Working with superheroes didn’t prepare David McKillips for the epic challenge he faced six weeks after starting in 2020 as CEO of CEC Entertainment, parent of the Chuck E. Cheese and Peter Piper pizza-and-games chains.
Superman can leap tall buildings in a single bound, but that’s nothing compared with driving sales after all your restaurants are shut overnight by a lethal threat. And Batman may know his winged creatures, but whatever McKillips learned from the Caped Crusader during their years together at DC Comics didn’t help with problems no other restaurant leader faced from a runaway bat virus.
CEC would file for Chapter 11 bankruptcy protection before the pandemic was through, shutting 50 stores in the process. But that was yesterday. With the fifth anniversary of both COVID’s arrival and McKillips’ start date just a few months away, CEC is a different company.
David McKillips, CEO of Chuck E. Cheese.
Its core business, the Chuck E. Cheese chain, is completing an update of all 545 of its units. Ten months after seeking protection from creditors, CEC sold $600 million worth of bonds and plowed all the proceeds into renovating each of its stores, a task it intends to complete this year.
The updated locations are brighter and cleaner inside, and virtually every aspect of their operations has been overhauled, from the menu to the recipes to its in-house games, the concept’s major source of revenues. Arcade-style machines where kids largely stood immobile at a gaming console were replaced with stations offering more active and contemporary forms of play, like bouncing on mini-trampolines or dancing on a blown-out version of the dance floor many know from the home version of the Dance Dance Revolution video game. Chainwide, 20,000 new attractions are being installed.
Meanwhile, the Chuck E. Cheese business has pushed beyond the four walls of its restaurants into areas that draw on McKillips’ deep experience in theme parks and licensing.
CEC is now allowing other family entertainment centers like Calibunga water parks to set up Chuck E. Cheese-themed play areas under a licensing arrangement. It’s also testing Chuck E. Cheese units that are just game centers, without any foodservice, including facilities within hotels and resorts.
Outlets that just sell pizza, without any games, are being tried under the Peter Piper brand.
In addition, “we are in the process of talking about animation, movies and other forms of entertainment,” says McKillips. CEC is already posting Chuck E. Cheese-inspired music on Spotify and other streaming sites. Musical collections are already being marketed to let kids enjoy Chuck’s musical talents at home.
Those endeavors could dovetail with a key component of the unit renovations. The revamped Chuck E. Cheese stores feature floor-to-ceiling video screens whose content can be programmed unit by unit if the chain so desires. “We can change the content daily,” McKillips notes.
Proprietary videos starring the Chuck E. Cheese character could be aired exclusively within the chain’s branches, giving families another reason to visit, McKillips notes. He adds that the capability to revise the content means a key draw for the youngsters can constantly be refreshed, something that wasn’t possible with the prior entertainment draw of animatronic characters going through their fixed routines.
Those robotic cartoon-y figures have been removed, a move McKillips acknowledges was among the thorniest aspects of the concept’s update. The Chuck E. Cheese concept was founded in large part on the appeal of those animatronic characters, which were seen as cutting edge—an out-Disneying of Disney—when the concept began in 1977. (Its founder was Nolan Bushnell, also the creator of Atari.)
Company insiders and longtime fans yelped at the thought of those sacred cows being led behind the barn. The outcry was so intense within three markets that CEC allowed the stores there to keep the animatrons on stage.
Evolution, or revolution?
McKillips foresees a slew of future opportunities to leverage the appeal of the Chuck E. Cheese character (its robotic incarnation was scrapped, but a human in a Chuck E. Cheese suit sweeps through play and dining areas every hour. “It’s like Taylor Swift making an appearance—the kids lose their minds,” says McKillips.)
He cites the momentum from deals like the one CEC struck last year with Hendrick Motorsports to adorn a car from the racing team’s garage with images of Chuck E. Cheese and get it on the track during NASCAR events. With the pizza chain’s pint-sized core patrons usually falling within a bracket of 3 to 8 years old, the brand is being exposed through the Hendricks collaboration to an older age cohort, not to mention the younger kids’ parents.
Equally or more important, according to McKIllips, is the marketing afterglow: “People are starting to see Chuck E. Cheese as an entertainment character rather than a mascot.” He adds that the mouse already enjoys a Q Score among youngsters that’s right up there with the ratings for media mega-stars like Bluey the cartoon dog and Spider Man.
“We are in the very early innings of licensing,” the CEO says.
Peter Piper’s peppery potential
While striving to right the Chuck E. Cheese brand, McKillips and his team simultaneously prepped CEC’s secondary brand for expansion. Unlike its mousey older sister, now undoubtedly an international brand, Peter Piper Pizza is more of a regional domestic powerhouse, with a strong following concentrated in the Southwest.
