We all know the place to go "where a kid can be a kid". However, in technology-laden 2017, do kids really want to leave the comfort of their homes to play virtual games? Pizza and arcade chain Chuck E. Cheese's has been battling this question lately, especially as home consoles and mobile gaming, with their added level of convenience, have slowed down growth and presented new competition for the arcade chain.
Based in Texas, Chuck E. Cheese's is a family oriented restaurant-arcade establishment for children. It was founded in 1977 by Atari creator Nolan Bushnell, and the company now operates 522 locations with an additional 58 franchise locations in the United States and Canada. Parents take their families to the holistically advertised establishment for food and fun as their children flock to use their purchased tokens to play arcade games and earn tickets to win prizes.
Private Buy Out
Apollo Global Management APO , a leading global alternative investment manager, acquired Chuck E. Cheese's parent company, CEC Entertainment, in a private equity deal worth $1.3 billion in January of 2014. With a turnaround plan of new offerings such as free guest Wi-Fi and a new sophisticated food menu for parents, Apollo had proven to do well for CEC Entertainment; revenues in 2015 compared to 2014 rose 11% to $920 million.
Surveys show most American children, both boys and girls, play with at-home video game consoles. This proves to be a challenge for Chuck E. Cheese's, as their revenue growth slumped in 2016. In its third quarter of fiscal 2016, total revenues grew 2.8% compared to a growth rate of 11.1% in the same quarter in 2015.
Today, consoles such as the Xbox One by Microsoft MSFT have taken the excitement of winning in virtual gaming to children's homes. Innovations and ideas such as gamer points, leader boards, and on-line play have not only made gaming more personal and comfortable, but also globally connected.
With video game and virtual reality innovations on the rise, Chuck E. Cheese's finds it difficult to increasingly capture the attention of children. As a kid in the 1990's, Chuck E. Cheese's was one of my favorite places to go. Hitting a jackpot and winning physical tickets for a prize was an absolute thrill. However, I did not have the availability and technology children do now. With that in mind, will kids push their parents to seek an experience which they can already find in their living rooms?
Currently, Apollo Global Management has started discussions with underwriters to take Chuck E. Cheese's parent company public. The aim is to take CEC Entertainment public in the second half of 2017, a deal which will be valued at over $1 billion including debt. Sources have yet to be named as IPO preparation is kept confidential.
Right now, it's all speculation regarding a Chuck E. Cheese's IPO. If it follows in Dave & Buster's PLAY footsteps, the company has the possibility of outperforming the popularity of the personal gaming industry because of its utilization of interactivity. Children's preferences and attention continually shift as technology progresses. Chuck E. Cheese's taken public has the ability to do well through being an established household name, still proving growth, and shifting offerings to consumer preferences.
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