Considering a Dairy Queen Franchise? Here’s What You Need to Know by Vetted Biz
Written by: Spencer Huang
Last Updated by Maria Fernandez Amato: October 28, 2022Free Download Our Exclusive E2 Visa Business Guide
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Dairy Queen is an American quick-service restaurant that is well known for its frozen treats. Founded in 1940 in Minnesota, Dairy Queen has grown into an international brand, with over 7,150 stores around the world today. It’s current CEO is Troy Bader.
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Dairy Queen franchises in the United States operate under America Dairy Queen (ADQ), which is a subsidiary of International Dairy Queen (IDQ). In turn, IDQ is a subsidiary of multinational conglomerate Berkshire Hathaway, famously led by Warren Buffett.
Stepping into the food service industry – and more specifically the quick-service restaurant industry and specialty ice cream industry – can be a daunting task, considering the significant start-up costs and the increasingly competitive nature of the industry. This article will break down the Financial Disclosure Document for Dairy Queen and provide all the information that prospective franchisees should know before making an investment decision.
Dairy Queen Restaurant Formats
Dairy Queen franchises all of its restaurants in the United States.
The restaurant offers three types of franchises:
- Dairy Queen Grill and Chill–a standard restaurant with a full menu
- Dairy Queen Treat–generally smaller in size and offers a limited menu
- Texas DQ Restaurant- contains a “Texas Country Food” menu
As of December 2021, there are 1,952 Grill and Chill locations, 828 Treat locations, and 586 Texas style restaurants in the United States. Internationally, Dairy Queen has around 700 stores in Canada and another 2,157 international locations. This article will focus solely on the American Grill and Chill restaurants.
How is Dairy Queen Positioned in The Quick Service Restaurant Industry?
The Quick Service Food industry and Specialty Ice Cream Treat industry are two well-established and highly competitive industries in America
Dairy Queen franchises compete with nationally established chain stores, such as Burger King, Baskin Robbins, and McDonald’s, as well as local stores and independent restaurants.
How Much Does a Dairy Queen Franchise Cost?
The estimated initial investment for a Dairy Queen Grill and Chill franchise is from $1,461,200 to $2,426,990.
A full breakdown of the costs is shown below. The estimates do not include the cost of land. Note that an initial, nonrefundable franchise fee of $45,000 is due at signing the Franchise Agreement. Additionally, note that a substantial portion of the investment cost stems from Building, Construction, and Leasehold Improvements and Equipment costs, which together is estimated to cost anywhere from $1,300,000 to $2,000,000. Together, these two costs account for over 80% of the estimated initial investment cost.
| Type of Expenditure | Amount (In USD) | |||
|---|---|---|---|---|
| Initial Franchisee Fee | 45,000 | |||
| ALTA Survey and/or Site Investigation Report | 0 – 5,000 | |||
| Initiak Training Fees and Costs | 1,200 -11,900 | |||
| Travel and Living Expenses for Training Programs | 23,000 -38,500 | |||
| Building, Construction and Leasehold Improvements | 800,000 – 1,400,000 | |||
| Construction Consultation Services | 0 – 7,500 | |||
| Building Plans, Design Intent Plans and Architectural Seal | 15,000 – 45,000 | |||
| Equipment (Includes signs and point-of-sale systems) | 500,000 – 600,000 | |||
| Training Inventory | 6,000 – 16,000 | |||
| Opening Inventory | 15,000 – 35,000 | |||
| Utility Deposits, Business Licenses and Government Charges | 4,000 – 17,000 | |||
| Attorneys’ Fees | 1,000 – 8,000 | |||
| Additional Funds – 3 Months | 51,000 – 198,000 | |||
| TOTAL | 1,461,200 – 2,426,990 | |||
| Subject | Hours of Clasrrom Training | Hours of On-The-Job-Training | Location |
|---|---|---|---|
| Product and Equipment Training (Phase 1) | |||
| Restaurant Operations (product preparation, equipment, shif positions work experience) | 0 | 116 | At an approved certified DQ location |
| Customer Services | 0 | 3 | |
| Sanitation | 0 | 2 | |
| Safety | 0 | 2 | |
| Service, Management, and Financial Basics Training (Phase 2) | 0 | 0 | |
| Restaurant Operations (shift positions, customer service, manging shifts, management function modules) | 0 | 104 | At an approved certified DQ location |
| Financial Management (recordkeeping, controllables, cash management) | 0 | 8 | |
| Marketing | 0 | 2 | |
| Register/Back Office System | 0 | 8 | |
| People, PRIDE, and Profit Training (Phase 3) | 0 | 0 | |
| Facility Management (service profit chain, DQ Capability Model function) | 3 | 0 | Classroom in Minneapolis, MN, or other location ADQ designates |
| Human Resource Management (training, supervising, retaining, coaching, evaluating) | 7 | 0 | |
| Customer Service, PRIDE, Speed of Service, Local Marketing | 4 | 0 | |
| Situational Leadership | 8 | 0 | |
| Goals, Change Management, Time management | 4 | 0 | |
| Profitability Management cost of goods sold, recordkeeping, labor cash management, controllables) | 6 | 0 | |
| Total | 32 | 245 | |
Ongoing Fees
The main fees associated with owning a DQ franchise are as follows:
- A 4% licensing fee on monthly gross sales, and
- A 5-6% sales promotion program fee on monthly gross sales.
