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

• Section I – Background information on the DQ Grill & Chill franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a DQ Grill & Chill franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a DQ Grill & Chill franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned DQ Grill & Chill outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of DQ Grill & Chill’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2016 average, high, and low gross sales for the 66 DQ Grill & Chill restaurants that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2014 and December 31, 2015; were operated for the full year 2016; and are franchisee owned and operated

• 2016 average total gross sales, total product cost, total labor cost, total restaurant controllables, and total manageable profit for DQ Grill & Chill’s GC Core 72 (46 units) and GC Core 47 (9 units) restaurants, respectively, that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2014 and December 31, 2015; were operated for the full year 2016; are franchisee owned and operated; and submitted usable profit and loss statements to ADQ

• 2016 average, high, and low gross sales for the 11 DQ Grill & Chill restaurants that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2014 and December 31, 2015; were operated for the full year 2016; are franchisee owned and operated; and submitted sales reports, but not usable P&L’s, to ADQ

Section I – Background Information

16 Things You Need to Know About the DQ Grill & Chill Franchise

Launched Special Baseball-Inspired Blizzard Treats to Kick Off 2018 Baseball Season

1.  On March 29, 2018, Dairy Queen introduced its new Triple Play Blizzard Treat to kick off the start of baseball season. The limited-time Blizzards were only available in 15 DQ and DQ Grill & Chill stores. Each store was located in the home city of 15 different MLB teams.

2.  According to Dairy Queen, the Triple Play Blizzard was different from any of the brand’s previous Blizzard Treats and featured favorite ballpark flavors and unique garnishes. The very limited treat was made with DQ creamy soft-serve blended with caramel coated peanuts, caramel popcorn brittle, and choco chunks, then topped with crunchy pretzel rods and choco drizzled caramel popcorn.

3.  Maria Hokanson, executive vice president of marketing for American Dairy Queen Corporation (ADQ), said, “This is the first time in 50 years that all 30 teams will open on the same day and we are celebrating as only DQ can, with a spectacular baseball-inspired treat created for fans cheering on their teams on opening day. We recommend fans come in quickly because this Blizzard Treat tested off the charts and won’t be available for long. Our Blizzard Treat innovation team has combined sweet and savory tastes that will bring back memories of baseball and ballparks, whether you still play, played as a kid or tagged along as a younger or older sibling to practices and games. That’s something almost all of us can relate to.”

Rhode Island Gets First DQ Grill & Chill Location

4.  Around mid-February 2018, Dairy Queen opened its first Rhode Island DQ Grill & Chill in the city of Cranston. Will Dailey, an Army lieutenant colonel stationed in Newport, and his business partner, retired veteran Damon Draught, are the owners of the new franchised location.

5.  Dailey said, “I grew up loving to go to my local DQ. I am in the military, so I have moved around the country most of my adult life and always enjoy finding a new DQ. It feels like home.” He also said that DQ Grill & Chill was a right fit for Rhode Island because the state was very family-oriented and this type of Dairy Queen location offers families full meals as well as treats.

6.  The new restaurant features an open-air grill, separate “grill” and “chill” sections, as well as booths for dining in and an outdoor patio that will seat another 20 customers. The menu includes burgers and chicken sandwiches, as well as the DQ favorite treats. The restaurant offers a $5 Buck Lunch deal and DQ Bakes! artisan-style sandwiches, as well as snack melts and hot desserts à la mode.

7.  Dailey said that he hopes to open additional DQ Grill & Chill locations in the state since it’s an open territory. Daily said that the Cranston community was very excited about getting its first DQ Grill & Chill location, and he feels that the restaurant will be popular throughout the entire state.

New President and CEO Steps In

8.  In the fall of 2017, International Dairy Queen, Inc. (IDQ) announced that the company’s then-president and CEO John Gainor would be retiring at the beginning of this year. On January 1, 2018, Troy Bader, who was the brand’s chief operating officer, stepped in as IDQ’s new president and CEO.

9.  Gainor had served as IDQ president and CEO since 2008 and in this role, he continued to modernize the 77-year old brand. Under Gainor’s leadership, the company focused on improving the Dairy Queen fan experience in order to drive system sales and profitability resulting in record reinvestment in facilities, as well as continued world-wide new store development.

10.  Warren Buffett, chief executive officer and chairman of Berkshire Hathaway (IDQ’s parent company), said, “John has done everything I hoped for – and more – in accelerating IDQ’s growth in the U.S. and internationally. I thank him for both that and for the development of an outstanding successor, Troy Bader.”

11.  When Gainor decided to step down from his role as president and CEO, he recommended to Warren Buffet that Bader should take his place. Bader has been with IDQ since 2001 and before becoming COO in 2011, he served in various executive leadership positions with IDQ. Gainor said, “I have worked with Troy for most of his time at IDQ. His love of the brand, commitment to franchisee success, knowledge of the vendor community and concern for all IDQ employees is evident every day. I am confident he will continue to lead the system toward positive growth and ongoing success.”

Company History

12.  Dairy Queen was founded in 1940 by John Fremont McCullough and Sherb Noble in Joliet, Illinois. In 1938, McCullough developed the first soft-serve ice cream formula and convinced Noble to sell the new product at his ice cream shop. Within the first two hours of launching the new product, Noble sold more than 1,600 soft-serve ice cream servings. The soft-serve ice cream concept was immediately successful and more Dairy Queen locations were opened in the area. McCullough and Noble started franchising Dairy Queen in 1944.

