FDD Talk: The DQ/Orange Julius Treat Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the DQ/Orange Julius Treat franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a DQ/Orange Julius Treat franchise, based on Item 7 of the company’s 2015 FDD

• Section III – Presentation and analysis of DQ/Orange Julius Treat’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:

• 2013 (the latest year for which data is available) average net sales, cost of goods sold, labor costs, controllable operating expenses, manageable profit, occupancy costs, service fees/royalties, and sales promotions for franchised DQ/Orange Julius Treat stores that were newly-constructed and developed under the franchisor’s new store development or ARD programs; are located in shopping malls (enclosed or open air, such as a lifestyle center); were developed and first opened for business between January 1, 2009 and December 31, 2012; were operated for the full 2013; and located in malls with a gross leasable area (“GLA”) of at least 1,000,000 square feet

• 2013 average net sales, cost of goods sold, labor costs, controllable operating expenses, manageable profit, occupancy costs, service fees/royalties, and sales promotions for franchised DQ/Orange Julius Treat stores that were newly-constructed and developed under the franchisor’s new store development or ARD programs; are located in shopping malls (enclosed or open air, such as a lifestyle center); were developed and first opened for business between January 1, 2009 and December 31, 2012; were operated for the full 2013; and located in malls that have less than 1,000,000 square feet GLA

Section I – Background Information

DQ/Orange Julius Treat Center

There are two primary forms of Dairy Queen stores, the Treat Center concept and the Grill and Chill concept. While the histories of the two overlap because they are variations within the same company, they are treated separately for franchising purposes.

Dairy Queen’s history dates all the way back to the late 1930s when J. F. “Grandpa” McCullough and his son Alex were experimenting with a new way to serve a different kind of frozen dairy treat – a soft-serve fresh from the freezer rather than frozen completely solid. In 1938, the two convinced a friend of theirs (Sherb Noble) with an ice cream store in Kankakee, Illinois, to try dishing it out to his customers. Within two hours, more than 1,600 servings were sold at 10 cents each.

The trio went on to open the very first Dairy Queen in 1940 in Joliet, Illinois. By the time the United States got involved in WWII in 1941, there were already 10 store locations. After the war, expansion was rapid with 100 stores by 1947; 1,446 by 1950; and 2,600 by 1955.

In 1987, Dairy Queen acquired the Orange Julius chain with its signature fruit drink beverage, a kind of orange smoothie. In 1998, Dairy Queen and Orange Julius became a wholly-owned subsidiary of Berkhsire Hathaway.

Dairy Queen/Orange Julius Treat Centers offer Dairy Queen’s line of frozen dairy treats in combination with the Orange Julius line of fruit beverages. As of 2015, Dairy Queen has more than 6,500 locations (4,437 in the U.S., 620 in Canada, and 1,472 in 25 other countries around the world).

Here’s how Dairy Queen keeps customers chilled out around the world:

An Evolving Menu

Dairy Queen has always been on the lookout for new products to introduce to its loyal fans. In 1949, it added malts and shakes to its soft-serve treats, banana splits in 1951, the famous Dilly Bar in 1955, the Buster Bar in 1968, Blizzards (soft-serve mixed up with various ingredients/toppings) in 1985, MooLatte frozen coffee beverages in 2004, and lots of special offerings along the way.

Backed by Warren Buffet

Any time the world’s most successful investor takes an interest in a company, it’s a significant bit of news. Back in 1998, Warren Buffet’s Berkshire Hathaway bought Dairy Queen, making it a wholly-owned subsidiary of the fifth-largest public company in the world.

Warren Buffet is known to only invest in companies with strong value and great leadership, so this is a huge vote of confidence.

Supporting Healthy Kids

Kids are obviously a huge market segment for Dairy Queen stores, and soft-serve isn’t exactly the healthiest snack on the block, but the chain does what it can to support healthy kids. In September 2015, the company made good on its earlier promise to remove sodas from the kid’s menu. This is no small move, considering its parent company (Berkshire Hathaway) has a huge stake in soda giant Coca-Cola.

Dairy Queen has also been a national sponsor of the Children’s Miracle Network Hospitals since 1984.

Section II – Estimated Costs

• Please click here for detailed estimates of DQ/Orange Julius Treat franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis