International Dairy Queen chief executive Chuck Mooty laughs when asked why, to some observers, half of all Dairy Queens look like they are barely surviving.
“That reason is a big part of why we are reinvigorating and becoming more relevant to today,” he says. “It’s a huge journey.”
For the past seven years, Mooty has been trying to unify a contentious franchisee community, burnish the 68-year-old Dairy Queen brand and streamline a system with more than 10 different burger and treat combinations among its 5,700 units, many of which have been in operation for around 35 years.
More recently, Mooty’s team has launched a new concept called DQ Grill & Chill and pumped $100 million into national advertising to introduce new waffle treats and iron-grilled sandwiches, all while pushing a huge expansion overseas. Those and other tactics helped same-store sales rise 3.1 percent in 2006 and an estimated 4 percent last year. Analysts have pegged the chain’s annual sales at some $3 billion.
But the subsidiary of Warren Buffet’s Omaha, Neb.-based Berkshire Hathaway Inc. still has a very long and winding road to travel, Mooty says. How long?
Consider that Dairy Queen got rid of paper gift certificates in favor of gift cards just last November by completing a yearlong rollout. Many units only started accepting credit cards in 2007. The first Grill & Chill opened in 2001, but the concept still hasn’t had a national rollout. And a stand-alone storefront-model combination of DQ and Orange Julius, which the company bought in 1987, is only now in the testing phase.
“Their units tend to be old and look old,” says Bob Sandelman, chief executive of Sandelman & Associates, a San Clemente, Calif.-based marketing research and consulting firm for foodservice companies. “They are trying to expand their concept by not just being a place to go for ice cream but for grilled items as well, and that’s a challenge for any chain and certainly for one that’s been around as long as Dairy Queen.”
“A lot of the changes coming about are based upon survival,” adds Darren Tristano, executive vice president of Technomic Inc., a Chicago-based research and consulting firm focused on the foodservice industry. “You have to have good franchisee relations, and if you don’t the organization isn’t going to succeed.”
Dairy Queen faces an uphill battle much like IHOP does in its attempt to lure consumers in for more than just pancakes and breakfast, Sandelman says. The DQ brand is strongly established and associated with soft-serve ice cream, and it’s trying to raise its profile in a highly competitive industry, fast food, where chains are well-established, well-known, fighting fiercely for market share and always coming up with new products, Sandelman says.
“Certainly, several of these changes are due to market conditions and pressures,” Tristano says. “When they went into Grill & Chill, they were looking at, ‘How do we improve the overall look and feel and take advantage of the trend of fast-casual related to nostalgia, better environments, and a better quality of service to showcase the product,’ which has been very good for 65-plus years.”
Mooty is quite aware of the heated competition and need to persuade consumers to think of DQ as a place for burgers as well as Blizzards. But he concedes that he can’t address competitive issues until he upgrades and repairs Dairy Queen’s long-suffering and disparate internal operations and restores unity among the system’s many franchisees.
“[Dairy Queen] is one of the cherished brands that people have a warm feeling for and have a connectivity to that isn’t present at many within our industry,” Mooty says. “The challenge is how to capitalize and leverage that as we go forward. We knew one of the greatest fuels to ignite the unity that was needed was to find a way to grow the business in a way that created enthusiasm.”
Mooty’s “3-D” strategy is to instill a greater “pride and unity” in the system by developing people, developing an even stronger brand and developing a better store presence. He must sell his ideas to a group of franchisees that includes quite a few vocal dissidents. The franchisor owns only 70 of the 4,672 Dairy Queen locations in the United States.
Dairy Queen settled a $50 million class-action lawsuit in 2000 over where store operators can buy their supplies, and in 2005 found itself at the arbitration table when the 1,900-member Dairy Queen Operators’ Association and Dairy Queen Operators’ Cooperative complained that some of the settlement’s terms were being violated.
Dairy Queen’s franchisees, many of which are mom-and-pop operations, balked when Mooty unveiled the fast-food-focused DQ Grill & Chill concept in 2001 due to its hefty price tag for retrofitting, which was pegged at more than $1 million.
“The approach of reinvestment is not one people look at highly enthusiastically—to be spending dollars and capital—so the approach always has to be that it makes good business sense,” Mooty says. “There is now a good understanding and feeling of comfort with what’s being rolled out, but we’re far from perfect, and obviously this will continue to be an evolution throughout time.”
One of the company’s largest challenges has been figuring out how to consolidate the 10 or so different kinds of Dairy Queens in order to erase confusion in the customer’s mind. In some DQs, customers can get burgers and ice cream, but only ice cream treats in others. Some stand-alone outlets have fryers, others don’t. Some carry a full line of food while others carry a limited menu. In Texas, DQs offer Belt Buster items and taco salads, but those items can’t be found anywhere else.
There are also mall locations co-branded with Orange Julius, some with KarmelKorn Shoppes and some with all three brands.
Mooty is banking on Grill & Chill as DQ’s main food and treat concept of the future. The new concept is a significant remodel of the old full-menu DQ Brazier, including the chain’s new iron-grilled sandwiches, with table service. Initially, the thought was to offer breakfast and additional menu items such as quesadillas, but those plans didn’t provide the revenue boost executives wanted and were scrapped.
The Grill & Chill concept is scattered around the country, currently with 473 locations, of which 293 are conversions. This year, Mooty says, 10 markets will get a total makeover, meaning all full-menu DQs in markets he declined to specify would become Grill & Chills.
In another effort to broaden DQ’s appeal, the chain successfully tested iron-grilled sandwiches last year. A national rollout is planned for the first quarter, with a national advertising campaign set to follow in the fall, Mooty says.
A DQ treat-only store format that blends DQ’s ice cream with Orange Julius’ drinks and smoothies is in the testing phase for new street locations. Overall, one-third of DQ operations are treat-only spots, Mooty says. In 2007, 17 sites carried the Orange Julius as well as the DQ offerings, and wider testing of the concept is slated for 2008. A rollout is scheduled for 2009, Mooty says.
DQ also has started carrying Orange Julius products in 10 DQ Brazier and DQ Grill & Chill restaurants, and a successful test could lead to all DQ locations carrying Orange Julius products.
Because it had so many different kinds of units, Dairy Queen didn’t advertise nationally until 2004. The company has since grown its ad budget from $5 million to $100 million last year. DQ also overhauled its web-site and updated its logo.
“I truly believe this system has survived because of the true love affair the consumer has for our products,” Mooty says. “That has been our salvation and hopefully will be for many a generation.”
