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From 1980s Relic to IPO: The Strange Tale of Chuck E. Cheese’s

It’s three-thirty in the afternoon at Chuck E. Cheese’s, and a mother and grandmother are bouncing a confused-looking toddler while a costumed mascot sings and dances near the entrance to the restaurant, which is tucked in the corner between Old Navy and Burlington Coat Factory in a Central Massachusetts mall. The only other customers are a pair of older adults are at a table bearing a half-eaten cake with one candle in it, though no child is in sight. The blaring music calls out dance moves, which are dutifully performed by the costumed Chuck E. Cheese, who throws handfuls of prize tickets in the air; the toddler gathers a few off the carpet while his grandmother takes videos, then leaves the rest behind. Dozens of arcade games and machines flash their lights at the nearly empty room; a salad bar featuring jello salad and six types of dressing appears untouched. A placard by the cash register advertises “unicorn churros” dusted with three flavors of colored sugar.

Chuck E. Cheese. To anyone born in the 1970s or ’80s, that name conjures up frenetic birthday parties in that palace of terrifying animatronics and questionable pizza. So it came as a surprise that the other Mouse House is making a play for relevance in the 21st century. As investors writhe in anticipation of upcoming IPOs from giants like Lyft, Pinterest, and Uber, you could be forgiven for missing the recent announcement that Chuck E. Cheese’s corporate parent is also planning a plunge into the IPO pool.

For those who haven’t been keeping track, Chuck E. Cheese’s (they officially dropped “Pizza” from the name back in the 90s) never actually went anywhere. New locations have continued to open (there are currently 606, in 47 states and 14 countries), and the chain says it is the top birthday party venue in the U.S. A series of rebranding attempts—replacing that animatronic band with a single Chuck E. Cheese and eventually doing away with him altogether in favor of video entertainment in many locations—got a bit of attention, but for the most part the restaurants just kept doing their thing, hosting thousands of birthday parties and stressing out thousands of parents.

So where did the whole operation start, anyway? The chain was originally the late-‘70s brainchild of Atari founder Nolan Bushnell (who had a vested interest in arcades). After an IPO in 1981 and a bankruptcy filing in 1984, the company underwent a series of mergers and restructuring moves, before settling into CEC Entertainment in 1998. Equity firm Apollo Global Management acquired the company for $950 million in 2014 and took it private, which the company has said allowed to make longer-term plans and changes without worrying about quarterly reports.

Which brings us to today. On March 8 the company announced a merger between Queso Holdings (the parent of CEC Entertainment, which also operates the Peter Piper Pizza chain), and a shell company affiliated with British equity firm Lion Capital. The name will change to Chuck E. Cheese Brands, Inc. and the company hopes to go public later in 2019. (Interestingly, it would only be the second restaurant IPO since 2015.) The company says the deal would be worth $1.4 billion and would allow continued investments in the brand’s namesake restaurants. An effort is currently underway to update the company’s hundreds of outlets, introducing a brighter, more contemporary style—and upgraded beer and wine offerings—designed to appeal to parents (so far 32 restaurants have been updated, with 60 slated for renovation in 2019).

“During our time as a private company, we have focused heavily on improving the guest experience,” says CEO Tom Leverton. He adds that intensive work on the remodels also paid off, with sales up 12% at renovated restaurants.

Indeed it’s the entertainment side of the business that now underpins the operation. While financial filings from the early 90s show food and drink accounting for about 70% of revenue and games at about 25%, the company reports that in the 12 months ending December 31, 2018, food and beverage were 43% of sales, while entertainment and merchandise were 57%. Over the past few years the iconic arcade tokens have been phased out and replaced with RFID cards that allow parents an option to load chunks of play *time* instead of a dollar amount, letting those crazy skeeball freaks go wild without constant pestering for more tokens (but don’t worry, the machines still spit out reams of paper tickets to be swapped for penny candy or stuffed animals before heading home).

Still, from this reporter’s trip to the (decidedly un-renovated) Massachusetts location, the chain seems little changed from its roots. A lone animatronic Chuck E. sways and “talks” along with his counterpart in a video playing across the monitors, which face rows of empty birthday party tables, ready for the weekend’s influx of kids. A group of four adults enter, urging the two children they’re with to pick up the tickets that are still littering the floor.

At least pre-IPO, they have the place all to themselves.