In 1980, revenues surpassed $1 billion, making Dairy Queen the fifth largest U.S. fast-food concern after Burger King, Kentucky Fried Chicken (KFC), McDonald’s, and Wendy’s. Dairy Queen had more stores—4,800 and counting—than all other fast food chains except for KFC and McDonald’s. In 1985, Dairy Queen launched a hit, the Blizzard, soft ice cream blended with candy, cookies, or fruit. During the next two years, stressing its roots on the operations side, it acquired rival franchise restaurant chains: Wyoming-born Karmelkorn in 1986 and California-based Orange Julius in 1987.
The group broadcast its commitment to continuity in management and ownership and permanence, values vital to the franchisees.67 Dairy Queen stores are hometown operations. Virtually all are franchises, not company owned. They are run by entrepreneurs, often as family businesses. Many acquire additional stores as the business prospers or family grows. The investment group encouraged this expansion, preferring the security of working with long-time franchisees.
Dairy Queen is a hyper-decentralized organization with the franchisees having ample autonomy. Some franchisees own territories that they subdivide, and some such subdivisions are further divided among multiple franchisees. Many subgroups of franchisees develop associations among themselves, often along regional lines to enable coordination to meet local needs. Most substantial is the Texas Dairy Queen Operators’ Council, which coordinates marketing and operations for stores in Texas, a nod to the history of the Texas stores being outside of the original Dairy Queen organization.
Franchisees of Dairy Queen are often active in local communities, sponsoring Little League baseball teams, leading church activities, and serving on school boards. The stores host community and social gatherings and serve as hangouts congenial to families. Dairy Queen has assumed a distinctive place in American culture, reflected in popular books such as Larry McMurtry’s Walter Benjamin at the Dairy Queen: Reflections at Sixty and Beyond; Bob Greene’s Chevrolet Summers, Dairy Queen Nights; and Robert Inman’s Dairy Queen Days.
In 1996, Rudy Luther, who held 15 percent of Dairy Queen’s stock as a member of the Minnesota investment group, died. His family asked Buffett if he would be interested in buying the stake. Buffett was not, though he had previously indicated interest in Berkshire buying the whole company and reiterated this. The family and management, led by Mooty, decided it was time to sell, and a deal was made for Berkshire to buy Dairy Queen.68 At the time of Berkshire’s acquisition, Dairy Queen hosted 5,792 stores in 23 countries, as well as 409 Orange Julius and 43 Karmelkorn operations. To make the deal tax-free to the shareholders of Dairy Queen, the selling group insisted that Berkshire offer to pay either in cash or in stock.
Had it not been for Berkshire, Mooty is convinced that he and his investment group would still own Dairy Queen. In an interview for this book, Mooty explained that the deal closed, possibly at a price below financial value, because Berkshire offered something prized by each of Dairy Queen’s three constituents—shareholders, employees, and franchisees.69
For shareholders, all members of the investment group opted to take Berkshire stock, representing a large percentage of each member’s net worth. They believed that Berkshire was an unusually well-run company, with valuable stock to own permanently. Management and other employees appreciated Berkshire’s commitments to autonomy. Berkshire had a proven track record of keeping existing management in place, a promise whose credibility was enhanced by the absence of managerial layers at Berkshire’s corporate headquarters. Finally, Berkshire’s commitment to permanence reassured the franchisees that, knowing Buffett, they would be in good company for decades to come.
John Mooty’s son, Charles W. Mooty, served as Dairy Queen’s chief executive officer from 2001 through 2007, succeeded by John Gainor, whom the Mootys and senior managers named with Buffett’s approval.70 Today, there are 6,300 Dairy Queen restaurants.71 Among larger franchisees is the Frauenshuh Hospitality Group, a family business headed by Matthew Frauenshuh (pronounced frown-shoo). Long-time owner of sixty-one outlets across the Midwest, in 2011 it acquired another fifty-eight in Kentucky and Indiana, financed in part with $26.5 million staked by GE Capital.72 Dairy Queen franchisees continue to gather regularly at annual or biannual meetings to exchange business ideas and socialize.
A Dairy Queen insider explained its history this way:
I have always thought of Dairy Queen as the [company] that succeeded in spite of itself. Although most of our problems are the result of early mistakes made in setting up our franchise system, that same system has also made us successful. Look at the typical store managers, a mom and pop who invest their life savings and work day and night to succeed. Then multiply that experience thousands of times. That entrepreneurial spirit has always been, and still is, the lifeblood of the Dairy Queen system.73