Chuck E. Cheese bounces back following bankruptcy

Four years after exiting bankruptcy, Chuck E. Cheese is making a comeback, 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. It emerged from bankruptcy months later with new leadership and freed from about $705 million in debt.

Even when Covid subsided, the company faced another existential threat: figuring out 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 tackling that challenge — and the investment has started to pay off.

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

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

Sustaining the growth won’t be easy. Like all restaurants, the chain has to win over consumers who are eating out less often as costs rise. Chuck E. Cheese also has to draw the attention of children and parents in a fragmented media market.

Since Atari founder Nolan Bushnell opened its 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 animatronic mouse mascot and band.

After exiting bankruptcy, Chuck E. Cheese and its stores underwent a makeover, giving today’s locations a very different look. Gone are the animatronics, SkyTube tunnels and physical tickets of yore. Instead, trampolines, a mobile app and floor-to-ceiling JumboTrons have replaced them.

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

“The company was capital-starved for many, many years. It had not been remodeled. It had not been touched,” he said.

Apollo Global Management took Chuck E. Cheese private in 2014. Five years later, CEC Entertainment tried to go public through a merger with a special purpose acquisition company. But the deal was scrapped without explanation.

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

“We pulled out the animatronics. It was a hot debate for many legacy bands, but kids were consuming entertainment in such a different way, you know, growing up with screens and ever-changing bite-sized entertainment,” McKillips said.

The chain also redid its menu, upgrading to scratch-made pizzas. Kidz Bop became an official music partner. Other kid-friendly brands, like Paw Patrol, Marvel and Nickelodeon, became partners for its games.

And then came the trampolines.

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

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

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

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

Reintroducing customers to the brand — especially adults who only know the Chuck E. Cheese of their own childhoods — has been another focus.

“You come in around three years old, you leave around eight or nine and you don’t come back for 15 years. We had to go and speak to a whole new generation of kids, and we were off-air during Covid. We had to build all 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’s back at pre-pandemic levels.

And as Chuck E. Cheese started seeing 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,…