CEO of Buffett's Dairy Queen tries to find new tastes, keep franchisees happy

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05/09/2019 | 09:49 pm
Warren Buffett
OMAHA, Neb. (Reuters) - The chief executive of International Dairy Queen Inc is counting on the 79-year-old brand, owned by Warren Buffett's Berkshire Hathaway Inc, to adapt to changing consumer tastes rather than latch onto the latest fad, while ensuring that rising labor and food costs don't squelch its franchisees.

Troy Bader, who became chief executive in January 2018, said his company wants to ensure that devotees keep ordering their Blizzards and chicken strips, without turning off customers seeking newer products or with specific dietary needs.

"About 5 percent of disposable income is spent on away-from-home dining occasions," Bader, 54, said in an interview during Berkshire's recent annual shareholder weekend. "Transactions in the restaurant industry have been flat, so even if wages are going up, what I have for disposable, discretionary spending is not. That's why you're seeing so much competition."

Berkshire, whose 88-year-old chief executive favors the Dairy Queen vanilla orange bar, paid $590 million for the Bloomington, Minnesota-based company in 1998.

Dairy Queen's more than 7,000 locations, including 2,000 in the United States and Canada, recorded more than $4.5 billion of sales in 2018. Bader said 2019 has been "good so far" despite bad U.S. and Canadian weather.

"Bomb cyclones and polar vortexes don't bode well ... when 50 percent of your sales are ice cream," he said. Bader named McDonald's Corp and Chick-Fil-A as key rivals.

Labor is the fastest-rising cost for franchisees, especially when rising minimum wages, an issue on which Bader said Dairy Queen has no position, squeeze margins as customers favor such menu items as the $5 Buck Lunch. Also rising is the cost of branded candies that Dairy Queen adds to ice cream.

Bader said adapting to changing consumer habits is not a new idea.

"It's actually evolutionary, it's not revolutionary," he said. "When we look at trends, you have to decide which you're going to lead in, which you're going to follow, and which you may not participate in at all because they may not be right for or important for your brand."

He said Dairy Queen, despite its name, is exploring desserts for people who avoid dairy, but won't dive into plant-based food, despite the frenzy last week when Beyond Meat Inc went public and its stock price soared.

"If appropriate for our brand, we will move in later," he said. "Right now, the biggest opportunity is in our chicken strips, our burgers and other products."

Another major initiative is technology, including the creation of a single electronic point-of-sale system.

Bader, a self-described "recovering lawyer," had interviewed with Buffett before the billionaire gave Vice Chairman Greg Abel oversight over Berkshire's non-insurance operating units. He now reports to Abel.

Buffett "was asking as many questions as we were. He wanted to know what you knew that he did not," Bader recalled.

"What I find interesting with Greg was, he's the same way. I'm not trying to say Greg is Warren. Nobody will ever be Warren. But he is really smart, and he is a really good study."

(Reporting by Jonathan Stempel in Omaha, Nebraska; Editing by Jennifer Ablan and Nick Zieminski)

By Jonathan Stempel

Thomson Reuters 2019
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