Although it, too, features games and other family attractions, “it’s a food-forward concept,” with most of its revenues coming from food and beverage sales rather than arcade attractions, or the reverse of Chuck E. Cheese’s model.
It also appeals to a broader demographic—not just families with young kids, but teens and single adults.
Peter Piper’s unit sales tend to be higher than the intake of a Chuck E. Cheese. “In our townhall meetings, I like to call it our secret weapon,” says McKillips.
Exterior of Peter Piper Pizza
The brand is now expanding through franchising beyond its Arizona roots, into markets like Texas.
CEC has opened a fast-casual version of the brand, Peter Piper Pizza Express, whose three current branches offer pizza solely for takeout and delivery.
The two Peter Piper expansion vehicles are in addition to the riffs on the Chuck E. Cheese format CEC is either already testing or plans to.
“We are testing smaller units, larger units, arcade-only units,” says McKillips.
Domestically, “there’s still white space available” for the Chuck E. Cheese brand, he continues. “We will open eight or nine units this year.”
But the big growth opportunity for the brand, and the one CEC is most aggressively pursuing, lies outside the U.S. “There is tremendous white space in Asia and Eastern and Western European markets,” the CEO says. “It’s a long-term strategic aim.”
He knows those markets well, having set up Six Flags family entertainment centers in those regions as part of his deep immersion in the leisure market before joining CEC.
The Chuck E. Cheese restaurant concept may not be unknown in those markets, but children have been exposed to its spokes-mouse through YouTube videos, social media posts and other online references from American fans, according to McKillips.
He asserts that Chuck E. Cheese is preselling development deals in those areas, but acknowledges that operators abroad see more than a celebrity mouse as a reason to import the concept.
“It’s the games, it’s the food, it’s the aspirational appeal of a Western brand,” he says. Plus, the company is willing to give international partners broad leeway to customize the restaurant-arcades to local preferences.
“We have ziplines, we have climbing walls, we have bowling lanes,” McKillips says of those overseas stores.
Some of those foreign variations are being embraced domestically. Chuck E. Cheese started installing trampolines in its U.S. stores after seeing how popular the devices were in Mexican branches.
CEC is looking to accelerate its charge abroad by entering into regional development pacts, a departure from its prior reliance on local operators interested in trying a store or two. For instance, a partner in Australia is about to open the first of 10 units it’s committed to developing on the nation-continent.
What’s next?
CEC still has a way to go in recapturing its pre-pandemic vitality, so McKillips is not about to echo another character from his past, Mad magazine coverboy Alfred E. Newman: “What, me worry?” (McKillips was the bible of irreverence’s associate publisher during his nearly nine years with DC Comics.)
But he says the flurry of activity over the last three years has the company on the right trajectory. Now owned by the investment firms Monarch Alternative Capital and Reden Advisors, CEC does not disclose financial information, and McKillips declined to share any unit-level metrics. But he revealed that the company has generated five consecutive months of positive same-store sales as of August.
Not bad for a career run that started with supervising the dolphin pool at SeaWorld’s Orlando theme park.
‘No f---ing way’
Before joining CEC as CEO in January 2020, McKillips spent more than 13 years with amusement park operator Six Flags, rising from VP of corporate alliances, a post where he pursued outside partnerships, to president of international development. His time there included a two-year stretch of overseeing the foodservice operations of domestic Six Flags parks.
The only other restaurant experience listed on his resume was working as a shift cook while a teenager at Ken’s Pizza in Manchester, Missouri. Most of his professional life had been spent in theme parks, including his time with SeaWorld’s dolphins.
When McKillips was approached in November 2019 about the CEO’s job at CEC, he had no idea what the company did. Being enlightened didn’t exactly whet his interest in the opportunity.
At the time, he was developing Six Flags parks in China, Saudi Arabia and other exotic locales. “I’m working on these billion-dollar theme parks around the world, and I’m going to check out Chuck E. Cheese for a job?”
It didn’t help that the concept was at a low point. “It had a bad reputation as a place with dirty ball pits, bad pizza and rowdy guests,” he recalls.
Simultaneously, new concepts offering more contemporary forms of interactive entertainment were springing up, offering families everything from pickleball to simulated golf to virtual-reality games.
Businesswise, the special purpose acquisition company Leo Holdings had recently agreed to merge with CEC as a backdoor way of taking it public, only to balk in the 11th hour. It was hardly a vote of confidence.
But McKillips saw that his career to date had uniquely prepared him for the challenge posed by Chuck E. Cheese.
