FDD Talk 2021: DQ Grill & Chill Franchise Review (Financial Performance Analysis, Costs, Fees, and More) (2024)

In this FDD Talk post, you’ll learn the following:

Section I – Background information on the DQ Grill & Chill franchise opportunity, including relevant news updates

Section II – Estimated initial investment for a DQ Grill & Chill franchise, based on Item 7 of the company’s 2021 FDD

Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a DQ Grill & Chill franchise, based on Items 5 and 6 of the company’s 2021 FDD

Section IV – Number of franchised and company-owned DQ Grill & Chill outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

Section V – Presentation and analysis of DQ Grill & Chill’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

2019 average, high, and low gross sales for the 72 DQ Grill & Chill restaurants that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2017 and December 31, 2018; were operated for the full year 2019; and are franchisee owned and operated

2019 average total gross sales, total product cost, total labor cost, total restaurant controllables, and total manageable profit for DQ Grill & Chill’s GC Core 72 (59 units) and GC Core 47 (4 units) restaurants, respectively, that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2017 and December 31, 2018; were operated for the full year 2019; are franchisee owned and operated; and submitted usable profit and loss statements to ADQ

2019 average, high, and low gross sales for the 9 DQ Grill & Chill restaurants that were newly constructed freestanding restaurants; were developed and first opened for business between January 1, 2017 and December 31, 2018; were operated for the full year 2019; are franchisee owned and operated; and submitted sales reports, but not usable P&L’s, to ADQ

Section I – Background Information

15 Things You Need to Know About the DQ Grill & Chill Franchise

Announces Plans to Meet Cage-Free Egg Commitment by 2025

1. In mid-January 2021, International Dairy Queen Corporation (IDQ) announced it is on track to meet its cage-free egg commitment in the U.S. and Canada for shell eggs, liquid eggs, and DQ proprietary products by 2025. The IDQ cage-free egg commitment includes shell and liquid eggs at restaurants that serve breakfast and eggs that are used as an ingredient in a variety of DQ proprietary food and treat products. IDQ also committed that any new egg or ingredient supplier in its system is required to provide cage-free eggs.

2. The process of producing eggs in cage-free environments – where hens are not confined to cages and have more freedom of movement – is considered by some a better method of producing eggs than the conventional process that represents the majority of egg production in the U.S. and Canada today.

3. Steve Min, executive vice president of research and development for IDQ, said, “In 2016, we made a commitment to animal welfare when we announced our transition to cage-free eggs in the U.S. and Canada by 2025. As we continue to make progress toward our goal, we reduced the number of proprietary ingredients not yet using cage-free eggs by more than 35 percent. I am pleased to share that now 100 percent of proprietary ingredients in Blizzard Treats contain cage-free eggs, and we are on track to meet our cage-free egg commitment in 2025 or sooner.”

Announces Virginia Franchisee Joel Slocum Senior as 2020 Miracle Maker Winner

4. In mid-May 2021, American Dairy Queen Corporation (ADQ) announced DQ franchisee Joel Slocum Sr., owner of four DQ restaurants in Bridgewater, Verona, Elkton, and Stuarts Draft, as the 2020 recipient of the Children’s Miracle Network Hospitals’ Miracle Maker award. The DQ brand has partnered with Children’s Miracle Network Hospitals (CMN Hospitals) for 37 years, and each year donates millions of dollars to support kids and families across the U.S. through a variety of programs at DQ restaurants.

5. Miracle Treat Day is one of the largest, single-day fundraising events of the year for CMN Hospitals, where one dollar or more from every Blizzard Treat sold at participating DQ locations goes directly to the non-profit organization. All contributions made through DQ cause programs stay local, and help to provide hope within communities across the U.S.

6. Miracle Makers are DQ franchise owners who go the extra mile for Children’s Miracle Network (CMN) by being deeply involved in supporting their own communities. Through his leadership, Slocum encourages friendly competition among his stores to maximize fundraising, and creates a culture that inspires donations.

7. In addition to Miracle Treat Day, Slocum participates in programs including Miracle Balloons and Round Up for the Kids, where DQ Fans can purchase paper CMN Balloon coupons or round-up to the nearest dollar at the register, with proceeds going to CMN Hospitals.

8. Slocum said, “On average, 62 children enter a CMN Hospital every minute. Family and community are some of the most important things in life, so it’s an honor to be able to give back and support those who need it most. I couldn’t have done it without my wonderful management team and crew members, and their relentless efforts on behalf of Children’s Miracle Network Hospitals.”