Additional minor fees, such as a Renewal Fee, Operational Program Fee, and Additional Training fees, vary depending on location and circumstances.
How Much Do Dairy Queen Franchises Make?
The following table reports the average annual gross sales among Dairy Queen Grill and Chill restaurants that have opened since 2017. In the most recent year of data, 2021, the average Dairy Queen under these conditions reported annual gross sales of $1,427,766. As the table shows, average gross sales for these franchises has increased year over year since 2018, even through the coronavirus pandemic.
| Year | 2018 | 2019 | 2020 | 2021 |
|---|---|---|---|---|
| Average Annual Gross Sales | $1,284,579 | $1,221,529 | $1,319,711 | $1,427,766 |
| Number of Restaurants Meeting or Exceeding the Average | 18 | 36 | 45 | 53 |
| Percent of Restaurants Meeting or Exceeding the Average | 39% | 47% | 43% | 41% |
| High Annual Gross Sales | $3,725,266 | $2,753,016 | $2,682,054 | $2,886,417 |
| Median Annual Gross Sales | $1,263,588 | $1,157,103 | $1,265,540 | $1,386,549 |
| Low Annual Gross Sales | $637,260 | $549,419 | $541,943 | $592,454 |
| Number of Restaurants that Qualified for Inclusion | 46 | 77 | 105 | 129 |
| Number of Restaurants that Were Excluded Because They Were Not Open or Did Not Repor Sales for All 12 Months of the Year | 33 | 31 | 28 | 4 |
However, it should be noted that the sample size that this data is obtained from is quite small relative to the 1,952 stores that are currently open across the country. These sales figures may not be representative of the average Dairy Queen store since newer stores may have amenities that make them more appealing than older stores, or may be located in more desirable locations. However, the information above is useful for prospective franchisees who intend to open a new Dairy Queen store, rather than refurbishing an existing store.
As shown above, median gross sales in 2021 were $1,427,766 for new Grill and Chill locations.
Based on a midpoint investment of $1,944,095,
- A 10% profit margin would yield estimated annual profits of $142,777. This means it would take nearly 16 years to recoup your investment.
- A 15% profit margin would yield estimated annual profits of $214,165. This means it would take just over 11 years to recoup your investment.
- A 20% profit margin would yield estimated annual profits of $285,554. This means it would take nearly 9 years to recoup your investment.
Note that these calculations account for the 2 years it takes, on average, for a franchise in the food and beverage industry to scale up to full production. Also note that these calculations do not account for inflation or interest rates that are compounded over the timeframe.
Many factors affect the sales, costs, and expenses of your Franchise. There is no guarantee that these numbers will be reflective of the time it takes for your Franchise to recoup your initial investment.
Is The Franchise Profit Worth the Franchise Cost?
While Dairy Queen is a well established international brand, the 9-16 year timeframe that you could reasonably expect to recoup your initial investment may be a long period of time for one to wait. Other companies in the food and beverage industry may provide a better investment opportunity. For more examples, check out other businesses offered on Vetted Biz.
How Many Units Have Opened and Closed?
Dairy Queen has seen a net growth in the year-over-year change in the number of stores since 2019. Few quick service restaurants grew during the COVID-19 pandemics.
DQ Grill & Chill & Dairy Queen/Brazier Direct-Licensed Outlets Systemwide Outley Summary For Years 2019 to 2021
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 1893 | 1913 | 20 |
| 2020 | 1913 | 1926 | 13 | |
| 2021 | 1926 | 1952 | 26 | |
| Company-Owned | 2019 | 2 | 2 | 0 |
| 2020 | 2 | 2 | 0 | |
| 2021 | 2 | 2 | 0 | |
| Total Outlets | 2019 | 1895 | 1915 | +20 |
| 2020 | 1915 | 1928 | +13 | |
| 2021 | 1928 | 1954 | +26 |
