Chuck E. Cheese CEO David McKillips joins TheStreet to explain how his company has been able to thrive despite a pullback in discretionary spending.
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00:00How is Chuck E. Cheese being impacted by the pullback that we're seeing in discretionary spending?
00:07Well, there's no doubt that the macroeconomic conditions have put some pressure on really young families,
00:13which is our core customer. So it's young families with young kids, 2 to 12 years old, with a bullseye of 3 to 8.
00:18And we've seen the inflationary pressures, even though inflation has come down, but if you still look at the pressure points on families,
00:24it's rent, it's utilities, it's groceries, and that hits our customer directly on their everyday expenses.
00:32So we know that our young families are having to make a choice on how they spend their discretionary income,
00:37especially for out-of-home entertainment.
00:39So we just try to position ourselves to be that one outing that a family of four is going to go every month.
00:43And so how does the Monthly Fund Pass address that issue?
00:47Well, the Monthly Fund Pass has been a home run for us.
00:50First thing, we launched a two-month pass this summer.
00:54It's our fourth summer doing it, but this summer we made it even a little bit more impactful in terms of its value.
01:00And in years past, it was you buy a monthly pass, it was valid for two months,
01:06and you could come every single week for a denomination of 60 minutes or 90 minutes or 120 minutes, right?
01:13This year, we changed that value perception and value equation to give you now every day you can come for two months.
01:20So last year, we sold 78,000 passes.
01:23This year, we are getting ready to sell 400,000 passes.
01:27At the same time, we tested exactly what your question was, what are we doing on monthly membership?
01:32We tested in three markets a monthly subscription program, and we just launched it.
01:36About a month ago, we've already sold 20,000 monthly memberships.
01:39And I have guests now, and I'm in the stores all the time.
01:42I have guests now coming up and saying, thank you so much.
01:44I can now afford to come to Chuck E. Cheese.
01:47And why now? Because this inflation squeeze has been happening, I mean, for what, better part of two years?
01:54Oh, yeah.
01:55Right? And so why was now the right moment to launch a subscription pass?
02:02We've been watching and feeling the effects of the macro, right?
02:06First quarter last year was a really, really strong time period for Chuck E.
02:10Cheese, because if you think about it, children who were born in 2019, right, had their first birthday during COVID,
02:17their second birthday still during COVID, where we had a lot of restrictions.
02:21And in 2022, we had the Omicron variant.
02:23So in first quarter, which is the biggest birthday time period for us, those kids were never able to celebrate their birthday.
02:30So then in first quarter 2023, it was gangbusters.
02:33We had a really strong quarter, which we lapped over that this year.
02:37But we've been watching the macro and all the pressure against the young family.
02:40So we thought this is the time where we really needed to deliver value.
02:44And we've got to deliver fast or deliver value fast for our consumer.
02:48And they've really been receptive to it.
02:51And what does value mean at a place like Chuck E.
02:55Cheese, especially when it comes to food?
02:57Because I wonder, like a parent can get a hot dog.
03:00They can get a slice of pizza. They can get a chicken tender anywhere, right?
03:05There's a lot of competition for those kind of food products that you sell.
03:09So what does value mean at Chuck E.
03:12Cheese?
03:13It means two things. Number one, our guests come for the games, right?
03:1770% of our revenue all comes from entertainment and merchandise.
03:20They're going to come and play the games.
03:22You probably don't know this, but we're the largest arcade in the world.
03:24Two billion game plays every single year.
03:27So people are coming to Chuck E.
03:28Cheese for the game, but you're 100% right.
03:30They don't need to eat. So when they can eat before they come, they can eat after they leave.
03:37But for us to deliver value, it's the full experience.
03:40So you can play games at a low cost.
03:42You can now get your pizza or your wings or your cakes at a low cost as well.
03:46So now it's a full family outing where you can dine and play and make memories at Chuck E.
03:51Cheese for a low price.