13.  As Dairy Queen continued to grow, several spin-off concepts were launched. The first two DQ Grill & Chill stores opened in Chattanooga, Tennessee in late 2001. DQ Grill & Chill locations feature hot food, treats, table delivery, and self-serve soft drinks. In most cases, they offer an expanded menu including breakfast, grill burgers, and grilled sandwiches, as well as limited table service (customers still place orders at the counter).

14.  Some older Dairy Queen locations have updated to the newer DQ Grill & Chill model. Although DQ Grill & Chill is now the brand’s preferred concept for its full-service locations, some older stores have not upgraded to the new format.

15.  The DQ Grill & Chill concept now makes up about 50 percent of the U.S. franchise system. Today, there are over 6,907 Dairy Queen locations (including all the different concept stores) around the world.

Entrepreneur’s Franchise 500

16.  The Dairy Queen system, which includes all Dairy Queen concepts, ranked No. 67 on Entrepreneur’s 2018 Franchise 500 list.

Section II – Estimated Costs

• Please click here for detailed estimates of DQ Grill & Chill franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on DQ Grill & Chill’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  1,761
• Outlets at the End of the Year:  1,797
• Net Change:  +36

2016

• Outlets at the Start of the Year:  1,797
• Outlets at the End of the Year:  1,874
• Net Change:  +77

2017

• Outlets at the Start of the Year:  1,874
• Outlets at the End of the Year:  1,886
• Net Change:  +12

Company-Owned

2015

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2016

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

2017

• Outlets at the Start of the Year:  2
• Outlets at the End of the Year:  2
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• Schedules A, B, and C disclose information about DQ Grill & Chill restaurants that:

• were newly constructed freestanding restaurants;
• were developed and first opened for business between January 1, 2014 and December 31, 2015;
• were operated for the full year 2016; and
• are franchisee owned and operated.

• This financial performance representation does not include:

• (1) new DQ restaurants developed in Texas (which have the “Texas County Foods” cooked food menu and are offered under a separate disclosure document);
• (2) existing DQ restaurants that have converted to the DQ Grill & Chill restaurant’s facility design, menu, and trademark by remodeling an existing DQ restaurant or replacing an existing DQ restaurant with a new DQ Grill & Chill restaurant design facility either at the same site or at a new location;
• (3) new DQ Grill & Chill restaurants that involved a conversion of a closed location of a different quick service restaurant brand;
• (4) new DQ Grill & Chill restaurants that were opened in a fuel center or other non-traditional location inside a host building such as a ferry terminal or mall; or
• (5) new DQ Grill & Chill restaurants that were opened under a developmental rights contract.

• Schedule A presents Gross Sales for all locations that meet the criteria above for inclusion in this financial performance representation.

• Schedule B includes the following information for a subset of the locations listed in Schedule A, based on the usable profit and loss statements (“P&Ls”) these locations submitted to ADQ:

• Weighted average and straight average Gross Sales;
• Certain expenses and manageable profit percentages; and
• Best, worst, weighted average, and standard average restaurant results by category.

• Schedule B has two tables, one for DQ Grill & Chill locations developed using the GC Core 72 prototypical freestanding building model, and one for DQ Grill & Chill locations developed using the GC Core 47 prototypical freestanding building model.

• Schedule C presents Gross Sales information for a subset of locations listed in Schedule A that did not submit a P&L to ADQ that ADQ could use as a basis for including the location in Schedule B. None of the locations listed in Schedule C are included in Schedule B.

• Schedule A. Number of locations included in Schedule A:  66

• Schedule B. Number of locations included in Schedule B:  55

• Schedule C. Number of locations included in Schedule C:  11

• The data in Schedules A and C is based on sales reports submitted to ADQ by franchisees of the restaurants included in the schedule and the data in Schedule B is based on information submitted on P&Ls from franchisees of the restaurants included in the schedule.

• ADQ has not audited or independently verified the results in the P&Ls or sales reports.

• Gross Sales. Gross sales, as used in Item 19 and in the Operating Agreement, means the total revenues and receipts from the sale of all products sold by the Restaurant, whether paid for by cash, credit (not adjusted for credit card fees) or gift card, barter, or otherwise, including sales of all products under any of the Trademarks as well as sales of other products, services, and merchandise, whether or not identified by other brand names, and excluding sales taxes and revenues and receipts arising directly from Licensee’s sale of gift cards.

• Product Cost. The cost of the food products that are sold to consumers and the associated paper purchases (based on beginning inventory, plus purchases, less ending inventory). The food products include ingredients, beverages, and condiments. The associated paper purchases include bags, product wraps and containers, other paper products, cups and lids, straws, and eating utensils.

• Note that the food cost portion of discounts given and employee meals is reflected in local advertising. Local advertising is a restaurant controllable expense.

• Labor. The sum of crew labor wages, manager’s salary and other compensation, and related taxes and benefits. Labor does not include payments that may be made to a franchisee or its owners in the form of a manager’s salary or wages. Labor does not include payments that may be made to a franchisee or its owners in the form of an owner’s draw, a dividend, or similar distributions.

• Restaurant Controllables. The sum of utilities, telephone, local advertising (includes product costs for discount sales and employee meals), repairs and maintenance, service contractors, laundry and uniforms, operating supplies (other than inventory), trash and recycling, and bank charges (other than debt service).

• Miscellaneous Expenses. All miscellaneous expenses are rolled up into the total Restaurant Controllables percentage.

• Manageable Profit. Profit remaining after deduction of sales taxes, discounts, Product Cost, Labor Cost, and Restaurant Controllables, but before the deduction of occupancy costs, insurance (non-employment), continuing license fees, sales promotion program fees, legal fees, accounting fees, and other administrative costs.

Schedule A – Gross Sales for All Locations That Met the Criteria for Inclusion in the Financial Performance Representation (66 units)

Total Gross Sales