to protect the integrity of the business while getting rid of the large amount of amounts of debt that put the company to bankruptcy to begin with and the wall street journal reported interested buyers are circling i think a lot of it depends on what happens with the pandemic and what happens with the economy so what chuck e cheese might look like in the future is still unknown but it's likely the company will have to redesign itself again they're definitely going to want to emphasize some of the really nostalgic aspects of the brand but they're going to have to rethink a lot about what their revenue streams are how they're making money everyone in the restaurant industry is struggling right now and everyone's kind of throwing things at the wall and seeing lipsticks cec entertainment did not respond to business insider's request for where comments celebrate over a million happy birthdays now i know my name is

Channel: Business Insider

Views: 959,588

Rating: 4.8969955 out of 5

Keywords: Business Insider, Business News, chuck e cheese, kids, arcade, food, pizza, games, bankrupt, bankruptcy, business, restaurant, economy, atari

Id: rYwy0lodsVk

Length: 11min 35sec (695 seconds)

Published: Tue Aug 18 2020