Dissident DQ franchisees bemoan chain's Grill & Chill conversion plan

Nation's Restaurant News, May 17, 2004 by Carolyn Walkup

EDINA, MINN. -- International Dairy Queen is experiencing growing pains as it attempts to standardize and modernize its 64-year-old system by encouraging franchisees to convert older Dairy Queen units to its DQ Grill & Chill concept.

Grill & Chill represents an upgrade from traditional quick service to a fast-casual format with pricier decor elements, such as wood finishes and slate flooring and an expanded menu, complete with a larger kitchen and more equipment, aimed at improving dinner sales.

At the same time Edina-based IDQ is encouraging franchisees who prefer a focus on soft-serve treats to standardize their units to the Dairy Queen Treat Center format.

Some longtime franchisees are opposed to changing over to DQ Grill & Chill from the existing soft-serve-and-food Dairy Queen Brazier concept, saying they cannot afford the typical conversion cost of $400,000 or more per store. They also say their customers like the current concept and would not support the Grill & Chill approach.

Other franchisees are enthusiastic about Grill & Chill and believe the changes, which IDQ calls "Concept Evolution," will be beneficial and profitable. Currently, 43 Grill & Chill units are operating in the United States and Canada, and about 100 are expected to be in operation year-end.

The Dairy Queen Operators Association, or DQOA, headed by Harris Cooper, a former Dairy Queen president, made its opposition to the change public by erecting a billboard near the site of Dairy Queen owner Berkshire Hathaway Inc.'s recent annual shareholders' meeting in Omaha. The outdoor sign read, "Warren, your grill is killing our chill."

The message was aimed at billionaire investor extraordinaire Warren Buffett, who heads Berkshire Hathaway, which bought IDQ in 1998.

Cooper sent a statement to franchisee members of DQOA and its affiliated Dairy Queen Operators' Cooperative outlining fears that the Concept Evolution strategy threatens the existence of some 3,000 franchisees. Furthermore, Cooper maintains that Grill & Chill is unproven and may not succeed.

Members of the official Dairy Queen Franchisee Advisory Council, representing more than 5,500 DQ outlets, said the DQOA represents a minority of franchisees and is wrong to protest the growth of Grill & Chill.

"The franchisee advisory council felt that was inappropriate," council chairman Kevin Hitzeman said. "We thought that would tarnish our image in consumers' minds."

Hitzeman, who owns three DQ units in Indiana, said that whenever IDQ has made changes over the years, those changes have come in stages of "crawl, walk, run. With Grill & Chill, we are still in the crawl stage. I think DQOA jumped the gun and thought we were starting out running," he said.

Hitzeman favors standardizing IDQ's existing half-dozen concepts, which he called "extremely confusing to the consumer. Dairy Queen is one of the oldest franchises on the planet, and we have a lot of old contracts out there."

He also credited Charles "Chuck" Mooty, IDQ's chief executive, with having the best interests of franchisees at heart. "Chuck Mooty does not want to shut down a bunch of Dairy Queens," Hitzeman said. "He wants to move us forward."

"Change is always tough, but you have to keep moving," said John Marshall, FAC member and 25-year franchisee who is building his first DQ Grill & Chill unit in Olathe, Kan., after deciding to keep his existing DQ Brazier unit in Raytown, Mo., as it is.

"It's a business decision for each franchisee," he said. He drew a parallel to the controversy some 20 years ago surrounding the addition of drive-thrus. "Now, we do 50 percent of our business in the drive-thru."

Nine-unit franchisee Marc Plaisted, a fourth-generation Dairy Queen operator, opened his first DQ Grill & Chill three months ago in Bradenton, Fla., and reports receiving a "phenomenal" response from customers, largely attributed to good curb appeal. The unit is attracting customers who are paying an average of $8 per transaction and who otherwise would go to full-service dinner-houses like Chili's or Applebee's, he said.

That $8 tab compares with the $4.80 per transaction generated by Plaisted's DQ Brazier units in Minnesota and Wisconsin. Opening the Grill & Chill cost about $600,000 more than opening a new Brazier would have, owing to size, construction materials and equipment, he said. However, the increased customer traffic will make that higher investment pay off, Plaisted predicted.

Jerry Rizer, a 23-year franchisee who operates three older Dairy Queens in Elizabethtown and Bowling Green, Ky., opposes converting any of them to the Grill & Chill format. "It just doesn't fit in every location," he said." It's aimed at a different customer base; mine is a pickup-truck customer, and Grill & Chill is a Mercedes group.

"I have worked over 20 years building my business," Rizer added. "'People are used to the menu. Why should I change? I would just like to continue doing what I'm doing; it's working for me."

Dissident-franchisee leader Cooper, the former IDQ president, said many franchisees are reaching retirement age and fear they won't be able to sell or transfer their stores if prospective buyers were to feel obliged to spend extra money for conversions in order to modernize.