Chuck E Cheese vs ShowBiz Pizza | Where a Kid Can be a Kid | 3

0:07I'm David Brown and this is Business Wars.

0:30For nearly 50 years, Chuck E. Cheese, short for Charles Entertainment Cheese, has been entertaining families with arcade games, prizes, gooey cheese pizza, and of course, an animatronic house band. Chuck E. Cheese brought the concept of eatertainment to the masses. No longer did you need a ticket to Disneyland for your kids to enjoy the musical stylings of a giant mouse while you ate your dinner. Ladies and gentlemen, we proudly present an exciting new musical review with your merrymaking master of ceremonies, is Chuck E. Cheese. That's me, Chuck E. Cheese. Your host, Widamos. Later on, rivaled showbiz Pizza Place would introduce a similar format, introducing the Rockafire Explosion as their house band.

1:14Its star was a one-toothed bear named Billy Bob, who Julia Roberts even dressed up as while working at showbiz as a teen. Here she is telling the story on The Ellen Show several years back. I wore a bear costume and brought out the birthday cakes. It was like, you know, it's one of those places where you go. Like a Chuck E's Cheese. Yeah. Yeah. Ultimately, the two companies would merge and Chuck would come to rule the school. But by the mid 2000s, the hype for these kinds of places had died down and Chuck E Cheese struggled to get customers in the door. The 2010 saw buyout, rebrands and pricing shifts as an attempt to revive the struggling pizza arcade.

1:51and when the pandemic hit in 2020, well, the chain officially filed for bankruptcy. Fast forward to now. There's been a growing shift in the public's appetite for Chuck E. Cheese. Video games like the uber-popular Five Nights at Freddy's, which was adapted into a movie last year, were introducing the younger generation to the wonder and terror of the animatronic bands of the 1980s. Meanwhile, millennials who grew up going to the chain are rediscovering their love for it, especially as they start bringing their own kids. The nostalgia wave is so powerful, in fact, that when Chuck E. Cheese announced earlier this year it would retire the animatronic band at all but two locations, there was so much outcry online that the company decided to keep the band in five locations instead.

2:35But is nostalgia alone enough to keep this chain afloat? Here to help us understand what's next for Chuck E. Cheese is Ben Coley, senior editor at QSR Magazine, a trade publication specializing in quick-service restaurants. Later on, we'll be peeking into Chuck E. Cheese's past with Ross Brackman, director of the American Treasure Tour Museum in Oaks, Pennsylvania. Ross is walking us through the history of animatronics and how they became so synonymous with places like Chuck E. Cheese. Show's about to begin, so stick around.

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5:17Ben Coley, welcome to Business Wars. Glad to be here, David. Tell us more about what you cover at QSR Magazine, and how does Chuck E. Cheese factor into the publication's repertoire? So, QSR stands for, of course, a quick service restaurant. So, we primarily cover fast food and fast casual chains across America. Chuck E. Cheese is not your typical quick service concept, but historically, our publication has covered their growth and their expansion and their changes in operation. So they fit more into what we would call the entertainment segment, which is a mixture of gaming and food and cuisine and beverage.

5:52And over the years, we've covered them pretty extensively. And it seems like they've got a lot of exciting things on tap for the kids and the parents. How long have you been working in this field, covering the quick service industry? I've been in the field four and a half years. I actually joined QSR Magazine in January of 2020, which was just a couple of months before everything went kind of crazy across the country. And especially for restaurants, it was really a good fire hose to the mouth moment when trying to absorb all the information. It really kind of caught me up to speed really quickly on all these restaurants.

6:25Yeah, I can only imagine. I can only imagine. But at the same time, you say you've been doing this for about four years. And I'm thinking, surely you must have known a thing or two about Chuck E. Cheese. I mean, growing up in America, did you get to go to Chuck E. Cheese as a kid? Of course, yeah. It'd be hard to find a kid who didn't have that memory growing up. Yeah, I specifically remember when the one opened up by where I was. I think it might have been 2003 or so. I knew it was in the early 2000s, but it opened up in the strip center. And I know my family was so excited to go. And we would go there for birthday parties and other things.

