Chuck e cheese profit margin

Case 17 Chuck e. Cheese CeC entertainment: “Where a Kid Can Be a Kid”

Chuck E. Cheese is going to Latin America. Binvenidos! Mike Magusiak, president and CEO, announced that the company’s management and board of directors strongly supported a strategy of developing new entertainment centers in Latin America. Several factors were considered in this decision. • The demographics of Latin America demonstrate a heavy percentage of kids. CEC understands this market segment and has a proven track record in its 540 entertainment units, which annually entertain 40 million kids. • According to information provided by CEC Entertainment, Chuck E. Cheese is more popular with kids than Mickey Mouse and Ronald McDonald. • The mission of Chuck E. Cheese is to bring families together in a wholesome environment for fun, games, and food. This mission fits well with the culture and demographics of Latin America. • In a magazine article, the author commented parents are always looking for ways to entertain their children. He commented that children are often not patient enough to enjoy the service one receives in a full-service restaurant. Trying to keep the children from bothering other guests becomes an unpleasant experience for the parents and when they are unsuccessful it creates an unpleasant experience for other diners. He states that Chuck E. Cheese provides a product that children enjoy and when children are happy with a dining experience, the parents are happy.1 • Despite language differences, Latin America is culturally similar to the United States. Millions of Latin Americans visit the United States each year and many of them head for Disney World, Disneyland, and other entertainment providers. • Latin Americans are family focused. Parents and grandparents can be expected to visit a Chuck E. Cheese restaurant with children. Repeat visitations are almost guaranteed to occur. • Many sophisticated investors live in Latin America. In most cases, these people speak English and many studied or worked in the United States.

Chuck E. Cheese has over 30 years of operating success and offers attractive unit profitability. According to Mike Magusiak, the operating margins of 13 percent at Chuck E. Cheese surpass most other chain restaurants. • Mexico and Central America are only a few hours from major U.S. cities such as Houston, Miami, Los Angeles, and others. This facilitates management support for new restaurants. Although countries such as Chile, Argentina, and Brazil are further away, they are well served by U.S. and international air carriers. • Latin Americans are a friendly and hospitable people who enjoy working with customers, particularly children. • Unlike some food dishes that suffer from recipe changes, the menu items of Chuck E. Cheese such as pizza, salads, oven-roasted sandwiches, Buffalo wings, and desserts can easily be modified to meet local food tastes and preferences. • Little or no direct competition against the Chuck E. Cheese concept exists in most Latin American cities. • All the food ingredients needed for a Chuck E. Cheese operation are readily available throughout Latin America. • CEC Entertainment has experience with entertainment centers in Canada, Puerto Rico, Saudi Arabia, Dubai, Guam, and three units in Chile and Guatemala. It was felt that this experience would prove invaluable to the success of multiunit operations in Latin America. • Merchandise Sales Opportunities. Observations of Latin American markets demonstrated that young people are highly attracted to merchandise with logos of consumer products and services. This should provide CEC units within Latin America with excellent opportunities for increased revenue per customer. • Fiestas, Birthdays, and Other Celebrations. Latin Americans have to celebrate birthdays and other special times with the family. Chuck E. Cheese provides over 2 million birthday parties each year. • Latin American customers, like those in the United States and Canada, are increasingly active in the use of computers. Chuck E. Cheese has experience with online management/marketing and has a database of over 3 million members who receive e-mail updates and specials. Mike expressed strong optimism that the decision to concentrate international growth in Latin America would eventually provide increased employment opportunities for employees, particularly those fluent in Spanish and Portuguese. New ideas and concepts might be learned from successful Latin American operations. These might be incorporated into Chuck E. Cheese units elsewhere to the increased entertainment pleasure of kids and thus to profit potential for CEC Entertainment.

■■■ Questions For Discussion Chapter 6 1. Explain from a consumer behavior standpoint why Chuck E. Cheese appears to be a good fit for Latin America. 2. How do you think consumer behavior in Latin America may differ from consumer behavior in the United States?

Chapter 8 1. Many of the preceding facts suggest that family segment in Latin American will be attracted to Chuck E. Cheese, just as families in the United States are attracted to the entertainment complex. What are the arguments used in the case to defend this argument? 2. What questions do you have that you would want answered before you expanded into Latin America?