Chuck E. Cheese's comeback after bankruptcy

Four years after emerging from bankruptcy, Chuck E. Cheese is making a comeback thanks to a dramatic shakeup to introduce its toys and pizza to a new generation.

In June 2020, just as some states began to lift 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 free of about $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 address this challenge, and the investment is starting 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 is not publicly traded, but does disclose its financial results to bond investors.

CEC Entertainment's annual revenue rose from $912 million in 2019 to nearly $1.2 billion in 2023, according to Reuters. And that's with fewer Chuck E. Cheese locations open. The chain currently has 470 locations in the United States, down from 537 in 2019.

Sustaining growth will not be easy. Like all restaurants, the chain must win over consumers who eat out less often as costs rise. Chuck E. Cheese also has to capture the attention of kids 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 evolved into a staple of many childhoods, known for its pizza, birthday parties, animated mouse mascot and marching band.

After emerging from bankruptcy, Chuck E. Cheese and its stores underwent a renovation, giving the existing locations a completely different look. Gone are the animations, SkyTube tunnels and physical tickets of the past. Instead, they have been replaced by trampolines, mobile apps and floor-to-ceiling JumboTrons.

These changes came from McKillips, the former Six Flags CEO. He joined the company in January 2020, just months before all of its locations temporarily closed due to lockdowns. By April 2021, the company had raised $650 million in bonds, which it was spending on its restaurants.

“The company has been undercapitalized for many years. It has not been reshaped. It has not been touched,” he said.

Apollo Global Management acquired Chuck E. Cheese in 2014. Five years later, CEC Entertainment attempted to go public by merging with a special purpose acquisition company. But the deal was canceled without explanation.

The new money prompted an explicit look at the Chuck E. Cheese model — including the famous animated ensemble featuring Charles Entertainment Cheese and his friends.

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

The chain has also reshuffled its menu, upgrading to to-go pizzas. Kidz Bop has become an official music partner. Other kid-friendly brands, such as Paw Patrol, Marvel, and Nickelodeon, have become toy partners.

Then came the trampolines.

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

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

After spending $350 million to redesign Chuck E. Cheese's websites, McKillips now says that process is over.

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

Reintroducing customers to the brand — especially adults who only knew Chuck E. Cheese as kids — has been another focus.

“You come in at about three years old, you leave around eight or nine and you 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. We had to build all of that,” McKillips said.

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

As Chuck E. Cheese began to see the decline in consumer spending that hit many restaurants last year, from McDonald's to Outback Steakhouse, the chain had to figure out a way to attract value customers.

Over 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 make more visits than the usual two or three annual visits. The subscription starts at $7.99 per month, with additional tiers at $11.99 and $29.99, which promise deeper discounts and more games to play.

“In 2023, we sold 79,000 tickets. This year, we sold almost 400,000 tickets during the same time period,” McKillips said, referring to 2024. “This shows that the consumer will seek value.” And he will spend it if he gets a good return on their 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 of them.

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

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

In addition to 30 licensing deals for everything from frozen pizza to apparel, Chuck E. Cheese is also exploring various entertainment partnerships that would make its mouse mascot a recognizable character, according to McKillips.

And that's not all. The company looked into the possibility of displaying games. She has a prolific YouTube channel, with videos focusing on her characters, not pizza or games.

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

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

Correction: A previous version of this story misstated the company's current debt and its investments in redesigning the sites.