Business
Top 10 Untold Truths of Chuck E. Cheese’s Decline (What Happened?)
The 2020 pandemic hit a lot of people hard, as well as one 43-year-old mouse (who used to be a rat). Chuck E. Cheese’s parent company CEC Entertainment filed for Chapter 11 Bankruptcy back in June – citing the pandemic as the main reason the situation reached this point. However, things hadn’t been going very well for the restaurant chain known by many as the place where your kid’s friends have their birthday parties. Where did things go wrong? What happened? Allow us to rat them out and give you the low-down on the top 10 untold truths of Chuck E. Cheese’s decline.
10. What Does Atari Have to do With Chuck E. Cheese
Chuck E. Cheese was actually founded in 1977 by Nolan Bushnell – the man who co-founded the Atari video game company. Bushnell saw that the arcade machines he was selling to businesses for $1500 were raking in over $30,000 worth of quarters over their lifetime. This was the lightbulb moment for Bushnell who decided to get in on the action himself and open the Pizza Time Theatre in 1977. The restaurant had arcade games and pizza, and Bushnell liked the idea of Pizza because people love pizza and the wait time for it to be ready gave customers time to play the games (which is where the real money was made). He also wanted to bring in animatronic mascots – and when the intended wolf he ordered arrived as a rat, he named him Chuck E. Cheese and the restaurant became Chuck E. Cheese’s Pizza Time Theatre – which we can all agree is much better than his original idea – Rick Rat’ Pizza (and no, that’s not a joke). Although Bushnell had the idea and made it all happen, it was his company, Atari, that technically owned the restaurant. Being a division of Atari, the restaurant didn’t actually belong to him. The good news was that the people who went on to buy Atari had no interest in being in the restaurant business so, for $500,000, they sold it all back to Bushnell and he was off and running.
9. Early Competition
That First restaurant that Bushnell opened in 1977 was a huge success and it didn’t take long before he was opening up a second – and even bigger – Chuck E. Cheese’s Pizza Time Theatre. This second location was also a success and he followed it up by opening even more locations. Things were looking good for the rat. So good in fact that he was receiving requests from people who wanted to open up their own Chuck E Cheese franchises. One of those franchise requests came from businessman Robert Brock and the two men came to a deal to make it happen. However, soon after signing the deal, Brock decided he wanted out because he wanted to partner with someone else and open his own, competing chain of restaurants – which he called Showbiz Pizza Place. There was, of course, a lawsuit and the result of the suit was that Brock could go ahead and open his Showbiz competitor, but a small portion of his profits would have to go to Bushnell. Showbiz Pizza Place was founded in 1980 and for the next three years the two entertainment/restaurant chains went up against each other in an effort to get family’s hard earned quarters into their arcade machines – and not the other guys.
8. They’ve Gone Bankrupt Before
Most people aren’t aware of this, but this recent chapter 11 filing is the second time that Chuck E Cheese has gone Bankrupt. The first time was back in 1983 and the reason back then was two-fold. The first was the competition. Former Chuck E. Cheese franchisee Robert Brock’s competing chain, Showbiz Pizza Place restaurants, came at Bushnell hard and in an effort to outdo each other both chains expanded, opening up restaurant after restaurant. In the end, this arcade-restaurant buildup came to a head at the end of 1984. It’s also important to go back one year to the big video game crash of 1983 when arcade popularity dropped dramatically. The competition between Showbiz and Chuck E. Cheese meant that both chains were expanding faster then they should have been and weren’t doing proper due diligence before throwing up new restaurants. This led to poor decisions on restaurant locations and a mounting debt load for both companies. Add to that the decline in the popularity of video games (the heart of both businesses) and things weren’t looking good for either chain. However, Showbiz was able to raise some money and refinance their loans and in so doing were able to make it through this hard time. But not Chuck E. Cheese. Their money manoeuvres didn’t work and in 1984 they declared bankruptcy. And get this: Showbiz ended up buying Chuck E. Cheese assets for $35 million.
7. Chuck E. Cheese Comes Back Strong… At First
After their bankruptcy and sale of assets in 1984, Chuck E. Cheese was being run by the Showtime company but at the same time they were also still running Showtime Pizza restaurants as well. Then in the early 1990s the Showtime company made the smart decision to merge the two chains into one. And they decided that Chuck E. Cheese was the better brand to go with. So, they began the process of converting Showtime Pizza Place locations into Chuck E. Cheese’s. And for the next little while things were looking up and by the year 2000 there were 300 Chuck E. Cheese locations. Those years in the 90s and the first decade of the 2000s were a definite high point for the restaurant and if you have fond memories of Chuck E. Cheese it’s probably because you were a kid during those couple decades. But by the early 2010’s things were back on the decline and sales just weren’t where the company wanted – or needed – them to be. This led to a number of attempts to revamp and reinvigorate the brand, including – in 2012 – giving the Chuck E. Cheese mascot a make-over to become a rock n’ roll mouse (did you know that he had actually been a rat for the first 35 years?).
6. So Much Debt!
According to the company website, Chuck E. Cheese is an orphan who celebrates other kid’s birthdays in order to make up for his tough childhood. As the company entered the early 2010’s they, like another famous orphan, found themselves living a Hard Knock Life. Sales started to drop and their attempts to revamp the brand (a new rock n roll mouse, more menu items aimed at parents, etc) weren’t having the desired effect. But in 2014, even as Chuck E. Cheese tried to remain positive and keep the faith that the sun would come out tomorrow, sales continued to dip. And that’s when Daddy Warbucks – err, Apollo Global Management – arrived to save the day – or so it seemed. The company purchased Chuck E. Cheese for $950 million in a leveraged buyout. This all sounds good but with a leveraged buyout, the firm making the purchase uses some borrowed money to do so, which then becomes debt on the purchased entity. This ended up just adding loads more debt to a business that had already been faltering for a few years. This is basically the same situation that led to the downfall of Toys “R” Us among others. They made more changes to the brand and the restaurants to try and revitalize the business but it wasn’t enough. And while they were making money, the debt was so high that they were only really able to make the interest payments but not pay down any of the debt amount. Since the Apollo acquisition the company has reported a profit only one year out of the last six.
