Michael Girdley traces Chuck E. Cheese from a "kids casino" model that hit a half-billion-dollar valuation by 1981 to bankruptcy after the 1983 video-game crash. Aggressive franchising exposed the blueprint to Aaron Fletcher, who launched copycat Showtime Pizza, triggering a capital-intensive arms race that left both chains unprepared when arcade traffic collapsed.
Founded in 1977, Chuck E. Cheese hit on an amazing combination of basically creating a casino for kids. Uh, you bring them in, you give them pizza, and then their parents buy them tokens. And at the end, maybe they get some prizes outta a little gift shop. And the concept works so incredibly well that by 1981 they had 300 Chuck E. Cheeses across the country and they went public at a half a billion dollar valuation. But there was a problem. They had franchised aggressively, meaning lots of other folks, including a future competitor, had seen exactly how they ran their business. One of those guys was named Aaron Fletcher, and he opened up his own direct competitor, a copycat of Chuck E. Cheese called Showtime Pizza Restaurants. This competition created basically an arms race where both of the chains were having to invest tons of money to divide up what market there was out there for their customers, which meant when in 1983 the crash hit the video game industry, neither chain was prepared for the carnage that was about to happen. Suddenly people were buying Atari 2600s and Coleco sets to play at home and didn't feel like they needed to go to Chuck E. Cheese for games. In worse shape would be Chuck E. Cheese. They would declare Chapter 11 bankruptcy C Pepsi, and Nolan Bushnell, the guy that founded it, would lose the company entirely. And the buyer would be Aaron Fletcher, the guy who had started Showtime Pizza. Ironically, he too would lose control of his company when they started to have financial troubles as well. The lesson from the whole thing is you got to be careful who you let know the inside secrets of your business. They might turn around and compete with you and try to steal your margins. If you'd like a long video on the complete story of the rise and fall of Chuck E. Cheese and how they went bankrupt twice, I did that, and there's a link to the video in the comments or on my bio page. Check it out.
