Chuck E. Cheese enjoys sales boost from renovated units

Nation's Restaurant News, April 17, 1995 by Ron Ruggless

IRVING, Texas -- Reconstructive surgery on Chuck E. Cheese, which was unveiled with a renovated prototype unit here a year ago, is helping the chain of child entertainment restaurants to turn around disappointing sales amid fierce competition.

Chuck E. Cheese's parent, ShowBiz Pizza Time Inc., has expanded a renovation program to 22 stores in the 327-unit system, and executives are counting on sales to continue trending upward and stock prices to show improvement.

"Our stock price for the year to date is up 29 percent already," said Richard Frank, chairman and chief executive of Showbiz. "I think we're starting to get back on track."

The stock is trading around $10 a share, far from its height of $33 almost two years ago.

The concept suffered in 1993 and 1994 as competition from similar entertainment venues aimed at children aged 2 to 12 -- including Discovery Zone and Leaps and Bounds -- cut into its business.

"We stepped back from our business and asked where we fit with all these choices for the consumer," Frank explained. "We did a lot of research and spent a lot of time watching the consumer and talking to the consumer, trying to understand the dynamics that were out there."

The result was a prototype renovation in this Dallas suburb, just a few blocks from the company's headquarters and a hop, skip and jump from a Discovery Zone competitor. The menu also has been updated, with more pizza, salad and sandwich options.

One year into the first renovation, Frank said the new prototype is boosting traffic at the restaurants, which have a per-person check average of about $6.75.

"Sales were off about 10 percent from previous years before the renovation," he said. "Our new stores have gone double-digit positive against themselves. And we've had a swing - when you take in the declines that we were experiencing - we're in the high teens. The sales impact of the remodeling and repositioning has been dramatic."

The company has renovated 22 stores -- the Irving unit; 12 in the Chicago area; five in the St. Louis market; two in Grand Rapids, Mich.; one in Saginaw, Mich.; and one in Flint, Mich.

Average sales at those restaurants increased more than 12 percent compared with pre-renovation periods at the same units, so ShowBiz plans to reposition 120 more company-owned stores by the end of 1996. In the system 227 stores are company-operated, and 100 are franchised.

"We're off on a pretty aggressive remodeling program," Frank said. "We will complete Washington and Baltimore in the next few weeks, and we're under construction in Tampa."

Lynn Detrick, an analyst with the Houston brokerage of Williams MacKay Jordan & Co., said, "They're reasserting the strengths of their concept and getting back to basics."

The original renovations cost more than $400,000, but Frank said that this cost has been reduced to $300,000, with most running from $270,000 to $280,000.

As we've gone along, we've been able to refine the investment, find out what works and what makes a difference, what the critical spending is," Frank remarked.

The renovations include an updated exterior with child-eye-catching Chuck E. Cheese on the outside, a brighter interior, expanded free ball crawl and a new, near-the-ceiling tube crawl, and enhanced games, rides and prizes for the kids. One of the centerpieces of the renovated store is the Sky Crawl, a free attraction for kids that has them crawling in tubes up to the ceiling and down to earth again. And the elevated attraction doesn't take away from precious retail space, because it's anchored to the ceiling.

"It expands the age range, too," said Richard Huston, executive vice president for marketing. "Whereas some kids wouldn't play in the Ball Crawl because they were too old, they are just shooting through those tubes." In addition, the company also gave parents a more interesting decor and enhanced security so children can leave with their guardians only.

"A mom and dad can come in to have a pizza and drink, knowing that their child can't leave without their being with him," Huston explained. You tie security into the whole package, and we think we've created a conducive environment for our target audience."

In addition, ShowBiz has tinkered with the menu, offering more toppings, such as barbecued chicken pizza. Frank said kids favor flavors aimed at them. "What has gone well is a macaroni and cheese pizza and a macaroni, cheese and hot-dog pizza," he pointed out. "Hamburger-and-fries pizza is another winner."

The company even developed a new pizza tray with a series of raised fingertiplike bumps to keep the pizza crust from getting soggy.

Huston remarked: "We don't see the menu moving in a radically different direction. That hasn't been something that the consumers have been saying. They have expressed a need for security, but not for eggplant sandwiches. We aren't on the leading edge of menu development.

"We are a restaurant because 75 percent of our revenue is food and beverage, he said. "But what draws, our point of difference, is the entertainment: the games, the rides, the show, the characters. Kids ask their moms and dads to go there."