5. Recycled Pizza
There had been unfounded conspiracy theories circling around for years that Chuck E Cheese recycled their pizza (took uneaten slices, reheated them and added them to new pizzas). However, nothing much has come of it because, as we said, they were completely unfounded. But in 2019, Shane Dawson (a guy who got famous for doing stupid stuff on YouTube) posted a video to his millions of followers that suggested the rumors were true. He went into a local Chuck E. Cheese and ordered pizza. The photos of his pizzas did show that multiple slices didn’t seem to match up with each other, but that appeared to be the extent of this guy’s “investigation.” But because he is a YouTube star with loads of followers, Chuck E. Cheese had to come out and make a public statement strongly denying the accusation. Former employees were also seen on social media rebuking the conspiracy claims made by Dawson. This is noteworthy as we usually only see ex-employees using social media to bash their former employers and reveal secrets). But the damage to the Cheese’s reputation was already done. And this hit just added to the problems the chain was already having of getting people into their restaurants. Not that people went there because of the amazing pizza, but even the thought of potentially eating recycled ‘za would be enough to keep plenty of folks from making Chuck E. Cheese a destination for the family.
4. More Changes
Following the purchase of the chain by Apollo Global Management, the mountain of debt had the company living paycheck to paycheck. So, in order to bring people back, they made some of the biggest changes they had made in years. If you haven’t been to a Chuck E. Cheese since the 90s, you might not have recognized the place if you walked in again after the mid 2010s. In 2016 they got rid of the tokens! Yes, those tokens – the ones that many of you probably still find when scavenging your change jar looking for a few extra bucks. They replaced them with simple paypass cards and points. They also finally retired the animatronics. Those cute – and kinda creepy – things had been a part of the brand since the beginning. But now they were no more. And another change, one that most people probably didn’t even realize, was that they changed the name to Chuck E. Cheese. What is that you say? Wasn’t that always the name? Actually, no it wasn’t! It was in fact, Chuck E. Cheese’s – which harckens back to when the restaurant was originally called Chuck E. Cheese’s Pizza Time theatre. But, while the “Pizza Time Theatre” had disappeared years ago, up until 2017 (when the possessive S was finally removed) it looked like each location belonged to Mr. Charles Entertainment Cheese (that really is his full name). Do you ever remember someone calling it Chuck E. Cheese’s?
3. Pandemic Problems
The global pandemic has been a difficult time for pretty much everyone – from individuals to businesses. And one of the hardest hit industries has been restaurants. While some establishments were able to transition into delivery and pick-up to make up for lost revenue due to lockdown measures, that hasn’t been the case for many of them. Add that to the high commercial rental cost in many cities and there is no doubt that many of these numerous restaurants will close – with very little chance of reopening in the future. At least when the food is your main order of business, then delivery and dine-out are viable options to maintain your financial future during these hard times. But at Chuck E. Cheese their business model derives over 50% of their business revenue from the games. And about 16% of their business came in the form of children’s parties. Both those revenue streams require people to physically come to your locations which isn’t exactly conducive to social distancing. So, with the business already heading downhill, the 2020 pandemic gave it a push, sending it down the hill even faster. In June only about 50% of the chain’s 560 restaurants had reopened for dine-in, delivery or take out. And by June 25th the company was $2 billion in debt and had filed for Chapter 11.
2. Locations Closing
In the days following the announcement that they were filing for bankruptcy, Chuck E. Cheese’s parent company announced it was going to be permanently closing over 30 locations, with five in California, four each in Florida and Massachusetts, and two restaurants in New York among the casualties. USA Today also reported that the company had plans to also reject 45 leases. For those of you worried about all those Chuck E. Cheese tokens you had been saving up – well, the chain wants to honor their commitment on those little gold coins, point cards, etc… As part of their bankruptcy filing the company made a request to the judge that they still be able to continue to honor credits, tokens, gift cards, customer deposits, discount offers and loyalty accounts as long as the company remains in business. Now, if your local Chuck E. Cheese is one of the ones that has closed down, you might have to take a road trip in order to cash in those hoarded credits, but for those die hard Chuck E. Cheeseheads, it might be worth it.
1. Is This the End of Chuck E. Cheese?
While bankruptcy sounds like it’s the end of the road for Chuck, that may not actually be the case. Chuck E. Cheese has come back from bankruptcy once before, back in the mid 1980s, and they could come back from the almost-dead again this time as well. The company plans on using the bankruptcy to off-load a bunch of its debt and they are even saying they will continue to open new locations during these bankruptcy proceedings. And, believe it or not, the Chuck E. Cheese brand still has some solid name-recognition and popular appeal (you’d be surprised by all of the YouTube videos of people going to their local Chuck E. Cheese to look around and play the games “one last time”). With that in mind, the Wall Street Journal has reported that there are a number of potential buyers circling with an interest in buying. The pandemic has changed a lot though and if the mouse does come back, we are probably going to see an updated business model for the new Chuck E. Cheese – what that looks like, we will all just have to wait and see.