- Warren Buffett's Berkshire Hathaway acquired Dairy Queen for nearly $600 million in 1998.
- Dairy Queen CEO Troy Bader told Insider that Berkshire's ownership lets him invest for the long run.
- Bader explained how Dairy Queen has dealt with the pandemic, inflation, and new customer demands.
Warren Buffett acquired Dairy Queen for nearly $600 million in early 1998 because he understood its business, and the fast-food chain had excellent economics and outstanding management, he told Berkshire Hathaway shareholders at the time.
The famed investor also joked that he and his business partner, Charlie Munger, brought a "modicum of product expertise" to the deal and had "put our money where our mouth is" as they were longtime customers.
Dairy Queen CEO Troy Bader reflected on the benefits of Berkshire's ownership, explained why his business has thrived despite pandemic disruptions and surging inflation, and outlined how customer demands are changing in an interview with Insider during Berkshire's annual-meeting weekend in April 2022. Berkshire's purchase of Dairy Queen removed it from the stock market, enabling its management to invest for the long term without worrying about hitting Wall Street's earnings forecasts each quarter, Bader said. Buffett and his team are always ready to help, but in return they expect Bader to nurture the Dairy Queen brand, take care of the chain's customers, and represent Berkshire with integrity, Bader said.Building under Berkshire
It's a bonus that Bader's boss exemplifies the deep affection many people feel towards his company, he said.
"When I think about Mr. Buffett, he is very much a fan," Bader said. "What he feels is really what we see with so many of our customers, who have this different connection with Dairy Queen."
Dealing with the virus
The COVID-19 pandemic was "very, very challenging" for Dairy Queen from an operational standpoint, but resulted in an exceptional financial performance, Bader said. The company's sales soared to a record $5.5 billion in 2021 as its drive-thru business boomed, and its global, same-store sales were up over 18% from their level in 2019.
Bader emphasized the "huge burden" that pandemic-safety procedures placed on Dairy Queen franchisees, who operate all but two of the company's roughly 7,000 restaurants.
He cited the company's longstanding relationships with suppliers as a key reason why they "went out of their way" to keep its locations stocked.
Bader also tipped his hat to employees who successfully rolled out five flavors of Stackburgers in 2022, marking the biggest change to Dairy Queen's menu in two decades.
Higher prices, less money
Inflation is dealing a one-two punch to Dairy Queen by raising its costs and squeezing its customers, Bader said.
Consumers are spending more on housing, gas, utilities, and food, leaving them with less disposable income to spend on eating out. Meanwhile, Dairy Queen franchisees are raising prices to offset higher costs. The upshot has been a decline in transaction volumes, Bader said.
"How do you thread that needle between a consumer who still wants to eat out, but is feeling more pressure, and yet we need to still reasonably increase prices to stay in business and have reasonable profit?" Bader asked. "That's the balance we're trying to find."
Regardless, Dairy Queen's sales have grown as the average value of transactions has climbed, reflecting more families and groups eating together, and customers upsizing their orders. Bader suggested people are treating Dairy Queen as an affordable indulgence, and a way to spend time with loved ones during a tough period.
Catering to customers
Dairy Queen's products need to be high quality, craveable, and differentiated, so people seek out the chain and are already fantasizing about their next visit before they're done eating, Bader said.
The meaning of "convenience" to fast-food customers has extended beyond the proximity of the nearest location, Bader said. It now encompasses whether the chain has a mobile app that people can use to communicate with the company, place orders, access deals and information, and earn loyalty points, he noted.
Home delivery is also a "whole other channel for the business that isn't going to go away," Bader said. Moreover, Americans have become more open to fresh flavors and unusual combinations, he continued.
"We have an Oreo Dirt Pie Blizzard that you never would have thought about 10 years ago," Bader said. "Those gummy worms are going to be creeping out of that Blizzard."
I'm an enthusiast and expert in the field of business, particularly mergers and acquisitions, corporate strategy, and the fast-food industry. I've extensively studied the dynamics of major acquisitions, including Warren Buffett's renowned purchase of Dairy Queen for nearly $600 million in 1998. My knowledge encompasses the strategic rationale behind such acquisitions, the impact of ownership changes on the business, and the long-term effects on the company's performance.
In the case of Berkshire Hathaway's acquisition of Dairy Queen, Warren Buffett's decision was rooted in a profound understanding of the business. He identified the fast-food chain as having excellent economics and outstanding management, as he communicated to Berkshire Hathaway shareholders in 1998. Buffett's investment philosophy involves recognizing businesses with enduring qualities, and Dairy Queen fit the bill.
Berkshire's purchase of Dairy Queen had significant implications for the fast-food chain's management. The removal from the stock market allowed the company to adopt a long-term investment approach without the pressure of meeting quarterly earnings forecasts. This strategic shift, as articulated by Dairy Queen CEO Troy Bader, provided the company with the flexibility to invest for the future and focus on building the brand without immediate Wall Street concerns.
The interview with Troy Bader sheds light on the challenges Dairy Queen faced, particularly during the COVID-19 pandemic. Despite operational challenges, the company achieved exceptional financial performance, with record sales of $5.5 billion in 2021. The emphasis on drive-thru business and the ability to adapt to changing circ*mstances showcased the resilience of Dairy Queen under Berkshire's ownership.
Bader highlighted the role of Berkshire Hathaway in supporting Dairy Queen during challenging times. Buffett and his team offered assistance while expecting the CEO to prioritize brand representation, customer satisfaction, and integrity. The deep connection between Mr. Buffett and Dairy Queen resonates with the broader customer base, contributing to the company's unique position in the market.
Addressing the impact of inflation, Bader discussed the dual challenge faced by Dairy Queen—rising costs and reduced disposable income for customers. Despite these challenges, Dairy Queen's sales continued to grow, attributed to strategic pricing adjustments and customers viewing the brand as an affordable indulgence during tough economic periods.
Bader also delved into the evolving landscape of customer demands in the fast-food industry. The concept of "convenience" has expanded beyond physical proximity to include mobile apps, home delivery, and a focus on high-quality, differentiated products. Bader emphasized Dairy Queen's commitment to meeting these changing demands, citing examples such as innovative menu additions like the Oreo Dirt Pie Blizzard.
In summary, Berkshire Hathaway's ownership of Dairy Queen, as evidenced by the insights from Troy Bader, showcases a successful marriage of strategic vision, operational resilience, and adaptability to changing market dynamics. The acquisition not only allowed Dairy Queen to weather challenges such as the pandemic and inflation but also positioned the company to thrive in an evolving fast-food landscape.
