By Nicole Friedman
Troy Bader's new job as chief executive of International Dairy
Queen Inc. is to keep millions of customers, thousands of
franchisees and one Omaha billionaire happy.
His challenge is to do so while pressing for change at a beloved
78-year-old brand that is a fixture of small-town American
life.
The billionaire is Warren Buffett, whose Berkshire Hathaway Inc.
purchased Dairy Queen in 1998. He visits its restaurants in his
hometown of Omaha, Neb., with his great-grandchildren. His onetime
favorite order was a special concoction of soft vanilla ice cream
covered in chocolate syrup and malted milk powder.
The Edina, Minn.-based chain is best known among longtime
customers for desserts like the Blizzard, a cold treat introduced
in the 1980s that blends soft serve ice cream with cookies or other
toppings. In recent years, the company has encouraged its
franchisees to renovate their stores to include table service and
compete for the lunchtime crowd with a "$5 Buck Lunch"
promotion.
Dairy Queen is also doing early-stage testing of mobile-app
ordering and delivery services in the U.S. while searching for new
locations in bigger U.S. cities and other parts of the world. It
recorded $4.5 billion in global sales in 2017, flat from the prior
year and up from $3 billion in 2007.
"We're a brand that is now onto its 78th year. There are not a
lot of brands that have that type of history," said Mr. Bader, 53
years old, who took over as CEO on Jan. 1 after serving 16 years in
other Dairy Queen roles. "But with that history also comes
maturity. [...] Innovation is absolutely critical in our
business."
His task is to encourage more expansion and experimentation
without alienating franchisees who sometimes struggle to afford
rising labor and food costs while accommodating the company's
extensive menu suggestions. Dairy Queen stores can offer a variety
of items, from honey barbecue chicken strips to fruit smoothies
from Orange Julius, another Dairy Queen brand.
Change hasn't always sat well with those who operate Dairy
Queen's restaurants. All but two of the roughly 6,800 stores are
owned by franchisees, many of whom have operated stores for decades
and have family members in the business.
When Dairy Queen was being licensed around the U.S. in the
1940s, the original franchisees had inconsistent contracts,
sometimes signed on napkins. As the brand matured, Dairy Queen
struggled to bring the increasingly expansive franchisee network
into line. The company faced multiple lawsuits from franchisees in
the 1990s over disputes about advertising, menus and supply chain
management. Dairy Queens in Texas still offer distinct menu
items.
After Mr. Buffett bought Dairy Queen for $585 million in 1998,
he alluded to its "bumpy history" with franchisees in a letter to
shareholders and praised company managers for fixing many of the
problems and strengthening the business. As longtime customers of
Dairy Queen, he and his business partner Charles Munger decided to
"put our money where our mouth is," Mr. Buffett said in that
letter.
But tensions with franchisees didn't end. When Dairy Queen
established "Grill & Chill" locations with table service and
hot and cold kitchens, some franchisees protested the upgrades and
put up a billboard in Omaha ahead of the 2004 Berkshire shareholder
meeting. "Warren, your grill is killing our chill," the billboard
read.
Dairy Queen says its relationship with franchisees has strongly
improved in recent years. Mr. Bader, who was the company's chief
operating officer in the U.S. and Canada before succeeding John
Gainor as CEO, has worked closely with many of the franchisees.
"I can call him in the middle of the night and he answers," said
Riz Momin, a Georgia-based franchisee who owns about 15 stores. In
disagreements, he said, "Troy doesn't like to use his power. He
just goes in and convinces people."
Mr. Bader was recruited to join Dairy Queen by former CEO Chuck
Mooty. Mr. Bader had already worked with Dairy Queen as a lawyer
for a Minneapolis law firm.
"He's very calm, he is a thinker and a processor before acting,"
Mr. Mooty, who is now chief executive of Jostens Inc., said of Mr.
Bader. But "Troy is one who's not going to be afraid to make the
tough decisions."
When the country's second-largest Dairy Queen franchisee, Vasari
LLC, filed for bankruptcy in October, the Texas company's top
executive cited the "$5 Buck Lunch" promotion and the economic
fallout from declining oil prices as challenges, according to court
documents.
The special "creates minimal margins for many of the DQ
locations unless a high volume of customers visit the stores on a
daily basis," Vasari CEO William Spae Jr. said in court
documents.
Some other franchisees said the lunch special had worked well
for them and helped make the business less seasonal.
"We're a very emotional group," said Matt Frauenshuh of
Minneapolis who owns 207 Dairy Queen restaurants in 12 states.
Franchisees are "very passionate about our brand, and they're
fiercely loyal. [But] it also has ramifications as we try to change
and evolve with modern times."
It can take franchisees years to adopt new initiatives. "You can
get there faster, but potentially have a battle on your hands," Mr.
Bader said. "Giving people time to prepare and transition really
goes a long way."
Write to Nicole Friedman at nicole.friedman@wsj.com
(END) Dow Jones Newswires
February 02, 2018 11:15 ET (16:15 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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