Industry News | May 12, 2017 | By Danny Klein | QSR Exclusive Brief

Dairy Queen Forges Ahead with Food as a Driver

Dairy Queen's Grill & Chill concept continues to spread across the U.S. Dairy Queen
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When you’re talking about a brand with roughly 7,000 units, a diversified business approach is second nature. Dairy Queen might just be the flagship model for this approach in quick service; the company boasts multiple store and menu models that it leverages for growth.

But in the past year, the chain, which first opened in 1940, has begun to narrow its focus in the U.S. In 2016, Dairy Queen opened 82 locations, and all but one of those was a DQ Grill & Chill restaurant—the brand’s rapidly expanding quick-service concept.

Twenty-nine states opened locations, and Little Rock, Arkansas; State Island, New York; Knoxville, Tennessee; and Charleston, South Carolina, debuted their first. Worldwide, the number of DQ Grill & Chills sits at 2,403, a count that is growing by the week.

Why Dairy Queen would shift its growth so heavily to Grill & Chill is a question Jim Kerr, executive vice president of development, believes can be answered with a straightforward fact. “Our food business across the U.S. has improved plus 40 percent over five years. We definitely have a high-quality dessert product and we have a high-quality food product,” he says.

The key is communicating that second point to the public. Dairy Queen has no limitations promoting its famed desserts. It even recently paired with Marvel to release a Blizzard inspired by the movie Guardians of The Galaxy Vol. 2.

The food, however, remains a work in progress from a marketing standpoint. Kerr says getting the word out is step No. 1. “It’s absolutely critical,” he says. “I’m a firm believer that our food has always been high quality. We just didn’t get credit for it from the consumers. But as we’ve gone to market with $5 Buck Lunch, some of the strong food introductions, like our chicken tenders and some of the other burger extension promotions, have brought new customers in and we’ve kept them.”

In Dairy Queen years, the Grill & Chill concept is still in its infancy. The first opened in Chattanooga, Tennessee, in 2001.

On top of adjusting the menu and informing consumers, Dairy Queen has redesigned and readjusted the look of the brand at an aggressive pace. In the past three years, in the U.S. and Canada, Dairy Queen remodeled more than 850 stores. Kerr says that rapid rate is going to continue in the foreseeable future.

“Each year as we go forward, because we’ve been successfully remodeling stores, there are a smaller pool of restaurants that require remodeling,” Kerr says. “It is a cycle. And then it will kick back up again in a few years.”

Dairy Queen Brazier concepts are at the heart of this change. The Brazier concept was introduced in 1957 and have traditionally housed Dairy Queen’s fast-food operations, with limited units serving hot dogs and some other items, while the full models offered complete menus. But this distinction remained a blurry one. Dairy Queen’s guests often thought dessert first, food a very distant second. That’s something the Grill & Chills are out to adjust.

Kerr says the brand is hoping to convert every Brazier concept to a Grill & Chill, or relocate them to a location that can support one. Either way, the model isn’t long for this industry.

One of the great things about being a subsidiary of Berkshire Hathaway Inc., which just held its annual meeting May 5–6, Kerr says, is that Dairy Queen’s leadership team can approach business with this kind of foresight.

“We’re really given the opportunity to plan long-term,” he says. “We execute daily but we’re given the opportunity to look at where we want to be five years out, 10 years out, and we don’t open stores just to open stores. We have a real, high-quality perspective to opening restaurants so our franchisees are always successful.”

The Grill & Chill concept allows Dairy Queen to broaden its base. By introducing popular menu items, like the DQ Bakes line and the $5 Buck Lunch, Dairy Queen can compete in any daypart. Not only that, but the concept’s staff also might have the easiest job of upselling in the business.

The amount of people who come to Dairy Queen to eat lunch or dinner and then leave with a Blizzard or other dessert is substantial, Kerr says. The dessert prowess also turns Dairy Queen into a concept for all occasions, times, days of the week, and so on.

“We can serve customers in a more well-rounded timetable than some of the other [quick-service restaurants] can,” he says.

Kerr says Dairy Queen expects to eclipse 2016’s growth rate. Deciding which concept to pop into what market is not done without serious research. The company uses a predictive analytic model to look at market opportunity and market optimization. “It will tell me by media market how many stores we should build and should it be Grill & Chill or should it be treat stores,” he says, adding that the Grill & Chill is a great financial investment for franchisees due to its wide range of offerings.

“A lot of it has to do with understanding the marketplace—understanding what our consumers want,” he says.