7:00And I just remember, you know, all the games and getting the tickets, you know, coming out of the machines and, you know, going up to the prize wall. But I remember trying to get those good prizes and everything and seeing the high price items. I'm wondering, like, if I would ever be able to save up to Neff to get those things. But, yeah, a lot of cherished memories going Chuck E. Cheese. Yeah, it used to really frustrate me when I'd go in and you'd see these kids walking around with just armfuls of tickets, right? Right, like how long have they had to be in there to do that? I don't know. Yeah, exactly.

7:28What am I doing wrong here? I've got five and I think I'm a champion, you know, and there are these guys walking around and you'll never get the Xbox. You'll never get the fun thing that's behind the glass. But it almost seems to me like, you know, you think about the trajectory of Chuck E. Cheese. They went public in the 1980s and they rebranded to Chuck E. Cheese as we would come to know it in the 90s. And it seemed to be really on a climb. And then right around the turn of the millennium, it seemed like things started to go downhill. I wonder why that was. I really think it attributed to maybe the rise in technology.

8:02I think that when people got more hooked on devices, the appeal of going in and having a birthday party inside Chuck E. Cheese was a little bit lost there on the younger generation when they're more hooked on like YouTube and like social media and seeing videos and content through. Yeah. Hand me down iPads and stuff like that. Right, right. You saw that, you know, increase significantly toward the late 2000s. That's when, you know, Facebook to Twitter, YouTube started kind of coming up. And you got Apple, you know, coming up with the iPhone in the late 2000s. And then, of course, you had the recession.

8:36So there was an economic event there where, you know, people just had less money to go out and do things. So I think it was a kind of a mixture, you know, economic cycle and also just kind of rising technology and kind of people and younger generation kind of being disconnected with being eager to kind of like, you know, play those games kind of like in a public setting. Yeah. Well, now the company was acquired by a private equity firm in 2014, and I think the price tag was something around$1 billion. Right, yeah. What was the grand plan there? How did they hope to revive a chain that was by that point nearly 40 years old?

9:06I think it's what most private equity companies try to do when they take over a restaurant. You want to improve operations. You want to remodel the restaurants. I believe Apollo was the name of the private equity firm that took over operations in 2014. Some of the things that they were doing, trying to introduce cars as opposed to ticket systems. So you just kind of put up a car to the game as opposed to the paper tickets. More neutral tones in the restaurants and trying to create a vibe that could appeal to both parents as well as kids. They're also, you know, more open kitchens so people can see the food prepared, kind of make it a more sort of experiential environment.

9:49new dance floors with a lot more lights, you know, new seating. I think they introduced, you know, an all-you-can-play program where you could kind of spend a certain amount. You can play as much as you want. So a lot of different things they tried to do over, I guess, however long they had them, maybe about six years or so, to try to kind of switch around their business. Well, by 2020, Chuck E. Cheese was definitely in a rough spot. What happened to their business during the COVID-19 pandemic? Yeah, you know, they were in a very, very tough spot because when COVID happened, government mandates came in and that closed all the dining rooms and closed restaurants.

10:25They just didn't have the foot traffic. So that forced them to really go into what we call off-premises, which means, you know, takeout and delivery and trying to send out their food through those means. One of the things, you know, was the Pasquale's Pizza and Wings brand that they came out with. I think it was pretty much a way to kind of separate itself from the Chuck E. Cheese name. Because the tough thing is that, you know, Chuck E. Cheese really isn't known for their food products. They're more known for their games and stuff. But I think they improved the ingredients with the pizza on that menu.

11:01It was a way for them to sort of kind of revamp it and try to rely on their food menu to kind of like serve as a bridge during the early days in the pandemic. So that was the other tough thing. Like, you know, with the salesman down and inability to pay rent and inability to pay vendors and all these other costs, it forced them into bankruptcy. Yeah, that was June of 2020, I believe it was. Right. So they went into a bankruptcy with a lot of debt, like a lot, a lot of debt. And a lot of the debt was from that acquisition back in 2014. It was what you call a leveraged buyout, which involves like just kind of like a lot of debt being exchanged.

