Chuck E. Cheese Franchise Alternatives in 2024
Chuck E Cheese Franchise is a family entertainment chain and pizza restaurant chain founded in 1977 by Atari’s co-founder Nolan Bushnell. Headquartered in Irving, TX, each Chuck E Cheese Franchise has arcade games, amusement rides, and character stage shows in addition to serving pizza and other food items. Chuck E. Cheese’s Pizza Time Theatre was founded by Atari founder Nolan Bushnell, who sought to expand video-game arcades beyond adult locations like pool halls to family-friendly venues.
As of June 2020, CEC Entertainment owned 611 Chuck E. Cheese venues in 47 U.S. states, four Canadian provinces, and three Puerto Rican municipalities.
How is Chuck E Cheese Franchise Positioned in the Food and Beverage Industry?
The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up 36% of the total franchise establishments in the USA, and it is expected to create 1.6 million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.
How To Start a Chuck E. Cheese Franchise?
Unfortunately, Chuck E. Cheese does not offer franchises. However, we will discuss some alternatives to Chuck E. Cheese below.
Chuck E. Cheese Bankruptcy
The COVID pandemic put a significant financial strain on the company, and CEC Entertainment filed a voluntary bankruptcy petition under Chapter 11 in the Southern District of Texas on June 25, 2020. The announcement was coordinated with 47 states and 16 countries including the United States, Canada, Puerto Rico, Mexico, Chile, Saudi Arabia, the United Arab Emirates, and India.
In December, the company announced that it had completed its restructuring. The company emerged from bankruptcy with $705 million of debt obligations paid off under new ownership and new leadership.
Chuck E. Cheese Franchise Alternatives
Mellow Mushroom
Mellow Mushroom is an American pizza restaurant chain that was first established in Atlanta, GA in 1974. It was established by two college students from Georgia Tech, who were then joined by another student from UGA. Its franchises operate under the corporate name of Home Grown Industries Inc. with 173 locations in the country in 2021. It is currently led by Richard Brasch who is the owner and CEO of Home Grown Industries. Their selling point to prospective franchisees is that they allow creative freedom for the look of their restaurants and are not a cookie-cutter location offering company.
Mellow Mushroom’s Franchise Locations
Based on the median sales estimated Mellow Mushroom’s franchise locations, at an average of a 15% profit margin, it will take around 11.5 years to recoup your investment. This is in the same range as some other franchise opportunities. You may not get a 15% profit margin, which would elongate getting a return on your investment. However, since this pizza franchise offers a highly personalized experience, their sales or profit margin might be higher than our estimate, leading to a quicker recovery of investment.
Mellow Mushroom Franchise Selling Price
When you go to sell a Mellow Mushroom franchise based on the median multiple of .67 and net sales estimate in 2021 of $1,523,310, it would sell for $1,020,617. This is significantly lower than the midpoint investment of $2,042,000. However, our multiple does not represent the added value to your location because of the freedom of aesthetics. If accounted for, that and the right customer, your location might sell for much more.
Mellow Mushroom offers people the opportunity to be a part of a business that has been a consistent American staple fast food. They add their twist to it by allowing owners to customize their locations to their tastes. If you feel like you want creative control over the look of your restaurant, we recommend talking to existing owners about their designs and business models.
Papa John's
Papa John’s began its story in Jeffersonville, Indiana, in 1984. When its founder, John Schnatter, proposed to his business partner that they begin selling high-quality pizza. In their bar in order to supplement revenues. After seeing a growing success, Schnatter and his partner decided to open their own pizza store one year later. The idea behind the concept’s success was a formula. That remains in the company to this day: sell high-quality pizza at a competitive price. Franchising began in 1986, and 10 years later the company was inaugurating its thousandth store.
The first factor to consider when interested in investing in a Papa John’s franchise is the financial requirements accompanying this investment opportunity. The total investment amount to establish a Papa John’s franchise ranges from $130,120 to $844,420.
Papa John’s itself ranks as the third largest pizza chain in the U.S. trailing only Pizza Hut and Domino’s Inc., and in 2019 was ranked number 21 in QSR Magazine’s top 50. Looking at the franchise’s internal performance, franchised restaurants had an average sale of $837,495. And 44.6% of franchisees achieved this number in 2019. Moving forward, Papa John’s is looking to establish new traditional and non-traditional stores across the U.S.
Applebee's
Applebee’s is an American Restaurant chain that focuses on casual dining offering salads, chicken, pasta, burgers, and “riblets.” Applebee’s is one of the world’s largest casual dining brands, with $3.1B in sales and 12.2% of the Casual Dining market share.
As of December 31, 2021, there were 1,584 restaurants in all 50 states, Puerto Rico, Guam, and 11 other countries. Applebee’s is more than 95% franchised, with 31 franchisees who own an average of nearly 50 restaurants. The largest Franchisee owns ~29% of U.S. restaurants, and the 10 largest Franchisees own 76% of the system.
Applebee’s Median Sales
Based on the median sales provided by Applebee’s franchise locations, at an average of a 13% profit margin, it will take around 16.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 13% profit margin, which would elongate getting a return on your investment.
When you go to sell an Applebee’s franchise based on the median multiple of .34 and average unit volume estimate for 2021 of $2,641,318, it would sell for $898,048. This is significantly lower than the midpoint investment of $5,137,965.
However, once you make over $5 million in sales, the multiple shifts to 0.86. This helps the restaurants start making up the investment cost. This is the reason behind 95% of Applebee’s franchises being owned by 31 franchisees. As such, you will have to wait sometime before selling your restaurant to recover the initial investment.
The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.
Applebee’s offers people the opportunity to take a chunk of the American Fast Casual Restaurant pie. However, due to the massive investment required to turn a profit, it is not for people who do not have the money to start multiple franchises. Otherwise, it will take a really long time for people to get their money back.
