Executive Insights | February 2012 | By Pamela Parseghian

The Dairy King

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Still, most of the copying was done in second- and third-tier cities, rather than the larger, more populated metropolitan areas. Unfortunately, that’s also where IDQ happens to be concentrating its expansion, he says.

In the past, Dairy Queen’s primary growth was in Shanghai, Champagne says. “Now we’re seeing great success is in second- and third-tier cities because there’s less competition in those regions and people have disposable income there. They are growing at almost the same rate as major cities.

“Rent and labor is a little cheaper,” he says, but that’s balanced with the higher costs of supplying product in less-populated areas.

Throughout China, the soft-serve quick serve’s greatest competitor—by far—is KFC, which has more than 3,000 stores in the country. But like many successful leaders, Champagne learns from his competition, even those six times his size.

“Sometimes you have to take your hat off and admit they’re doing a wonderful job,” he says of Yum! Brands’ fried chicken concept. “They have great site procurements. And they’re good operators.

“They have great product quality and competitive innovation,” he says. Specifically, he points to KFC’s meal deals, which are smaller than those in North America and marketed to Chinese families. They’re smartly promoted meal bundles that include tiny treat options for kids.

“One of the things we learned,” he says, “was the importance of the mini blizzard, and it was a huge success.” The promotion was subsequently brought to the U.S., where it experienced equal popularity.

Moreover, Champagne realized that KFC was appealing to local tastes with such options as spicy chicken. That particular menu item wasn’t readily available from other U.S. chains in China, and the move gave KFC an undoubted edge in the market.

When IDQ expanded into China in 1992, leaders assumed Chinese diners would like the standard menu items—frozen soft-serve ice cream and chocolate-coated Dilly Bars.

“That’s not really true,” Champagne says. “They weren’t big chocolate lovers.”

With that and KFC’s success in mind, DQ launched menu items that were unique to the Chinese market. To date, the most successful Chinese menu item is the Green Tea Blizzard, a result of carefully studying local markets and listening to his franchisees there.

Green Tea Blizzards were so popular in the country, they were rolled out in other places such as Indonesia and the Philippines. In addition, other local menu items like the red-bean and almond-flavored shakes were introduced to rave reviews.

The most successful Chinese menu item is the Green Tea Blizzard, a result of carefully studying local markets and listening to his franchisees there.

Those kinds of local innovations, Champagne says, were the product of not only listening, but also “being in the market.”

Champagne visits international locations often to learn from the operators, taste what they’re offering, give feedback, and meet the front-line employees. When he visits stores he follows his dad’s advice to speak to cooks on duty and shake their hands. Then he challenges them to a friendly competition to see who makes the best ice cream swirls. The COO says he usually wins.

Face-to-face interactions are so valuable to Champagne he’s even planning an international tour with his full executive team. It will include stops in Saudi Arabia and Shanghai. Next on the slate is opening a store in India. Contracts are already set to be inked for that deal, he says.

While Champagne oversees expansion outside the U.S., he points out that “the international group is still very small” compared with domestic operations. Of the 6,200 global stores, 4,600 are in the U.S. And because of the size alone, U.S. policy greatly affects worldwide systems.

“The U.S. operations drive the majority of the global strategy,” he says. Part of that strategy is reenergizing the 72-year-old concept’s image, especially at older locations that may be unchanged since they opened.

“It’s part of being the age that we are,” Champagne says, referring to outdated stores. “When you think back 72 years ago, there were things we did then that we wouldn’t do today. So we’re on a strong campaign for our franchisees to modernize their locations.”

This is particularly hard in bad economic times, and especially at the older locations that are operated by third-generation franchisees, he says. The sweet upside? Dairy Queen is a trusted brand for many in the over-50 demographic.

For example, it has helped him glide though some of his many trips at airport security checkpoints. Once some of the older guards hear what his job is, he says, they enjoy chatting about their own childhood favorite frozen treats.

And what does he say when one of those folks he meets in airports, or the many he runs into at trade meetings, cocktail parties, or even his own family functions, asks for the scoop about being a Dairy Queen franchisee?

He has a pragmatic answer that he quickly rattles off: “I say, ‘it’s a great business, but do your due diligence.’”

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