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Chuck E. Cheese Is Losing His Battle With the Multiplex

Chuck E. Cheese Is Losing His Battle With the Multiplex

Photograph by Mark Sullivan/WireImage

The arcades and pizza ovens at Chuck E. Cheese’s were far less busy this summer than last, and revenue for the restaurant chain’s owner, CEC Entertainment (CEC), fell slightly, as same-store sales sank 2.1 percent in the last quarter. What were kids doing instead? Going to the movies.

That’s how Chuck E. Cheese’s leadership made sense of the bad results: “During the third quarter, revenue from kids’ movies rated G and PG increased by approximately 65 percent, or $320 million, compared to the same period in the prior year,” CEC Chief Executive Officer Michael Magusiak said during last week’s earnings call. “This increase in kids’ movies is significant.”

So while the video games beeped and animatronic entertainers danced at the company’s 571 restaurants, a higher number of families went instead to the multiplex to help Despicable Me 2 take in $364.8 million in the U.S. and Monsters University grab $268 million. Even hits such as Iron Man 3, which raked in $409 million, probably managed to lure younger viewers despite its PG-13 rating.

Of course, the movies aren’t exactly a new rival, and CEC Entertainment has pointed to them in the past while explaining its problems. But a bruising rivalry with Hollywood, along with general economic uncertainty, has led to an unusual 11 percent decline in Chuck E. Cheese’s birthday party business from July to September, following a 5.5 percent drop-off over the first half of the year. “We are incredibly disappointed with our birthday sales so far this year,” Magusiak said.

Birthday parties account for about 15 percent of the chain’s business, although Chuck E. Cheese’s had been trying to deemphasize birthday advertising in favor of a pitch that frames its game-filled pizzerias as appropriate for “everyday occasions.” Now the company seems to be looking to boost birthday sales again. CEC reported in its latest filing: “In the third and fourth quarters of 2013, we are reducing spending on our digital brand advertising and are using a portion of national television airtime for new birthday commercials in lieu of certain planned brand commercials.”

Most parents already have different traditions for other occasions.

Wong is an associate editor for Bloomberg Businessweek. Follow her on Twitter @venessawwong.

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