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00:00Chuck E. Cheese, at least as a brand, has gone through several iterations.
00:03A lot of us, at least people from my age, we remember it.
00:06It was the only game in town for a while.
00:08You know, it was Chuck E. Cheese and Showbiz.
00:10Obviously, that universe has expanded a lot.
00:12There's a lot of competition out there with Dave & Buster's and a few other places.
00:15Where exactly does Chuck E. Cheese as a brand right now kind of fit into that broader landscape of what
00:21families and kids are looking for?
00:23Right. Well, first of all, thanks for having me.
00:24And you're right. We have the blessing and curse of being almost a 50-year-old brand.
00:27And we've defined kids. We've defined safe, fun environments for kids.
00:31And that's still where we live.
00:33You know, we don't kind of get lost with distractions.
00:35We are who we are.
00:37We like to think we own that space.
00:38You know, we're the birthday capital of America and globally in a lot of countries as well.
00:44And that's what we focus on.
00:45And we're just finding what do kids and families want and need today?
00:49What is of interest to them? What's relevant today?
00:51The brand's massively changed.
00:53You know, the biggest thing we have is all the change people are unaware of.
00:56Well, talk about what you want to change.
00:57You were obviously CFO for a while, and then you just recently became CEO.
01:02Give me a sense as to exactly what you want to do.
01:04Right. So the beauty of coming in a CFO is they had an amazing team, amazing initiatives that were driving
01:10traffic, driving the business.
01:11We had a brand that needed refreshing, you know, coming into COVID.
01:15And the beauty is our partners invested over $400 million.
01:18We have reimagined every store in the U.S.
01:20If you haven't been in the last four years, you don't know Chuck E. Cheese today.
01:24So I got kind of the blessing of CFO of that massive investment, driving traffic.
01:29We had a subscription model, you know, two-month summer fun pass, as well as an annual subscription model, driving
01:35lots of traffic.
01:36We were the innovators back in 2004.
01:38We're continuing to grow that part of the business.
01:40Active play.
01:41We've got many bounce pads.
01:43We've got a kid's obstacle course, Chuck E. Cheese superhero playground.
01:47Huge attraction, as well, driven a lot of traffic.
01:50And on top of that, we came out with value.
01:52Our consumer is the lower part of that K-shaped economy.
01:55You know, dollars are really, really tight, as we all know, as you talk about every day.
01:58We found ways to relate to them.
02:00Family fun, clean, safe fun.
02:03$99 birthday is a great example.
02:05Rolled that out in 2004.
02:06We've grown our birthdays almost 40% since then, over half a million birthday parties last year at Chuck E.
02:11Cheese.
02:12Well, Scott, as you mentioned, you are the birthday capital.
02:15You define kids.
02:16I wonder, you know, do you try to appeal to adults at all?
02:20You think about Dave & Buster's, for example.
02:21They have the full bar set up.
02:24Is that something that you've looked at, or are you really sticking close to the kid's lane?
02:28Being a parent, I know that when your kids are there, you're there, too.
02:32And so we do.
02:33We have phenomenal Wi-Fi.
02:34We have amazing hand-tossed pizza.
02:36We make our dough from scratch in every location.
02:38You know, proprietary sauce, cheese.
02:39So it's a handmade pizza.
02:40It's a great food product.
02:42We have drinks, beverages.
02:44We do have something for those adults.
02:45Some of the games as well, you know, the ski-ball challenges, some of the basketball and football tosses that
02:50go on, you know, for the adults.
02:52We like to think we've got something for them as well.
02:54Yeah, and it's funny that you mentioned the pizza because, obviously, that took off in an interesting way during the
02:59pandemic.
03:00So keeping that momentum going.
03:02But let's talk a little bit about what the future looks like.
03:05You have some new concepts coming out.
03:06In Venture World, for example, you mentioned to us before we started that you're on the hunt for real estate.
03:12So, you know, talk us through the choreography there.
03:15And when you're looking for that real estate, you know, where are you looking?
03:19Right.
03:20So what we did was these initiatives I talked about.
03:22I got to come in as CFO to a very healthy business with all these drivers.
03:25Now that capital investment cycle has ebbed.
03:28So we could spend a minimal amount of capital, free cash flow engine.
03:31But we opened a very first Chuck E. Cheese Adventure World in the Dallas area.
03:35It's an enormous indoor playground, again, for kids and families.
03:39The difference is at our active play in-store, it's 56 inches and below.
03:43It's little kids.
03:44This, any size kid, adults can come in with their children.
03:47So we can kind of stretch that age group a little bit.
03:50But the first unit we opened has far exceeded expectations.
03:53So it's this enormous white space potential for the brand.
03:57So we're opening them as fast as we can.
03:59We need a similar size box.
04:01But because there's a three-story play structure in most of these facilities, it needs a higher ceiling.
04:06We don't want to go to warehouse districts.
04:08We want to stay in retail areas.
04:09So we're on the hunt for those.
04:11We should have six to seven more open this calendar year.
04:14And then it's going to be about four to six every quarter after that.
04:17We call it test and learn.
04:18We've got to learn where it works, where it doesn't work.
