Chuck E. Cheese experiences hiccups in marketing transition

Aug. 3, 2012 | by Alicia Kelso

During CEC Entertainment's second quarter earnings call Thursday, CEO Michael Magusiak expressed disappointment over Chuck E. Cheese's lackluster performance, which included a 2.4 percent drop in comparable same-store sales and a 37.3 percent decline in profits.

"Obviously we're not pleased with our first half results," Magusiak said. "However, we believe we've made significant strides in positioning the concept for long term success."

Those strides include a dramatic shift in marketing focus, refreshed branding and online presence and a restructured pricing plan.

Marketing and advertising strategy

Chuck E. Cheese unveiled its new, modernized "rock star" mascot in early July spearheded by the chain's agency, The Richards Group, and Scott McDaniel, who was named chief marketing officer in September 2011.

One of the company's main objectives is to shift its marketing messages more toward parents than children. By the end of August, a campaign will be in place directed mostly to moms. By late October, the revamped marketing components will be complemented by a redesigned website that includes enhanced tools for tracking visitors, a variety of activities to engage kids and adults, and the ability for parents to view the menu, find locations and play games with their children.

"We believe our greatest opportunity to generate increased guest traffic and comparable store sales is through our new comprehensive marketing and advertising strategy," Magusiak said. "Two of those strategies haven't been implemented yet – adult ads and the new website."

Magusiak admitted sales were likely impacted when the company ramped down its kids media expenditures, creating a lull since the adult campaign has not yet been initiated.

"We reduced the media weight and believed that it wouldn't impact the reach. In hindsight, we went too far," he said. "Since then, we are firming up our advertising to kids for the remainder of the year and we are implementing the moms' campaign, which we believe is a very integrated strategic campaign."

Pricing structure

Magusiak said the company is also optimistic for long-term growth because of the changes being made to its pricing structure, including:

  • Reduced price points for value packages combining food, beverages and tokens starting at $19.99;
  • Reduced pizza prices;
  • A decreased number of tokens in token packages with a new price-per-token ranging from 20-25 cents each; and
  • Lowered coupon discounts and a reduced number of token-only coupons.

"We believe this offers guests with a good, everyday value," Magusiak said. "We can implement the revised systemwide pricing structure in conjunction with our new website, and promote the structure on our website with the objective of increasing customer traffic."

Q2 by the numbers

Financial results for CEC Entertainment's second quarter include:

  • Total revenues for Q2 2012 decreased 2 percent, or $3.8 million, to $182.4 million, from $186.2 million for Q2 2011;
  • Comparable store sales were down 2.4 percent, slightly offset by additional revenues generated from new stores;
  • Net income decreased 37.3 percent, or $2.4 million, to $4.1 million, as compared to $6.5 million for Q2 2011;
  • Diluted earnings per share decreased to 23 cents per share, from 34 cents per share during the same period last year;
  • CEC expects to open 12 to 15 new company-owned stores this year, including approximately three relocations and one franchise acquisition.

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Topics: Business Strategy and Profitability , Chuck E. Cheese's Pizza , Marketing / Branding / Promotion , Online / Mobile / Social , Operations Management

Alicia Kelso / Alicia has been a professional journalist for 15 years. Her work with, and has been featured in publications around the world, including NPR, Good Morning America, Voice of Russia radio, and Franchise Asia magazine.
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