(BRK.A), (BRK.B)
As McDonald’s continues to battle slumping sales, it is turning to Dairy Queen’s winning formula as a key part of its just announced turnaround plan.
McDonald’s announced it will be selling off half of its company owned stores, turning them over to franchisees.
In a similar move, Wendy’s is selling 640 restaurants in the U.S. and Canada to franchisees.
Reducing the number of corporate owned locations was a big part of Burger King’s turnaround when 3G Capital’s partner Daniel Schwartz took the helm as the Chief Executive Officer and a Director of the company. He quickly put the Burger Kings where they belonged, in the hands of more motivated franchisees.
Fortunately for Berkshire Hathaway’s Dairy Queen System, they already knew that franchisees are highly motivated, hard-working people motivated by the ultimate incentive, ownership.
A Winning Formula
Dairy Queen, which has 6,400+ locations worldwide, may be smaller than McDonald’s or Burger King, but to its advantage it has only three company owned stores. The cost of the bricks and mortar are born by the franchisees, and Dairy Queen makes its money from franchise fees and a percentage of the sales.
Each franchise pays a $35,000 franchise fee, a royalty fee of 4%, and a marketing fee of 5% – 6%.
In the aggregate the franchises net Berkshire hundreds of millions a year on its investment of only $585 million.
That’s a sweet formula indeed.
For more information read a Mazor’sEdge special report on Dairy Queen.
© 2015 David Mazor
Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.