11:36But when it comes to that family entertainment space, like they're one of the biggest names out there. I mean, it's pretty much them and David Buster's are the two big ones. You figure that they had enough backing and financing, enough people involved that were going to push for it to get through this. And sure enough, they did. And survived, they did, yeah. But how are they faring nowadays? Because it seemed like they weren't just reaching out for the kids now. In fact, I think the chain introduced a new membership model to help get more parents in the door, you know, especially with high inflation, economic uncertainty.

12:10until you've got this membership that can save you money, at least in theory. So how do you think this factors into Chuck E. Cheese's strategy overall? Right. You know, they're just doing what every other brand out there is doing right now. The story of the 2024 is about, you know, what can you do to put value in front of the consumers? Like you said, they came up with that membership tier to where you could pay a certain amount. And it's actually flexible. Like there's like different tiers. And then if you pay more per month, you're allowed to play more games. So it was just a way for people to associate Chuck E.

12:44Cheese with being a valuable place to go in times where money is tight. You know, you put all this together. Who's Chuck E. Cheese's demographic these days? I mean, you think once upon a time it was the kids who would drag the parents in. And then you saw what happened after the pandemic and that appeal to parents. Who are they appealing to? I almost wonder if it's not to millennial parents who grew up going to the arcade. That's exactly what they're trying to do. They're trying to appeal to both sides. They want to make sure that they're up to date and they still can have a spot with those younger guests, which is their bread and butter.

13:19But they also know that they're old enough that the people who are parents now who were going to Chuck E. Cheese when they were little are now in a parental position. And they remember their own memories with playing the games. And they want to bring that nostalgia factor with them. But, you know, it is kind of a push and pull there because some of the advancements do come at a risk of, you know, cutting out some of the things that people love the most when they were younger. But it definitely is a matter of trying to do things to appeal to parents as well. They came out with a grown up menu with wings and salads and sandwiches and trying to create a menu specifically for older people to kind of get them in there and I guess make it a more pleasant experience for them.

14:03Yeah. A few years after going private, the company tried to return to the New York Stock Exchange, but the deal ultimately fell through. Well, now that you've seen the company have to weather a lot of storms, things seem to have calmed down just a bit. I think there were some reports that Chuck E. Cheese may be back on the market, may be looking for a buyer to take them public again. You heard any whispers about that? Any potential offers, perhaps? I did. We did hear reports of Chuck E. Cheese possibly being up for sale. I think it was about a year or so ago. But we haven't heard anything since then.

14:38It's gone pretty quiet on that front. The deal you're referring to back in 2019, it was supposed to be a merger with what you call a special purpose acquisition company. These are SPACs. Yeah, SPACs, right, correct. And for whatever reason, it didn't work out. The companies didn't give a reason as to why it didn't work at the time. And in the stories we've done about Chuck E. Cheese, they haven't shared anything or any other significant updates about switching ownership or sale or anything like that. Some of the stories that have been out there, I think Reuters was reporting that Chuck E. Cheese was expected to generate somewhere close to almost$200 million in earnings before interest taxes, depreciation, amortization, which would put you at a valuation of around$1.4 billion.

15:22That's a lot of money for Chuck E. Cheese. You think entertainment may be making a comeback? Well, it's interesting. During the beginning of the pandemic, entertainment was not great and things were not going well. Even Dave & Buster, there were some murmurings about them even possibly going bankrupt too. I mean, but around that 2021, 2022 period, They enjoyed some pretty good sales bumps from some higher traffic from people just eager to get out. But we've seen recently that these entertainment brands have had a tougher time attracting people. So these brands are trying to be known for more than just entertainment.

15:59So they're trying to build up their food and beverage programs. You know, Pinstripes is a smaller one. It's one that's also went public last year. It's like a bowling, a bocce concept, but it also has a very strong food and beverage program. Actually, they do more in food and beverage sales than they do in amusement, which is interesting. Yeah, so a lot of brands are trying to elevate that. Because when you're just known for the games, it can be harder to get people to come in during these tougher wallet times. And I think that these brands felt some sluggish sales after that big boom they felt in 2021, 2022.