04:21Everything we're seeing so far is it's exactly what parents want.
04:24That active play element, it's our history.
04:26It's the ball pits, you know, and the sky tubes, which we haven't had for about 20 years.
04:29But we put in mini bounce pads, the obstacle course, huge response to those.
04:34And that's why we kept moving into this.
04:35So you're focusing more on retail spaces rather than that.
04:38Do you need that sort of connection to other types of retailers in order to draw traffic?
04:43Or can you stand on your own?
04:45You know, it's interesting, Chucky, because we're really an industry of one.
04:48Nobody does kids three to nine, you know, kind of two to 12 like we do.
04:52We really own that space.
04:53So we are a destination.
04:55People will come on average 30, 45 minutes to a Chuck E. Cheese.
04:58But we do like being in those busier traffic centers where there's a lot of traffic coming through.
05:02It's, hey, let's stop and have some fun for a bit.
05:05The kids you hung with me through, you know, the other stores, let's go have some fun.
05:08And we're the place for that.
05:08Do you have the capital for this expansion or are you going to need to borrow more to do it?
05:12No, we recently refinanced our debt last year.
05:14And as I said, now that we're through with the heavy capital, we're free cash flow positive.
05:18We can afford to build a lot of these locations, self-fund all of that.
05:22We will not be back borrowing.
05:22And that's going to be, is that going to be expansive to margins, your general idea?
05:26Yeah, absolutely.
05:27Absolutely.
05:28These units, they're about half the cost to build of a traditional Chuck E. Cheese.
05:31So the return model is outstanding.
05:33It's why we're so excited and why literally we got to define the white space.
05:36It could literally double, triple the size of the entity within a few years.
05:40And Scott, you know, we've talked a little bit about the competitive landscape, but I also
05:43want to talk about, you know, the competition for attention out there because, you know, you
05:48think about Chuck E. Cheese.
05:49I mean, certainly it was also the birthday capital when I was growing up.
05:52As well, we've seen nostalgia plays sort of take over when it comes to retail and apparel
05:56as well.
05:57But how do you stay relevant?
05:59How do you, you know, approach marketing as such to sort of win that attention auction,
06:05if you will?
06:06Right, right.
06:06I think it's a couple of ways.
06:07Like when you're a 50-year-old brand, part of what we have to do is we're not a new
06:12kid
06:12to the block.
06:13We know change.
06:14We know being relevant with the current ages and the current, you know, kind of psyche
06:18of the world.
06:19And that's what we've done.
06:20Our marketing team is phenomenal.
06:21Part of that is data.
06:22It's insights.
06:23It's the AI engines we have on guest satisfaction, what's working in store, what's not, what
06:27they like about birthdays, what they don't.
06:29And that's how we're able to modify.
06:30It's where the $99 birthday came from that drove so much traffic through the stores.
06:34And we'll just keep leveraging that and doing that, you know, staying relevant.
06:38Geographically, though, are you looking into certain areas?
06:41I mean, I know you're kind of spread out across a wide variety of states, although you do have
06:44a kind of a heavier concentration of what, like California and Texas.
06:48Yeah, California, Texas, Florida, the New York area, we're more concentrated.
06:51But we're in about 45 states.
06:53We're within the major markets of 96% of the population in the U.S.
06:57So we're kind of where everyone wants to be.
06:59The beauty of our new Adventure World concept we opened is for the first time, normally if
07:04we open within a 30-minute drive of another Chucky, it cannibalizes the other store and
07:08shares some of that traffic.
07:09This one didn't.
07:10So it's an amazing opportunity.
07:12Have you thought about doing any other ways to leverage the brand?
07:15I mean, obviously, I mean, for people of a certain generation, Chuck E. Cheese himself
07:19is sort of iconic.
07:21And you probably know where I'm going with this.
07:22I mean, can it be more than just a store?
07:25I mean, can it be merchandise?
07:27Can it be, you know, intellectual property in sort of a, you know, movie, TV format, anything
07:32like that?
07:33Absolutely.
07:33Absolutely.
07:34You led me right into that one because in 2020, we brought in a guru in that
07:37space.
07:38You know, her whole career has been media and licensing.
07:40We are a licensing media engine.
07:43You know, we've got food products.
07:44We've got clothing, apparel, toys.
07:46But the most exciting piece is, as you said, that media.
07:49If you look at Chucky, his Q score, his rating, his, you know, awareness among families and
07:53kids, it's on par with every other character you've ever heard of.
07:56You know, we can list them all out.
07:57But superheroes, you know, all the other entertainment characters, he's just as well
08:01known as they are.
08:02And kind of the proof in the pudding for that was we had our very first holiday special.
08:06It released last Thanksgiving, 45-minute animated special.
08:10Chucky and all of his friends.
08:12And it was an astounding success on the broadcast partners that we had.
08:16So now, finally, people are saying, wow, there is a there there.
08:19Because if you look at that other cast of characters, they all have multiple feature films.
08:23They all have an entire catalog of DVDs and animated specials.
08:26Chucky doesn't.
08:27We've got all of that potential to unpack with a character known around the world.
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