“I started thinking about what an incredible opportunity it’d be to lead this incredible brand that just needed cleaning up,” he recalls.
He took the plunge.
Then, six weeks later, the world was shut down by COVID.
“You can’t think of a more challenging brand to manage during the pandemic than Chuck E. Cheese,” says McKillips.
He recalls having lunch with the CEO of another restaurant company while health officials were just starting to comprehend what the nation would need to do. His lunch companion mentioned hearing reports that restaurants might be forced to shut down, a possibility that left the two chain chiefs in disbelief. “No f---ing way we’re closing our restaurants,” the other CEO barked.
A few days later, state after state issued emergency orders that dining rooms be shut until further notice.
“Chuck E. Cheese was one of the largest pizza companies in the world at the time, but we didn’t know how to sell pizza,” McKillips says. “We weren’t set up to do delivery or takeout. We had to learn overnight how to operate like a pizza chain.”
Part of the remedy was launching a virtual pizza brand called Pasquale’s Pizza & Wings, named of course after Chuck E. Cheese’s animatronic associate Pasqually P. Pieplate, the drummer in Chuck’s house band.
Yet the Chuck E. Cheese business model posed problems not encountered by Pizza Hut or Domino’s.
The games-and-grub operation generates 15% to 20% of its revenues by hosting kids’ birthday parties onsite. That sales stream disappeared, taking with it the brand’s most-effective marketing tool. On average, nine friends of the birthday boy or girl participate in the restaurant festivities, and many of them subsequently hound mom and dad to book their own parties there, or at least bring them for visits now and again.
“It is normally the introduction to the brand for millions of kids every year,” says McKillips. “We lost brand awareness for almost three years.”
Even when states started allowing dining rooms to re-open, Chuck E. Cheese faced problems unique to the brand. New York and other jurisdictions only permitted consumers who’d been vaccinated to enter a restaurant. The pizza chain’s typical customer was under age 5, and some health officials questioned the need to vaccinate children that young. Some public figures advised against it for health reasons.
All told, no more than 33% of U.S. children had been vaccinated against COVID by the time the pandemic officially ended, according to the Centers for Disease Control and Prevention.
Is a sale possible?
Like other restaurant operations offering games or other experiences beyond a meal, sales rebounded for CEC post-pandemic. Awareness is also rebuilding, in part because Chuck E. Cheese is advertising again, but “it takes time,” says McKillips.
In December, reports surfaced that CEC was ready to sell the Chuck E. Cheese brand or the company in its entirety, with the family-focused game-and-food concept Dave & Buster’s cited as one of the interested parties. But nothing transpired.
“We did kick the tires and explored some opportunities but didn’t feel the time was right,” says McKillips. “Right now, we are focused on our brands and aren’t actively seeking any sort of deal. We have a lot of long-term strategies that are still unfolding, and we need to give them time to fully deliver results.”
Plus, the company hasn’t been immune to the consumer skittishness that’s dampened restaurant traffic this year.
“We know from our research that a young family is going to be spending $200 to $300 a month, total, on entertainment,” says McKillips. “Macro conditions are the biggest challenges we face right now.”
New pricing models
Chuck E. Cheese is countering the heightened sensitivity to value among its core clientele by adopting subscription pricing. An original come-on of unlimited visits during the summer at $7.99 a month has been expanded to a year-round offer. Now parents can opt for two other pay-one-price offers that entitle their kids to more game playing.
The youngsters can play games anywhere from 40 to 250 times per month depending on which tier mom or dad chooses, with a top price of $29 a month for a minimum commitment of a year. Or, if they’re just looking to keep the youngsters occupied during school vacation, parents can opt for a two-month Fun Pass at different levels, with prices ranging from $49.99 to $139.99.
The big change for all the tiers, says McKillips, is the addition of a discount on food and beverage purchases. The price breaks range from 20% to 50% off, depending on the subscription tier.
“We’ve just sold our 400,00th two-month pass,” says McKillips, though it wasn’t clear if that was across all price tiers or merely the $7.99 option.
It’s a model that’s little-known in the restaurant business but common in the theme-park industry, offered by players ranging from The Walt Disney Co. to small, local family entertainment centers.
If McKillips has his way, it’ll be one of the innovations that helps CEC recapture momentum.
He knows the brand has already passed one key test. McKillips’ two children are both students at the University of Alabama, far outside the targeted age bracket of Chuck E. Cheese. Yet what pizza are they eating these days with their fraternity brothers?
“They go to a Chuck E. Cheese and take a bunch of pizzas back to their house,” says McKillips. “The pizza is now a family tradition.”