It's safe to say that the Dairy Queen franchise was built on soft-serve ice cream.
Back in 1938, the father and son team of John Fremont and Bradley McCullough developed a
soft, frozen dairy dessert and suspected they had a smash hit on their hands.
To test the theory, the duo asked their friend Sherb Noble, the owner of an ice cream store,
to test the product with an "all-you-can-eat" event.
Two hours into the party, Noble managed to dole out 1,600 servings of the novelty dessert.
Dairy Queen's soft-serve had officially arrived.
The first Dairy Queen opened in Joliet, Illinois in 1940.
According to the official Dairy Queen website, the chain already had about 10 locations one
year later.
By 1947, there were 100 stores…and by 1955, there were already 2,600 Dairy Queen locations.
The chain's food innovations kept pace with their expansion.
In 1949, Dairy Queen brought malts and shakes into the fold.
In 1951, they put banana splits on the menu, and in 1955, the legendary Dilly Bar was born.
Dairy Queen didn't stop there.
In 1968, the franchise debuted its Buster Bar, and in 1985, the chain came out with
the Blizzard, which sold a whooping 175 million servings the same year.
Today, Dairy Queen is arguably one of the most successful franchises in the country,
ranking at number 21 on Entrepreneur's List of Top Franchises in 2019.
That's definitely cause for celebration.
In its first two decades, Dairy Queen's franchisees operated in a very informal way.
The chain's former CEO Chuck Mooty told MinnPost,
"Some people would say that for a long time, [International Dairy Queen] was a system that
did not have a franchisor."
Parent company American Dairy Queen Corp wasn't established until the late 1950s, and in 1972,
it became a public company.
But by the 1990s, there was a problem.
Mooty says there was a gap between the franchisor and its franchisees, leading to what almost
became a class-action lawsuit involving a third of Dairy Queen's operators.
Mooty told the MinnPost,
"Quite frankly, the biggest thing was a lack of faith in the direction of the company and
its ability to be viable in a highly competitive environment."
Fortunately, the company had a big, big fan with a rather robust portfolio.
A certain Warren Buffett and his company Berkshire Hathaway had been trying to buy Dairy Queen
for a few years, but the legendary investor couldn't get the company's board and shareholders
interested until 1997.
By 1998, the deal was done.
Mooty says the Dairy Queen acquisition was personal for Buffett: He absolutely loved
the product.
The deal was also a big win for Dairy Queen: The chain picked up some credibility and some
very solid resources by teaming up with Buffett and his firm.
According to The Conservative Income Investor, Dairy Queen franchisees have been able to
make more money than any other food franchise with more than 1,000 locations across the
country...with the exception of McDonald's.
That's all thanks to Buffett's acquisition.
He reportedly chose to copy a system that fast-food legend Ray Kroc pioneered during
his early days at McDonald's.
Instead of getting rich at the expense of the franchisees, Buffett created incentives
that encourage Dairy Queen's individual franchise owners to grow the brand.
To open a Dairy Queen, a franchisee needs to have a net worth of $750,000, along with
$400,000 cash in hand.
When stores are operational, Buffett only charges 5 percent in royalties on gross monthly
receipts instead of the industry average of 5.4 percent.
He also charges an initial franchise fee of $25,000.
That means that if a franchisee earns $1,000,000 in food sales, Berkshire Hathaway only pockets
$50,000 instead of $54,000.
As a result, franchisees have the potential to earn an extra $48,000.
Dairy Queen's success depends on its ice cream.
Blizzards rake in a 700 percent profit when compared to what it costs to make.
If the treat is tacked onto other menu items to make a meal, it earns an extra $75 a day,
or roughly $30,000 a year.
An owner-operated franchisee can expect to earn an average annual profit of $194,000,
so if you run your own franchise, you could get a 33 percent return on your investment.
But if you hire someone else to run the restaurant, you can still expect to earn something close
to a 20 percent return on your investment.
That's not bad either!
So what makes Dairy Queen a winner for savvy franchisees?
A combination of low franchise royalty fees, the start-up franchise fee, and the money-making
magic whipped up by the Blizzard.
Who wouldn't want to get in on that action?
"You don't have to just dream about Dairy Queen.
Your favorite Dairy Queen treat is a refreshing reality."
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