16:33But there's a lot of brand equity still with Chuck E. Cheese. is very much still a relevant brand in the psyche of America. So they have the tools, they have the cultural significance and the cultural relevance to continue to build up and go forward. They just have to have the right strategies to be able to market correctly to the consumers. Ben Coley is senior editor at QSR Magazine, an industry publication covering quick service restaurants. You can keep up with their reporting at qsrmagazine.com. Ben, thanks so much for joining us on Business Wars. I appreciate it. I had a lot of fun. Coming up...

17:07Everything about Chuck E. Cheese when it was introduced was special because nothing like it had really been done before. Ross Brackman of the American Treasure Tour Museum joins us to take a deeper look at Chuck E. Cheese's house band and the history of the animatronic characters that make it up. Stick around.

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20:20Welcome back to Business Wars. Chuck E's Cheese is famous for its animatronic band, but these life-size robot puppets hit the scene long before Munch's make-believe band played their first gig. Ross Brackman is the director of the American Treasure Tour Museum in Oaks, Pennsylvania, which houses one of the largest animatronics collections in the world. He joins us now to talk about the history of these fascinating and sometimes frightening robotic wonders. Ross Brackman, welcome to Business Wars. Well, thank you so much, David. It's a pleasure being here. Well, it's great to have you. Just how far back are we talking about when it comes to animatronics?

20:56Well, there is a difference between animatronics and automatons, and I don't want to bore you with too much of the history, but automatons date back to basically B.C. The concept of mechanical machinery that moves on its own is almost as old as written history. And then when electricity came in the 1870s, 1880s, they started using them to draw people to department store windows. You know, I know that you mentioned that revolution with electronics and this whole connection with sales. Interesting. I think back in 1939, didn't Westinghouse have a kind of, it wasn't animatronic, but it was a sort of like a robot named Electro who could talk and I think could even smoke.

21:45I mean, it was the 30s after all. In fact, I think we have a clip from this. Let's listen. I am a smart fellow as I have a very fine brain of 48 electrical relays. It works just like a telephone switchboard. If I get a wrong number, I can always blame the operator. Thank you. Okay. So we're talking about a human talking to this robot-looking thing. Looks like something lifted out of a sci-fi movie. But just a couple of decades later, robots like Electro became used as novelties. I mean, there were dancing bunnies and singing mice, sword swallowers. When did robotics start being used for the fun factor, you know, the entertainment factor?

22:38Well, you know, they don't really talk too much about it. And the difference between electro and the animatronics you would find in store windows is much, much different. So having them talk and be able to walk on their own, I mean, that's kind of taking it to the next level. But I would argue that they started shortly after electricity became a thing. So 1880s, 1890s. And again, we're talking hands moving and heads shaking, things like that. So nothing like smoking and walking independently. Well, by the 1950s, Walt Disney started dabbling in this space. And in the 60s, work had begun on the Enchanted Tiki Room at Disneyland.

23:23And then there was this term that I believe Disney coined, audio animatronics. Now, to accomplish this, we created a new type of animation. So new that we had to invent a new name for it. Audio animatronics? Right, audio animatronics. Classic Disney. So is it safe to say that when we're talking animatronics, it was Disney that originally put that on the map? I think so, yeah. I mean, definitely of that level of sophistication. The Tiki Room was the first, I guess, main attraction. And then, of course, he also did Abraham Lincoln and showed us what you could do with the human face. Going back real quickly to the 1964 World's Fair, that was the first time Disney ever had the opportunity to share his technology with the East Coast.

24:15And people associated the East Coast with a sophistication that they did not at the time on the West Coast. And so the popularity of the Disney features the Carousel of Progress, the Tiki Room, and It's a Small World. I mean, that validated for Disney and the country that we want this everywhere. And then, of course, jump ahead to Chuck E. Cheese, and now you're having it in towns all across the country. Totally. And it seems to me that by putting those animatronics in there, Chuck E. Cheese was trying to bring a little bit of Disney into the local communities, in a sense. I mean, if you wanted to check out something as cool as an animatronic, you could just find one around the corner at a pizza shop and play some games at the same time.