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Chuck E. Cheese to increase ad spend by $6M in 2013

Chuck E. Cheese's refined pizza dough, which yields crispier crust and has reduced sodium, will roll out by February's end.

February 22, 2013 by Alicia Kelso — Editor, QSRWeb.com

CEC Entertainment Inc., parent company of Chuck E. Cheese, reported its financial results for Q4 this week, which included a 0.4 percent decline in revenues and 2.2 percent decline in comparable same-store sales.

However, President and CEO Michael Magusiak said the company is off to a solid start in 2013, driven in large part by new marketing strategies put into place last year. Those strategies entail broadening the focus to both kids and moms through an additional $6 million in ad spend compared to 2012. The budget will go toward both television and digital advertising.

During January, the first month of this initiative, comp store sales were up 2.1 percent. However, like other restaurant concepts, Chuck E. Cheese is currently experiencing a bit more pressure in February, due in large part to delayed tax returns, the expiration of the payroll tax break and increased gas prices.

"We believe that the primary factors negatively impacting sales in February are external in nature. We've made no significant operational, pricing, marketing or strategic shifts since the beginning of the year that could explain the sales decline from January to February," Magusiak said. "We believe that the delay in income tax refunds, the expiration of the payroll tax holiday and the increase in gas prices have a disproportionate punitive impact on our guests, which are typically young families with lower incomes."

CEC executives are unable to predict the long-term impact of these factors, but are expecting a rebound in March and will stay the course on the brand's new advertising strategy, as well as its value propositioning and reinvestment in facilities.

Three point plan

• CEC's marketing expenditures are expected to increase $6 million to $41.4 million in 2013, up from $35.4 million in 2012. The primary components of this plan include: a strong TV presences that increases media by about 27 percent vs. 2012; a strong digital plan of $5.5 million, including search, plan, value and promotional elements; and an enhanced creative focus that combines brand advertising and promotional advertising to increase traffic.
• CEC will continue to implement a new value strategy. The company implemented new menu boards in all company stores in October. "We believe the new boards offer a good value for both food and entertainment, including reduced prices for pizza and value deals," Magusiak said. In addition, Chuck E. Cheese now has a revised coupon structure in place for package deals. The new value initiatives are now being communicated through a TV commercial.
• The last component is a reinvestment in facilities. "We anticipate that our existing store capital plan in 2013 will approximate $27 million and will impact 120 stores, including 100 game enhancements, eight major remodels and 12 expansions," Magusiak said.

New crust, expansion plans

Other initiatives discussed in Thursday's earnings call include a refinement of the brand's dough. "We believe [this has resulted in] an enhanced product with a crispier crust and reduced sodium content," Magusiak said. The rollout will be completed by the end of February.

Additionally, Chuck E. Cheese anticipates opening 11 net new stores in 2013, including one relocation. This compares to 25 new locations that were opened from 2007 to 2010.

Internationally, the company currently has 16 franchise stores open, including eight stores that have been opened since the fourth quarter of 2010.

"We have increased our international prospect significantly in the last two years, signing 10 development agreements, providing the franchise partners with the rights to open a total of 61 stores," Magusiak said. "In 2012 alone, we signed seven new development agreements for the development of 42 stores in Mexico, Peru, the Philippines, Trinidad, Bahrain, Saudi Arabia and United Arab Emirates. I believe that we have an excellent international development concept as evidenced by the significant average unit sales volume of our stores overseas."

To support its global plans, CEC has expanded the role of Roger Cardinale from executive vice president to president of its international division.

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