Dairy Queen franchisee associations with members in Arizona, West Virginia, Ohio, Virginia, Maryland, Pennsylvania, Kentucky, Missouri and Illinois filed law suits to halt required remodeling:
Dairy Queen franchisees’ arguement:
The lawsuit contends Dairy Queen is trying to force franchise owners to spend between $275,000 and $450,000 to remodel stores to adhere to an unproven concept — one that will cost more to operate, double staffing requirements, and cut into profits.
“No one should have to make this conversion that is quite expensive unless they want to,” Caruso says. “If the DQ Grill & Chill concept was such a promising new concept, then the free market would solve this problem.”
That hasn’t happened, according to the lawsuit.
As of December 2006, the complaint says, just 105 Grill & Chill restaurants had opened in the United States. Some have performed poorly, and two have closed.
Dairy Queen franchisor’s argument:
Moreover, Mooty maintains no one is being forced to do anything. Dairy Queen does require about 70 percent of franchises to modernize restaurants periodically. But Mooty says Dairy Queen has capped the required investment at $75,000 for 2008, $85,000 next year and $95,000 in 2010. The required modernization should be no surprise to franchise owners because it’s standard in most of their contracts, Mooty says.
“It is not making somebody spend hundreds of thousands,” he argues. “And it is not forcing somebody to go to another concept.”
Mooty said it is the franchise-owner associations, which compete with the corporation to supply the restaurants, that are stirring up trouble. Dairy Queen is cutting margins on its supply business, which is hurting the associations, he contends.
“They are losing membership, they are losing market share and they are having to take more drastic measures in creating fear and concern.”
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-212-3423.
Over the years I have come to know several DQ zees. Of the ones I am acquainted with a common theme emerged. They worked their franchise very, very, very hard during the summer and simply worked them spring and fall and then were able to enjoy a long winter repast in Florida. They liked the lifestyle. DQ was one of the few franchises as a lifestyle arguments I could buy, because the results were quantifiable, repeatable, and mentioned as the reason they were a DQ zee by those I know..
Cut to today. Maybe the new format is better, maybe not. But for a lot of DQ zees I suspect this is not the lifestyle they signed on for.
And frankly, although I am sure I am in the minority on this, I don’t think the DQ “brand” is of much significance; I never have thought much of it. And I have the actual experience of not only working in, and then partnering in a dip shop and full service restaurant combo (5 years), but also opening up a soft serve shop within a 1/2 mile of a DQ and doing very nicely. On the later, I sold that concept very quickly (90 days), but as I recall it performed very well for the buyer for a number of years (8 as I recall) until he sold the land out to a strip mall developer.
Simply put unless they have on heck of a non-compete clause I would not hesitate to walk away from this unless I really wanted to go into the year around business mode. There once were some places where DQ and TasteeFreeze (a tired, worn old brand that has some potential via nostalgia – see below) were very close together and I don’t recall any consumer who even distinguished between the brands. Soft serve is soft serve, when it is served up using junk ingredients, by obnoxious teenagers. The management of a food and soft serve paradigm is radically different, as is the mindset of the employees. I would suggest any DQ zees really, really think about this long and hard.
It may not be a bad move, but I tend to think long term demographics do not favor this. What is DQ going to do to attract Hispanics, and if they cater to that demographic, what is it going to do to there current demographic? How is DQ going to address the boomers, who are far more likely to seek out fresh toppings, served in a more old fashioned nostalgia ice cream shop format then anything DQ offers in the old format or the new.
Simply put, I think the brand’s impact is minimal at best and the very transition to a new format might very well permanently destroy what value the brand once had in terms of nostalgic appeal to a generation of aging boomers.
Regards,
FuwaFuwaUsagi
Fuwa; I think you are probably right. But this dispute won’t be solved in litigation. Despite the quality of the lawyers involved.
Can’t say I disagree one bit Michael. The way these issues are solved is when zees formulate a history of non-renewal of onerous zors. Stated differently, the market place.
It would be a very interesting world if the FA committed the zor to say 15 years, but the zee had the right to get out at the 5 year and 10 year periods, either without penalty or for a sized, readily calculable penalty. I tend to think that one little alteration would give zees a lot of power without unfairly crippling the zors right to dictate the terms of business overall.
FuwaFuwaUsagi
Even our most famous and respected investors are now interested in capturing cheap labor and cheap “venture” capital on which to grow profits, and taking advantage of regulation and adhesory contracts and the state of the law that benefits them.
I think this is a sign of the times but I, personally, was very unhappy to see that Warren Buffet(sp?) bought a Dairy Queen and that he has no understanding of the fact that he is putting the “little guy” between a rock and a hard place and doesn’t care. I’ve always heard that rich people are different and they sure are! And! they are very different when they are incorporated and have the law working for them .
Maybe! Like a lot of the big franchisors, he will give even more to charity—-like the Quiznos Schadens — and not worry or feel any responsibility for the franchisors who will need charity if their Investments in the “new” DQ drive them into bankruptcy.
Correction! It is the DQ franchisees —-not the franchisor who will need the charity! Sorry about that!