Section II – Estimated Costs

Please click here for detailed estimates of DQ Grill & Chill franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

Please click here for detailed information on DQ Grill & Chill’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

Outlets at the Start of the Year: 1,886
Outlets at the End of the Year: 1,893
Net Change: +7

2019

Outlets at the Start of the Year: 1,893
Outlets at the End of the Year: 1,913
Net Change: +20

2020

Outlets at the Start of the Year: 1,913
Outlets at the End of the Year: 1,926
Net Change: +13

Company-Owned

2018

Outlets at the Start of the Year: 2
Outlets at the End of the Year: 2
Net Change: 0

2019

Outlets at the Start of the Year: 2
Outlets at the End of the Year: 2
Net Change: 0

2020

Outlets at the Start of the Year: 2
Outlets at the End of the Year: 2
Net Change: 0

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

Schedules A, B, and C disclose information about DQ Grill & Chill restaurants that:

were newly constructed freestanding restaurants;
were developed and first opened for business between January 1, 2017 and December 31, 2018;
were operated for the full year 2019; and
are franchisee owned and operated.

This financial performance representation does not include:

(1) new DQ restaurants developed in Texas (which have the “Texas County Foods” cooked food menu and are offered under a separate disclosure document);
(2) existing DQ restaurants that have converted to the DQ Grill & Chill restaurant’s facility design, menu, and trademark by remodeling an existing DQ restaurant or replacing an existing DQ restaurant with a new DQ Grill & Chill restaurant design facility either at the same site or at a new location;
(3) new DQ Grill & Chill restaurants that involved a conversion of a closed location of a different quick service restaurant brand;
(4) new DQ Grill & Chill restaurants that were opened in a fuel center or other non-traditional location inside a host building such as a ferry terminal or mall; or
(5) new DQ Grill & Chill restaurants that were opened under a developmental rights contract.

Schedule A presents Gross Sales for all locations that meet the criteria above for inclusion in this financial performance representation.

Schedule B includes the following information for a subset of the locations listed in Schedule A, based on the usable profit and loss statements (“P&Ls”) these locations submitted to ADQ:

Weighted average and straight average Gross Sales;
Certain expenses and manageable profit percentages; and
Best, worst, weighted average, and standard average restaurant results by category.

Schedule B has two tables, one for DQ Grill & Chill locations developed using the GC Core 72 prototypical freestanding building model, and one for DQ Grill & Chill locations developed using the GC Core 47 prototypical freestanding building model.

The GC Core 72 building model is roughly the same square footage but has a few more seats than the current GC Core 66 building model described in Item 7.

Schedule C presents Gross Sales information for a subset of locations listed in Schedule A that did not submit a P&L to ADQ that ADQ could use as a basis for including the location in Schedule B. None of the locations listed in Schedule C are included in Schedule B.

Schedule A. Number of locations included in Schedule A: 72

Schedule B. Number of locations included in Schedule B: 63

Schedule C. Number of locations included in Schedule C: 9

The data in Schedules A and C is based on sales reports submitted to ADQ by franchisees of the restaurants included in the schedule and the data in Schedule B is based on information submitted on P&Ls from franchisees of the restaurants included in the schedule.

ADQ has not audited or independently verified the results in the P&Ls or sales reports.

Gross Sales. Gross sales, as used in Item 19 and in the Operating Agreement, means the total revenues and receipts from the sale of all products sold by the Restaurant, whether paid for by cash, credit (not adjusted for credit card fees) or gift card, barter, or otherwise, including sales of all products under any of the Trademarks as well as sales of other products, services, and merchandise, whether or not identified by other brand names, and excluding sales taxes and revenues and receipts arising directly from Licensee’s sale of gift cards.

Product Cost. The cost of the food products that are sold to consumers and the associated paper purchases (based on beginning inventory, plus purchases, less ending inventory). The food products include ingredients, beverages, and condiments. The associated paper purchases include bags, product wraps and containers, other paper products, cups and lids, straws, and eating utensils.

Labor. The sum of crew labor wages, manager’s salary and other compensation, and related taxes and benefits. Labor does not include payments that may be made to a franchisee or its owners in the form of a manager’s salary or wages. Labor does not include payments that may be made to a franchisee or its owners in the form of an owner’s draw, a dividend, or similar distributions.

Restaurant Controllables.The sum of utilities, telephone, local advertising, repairs and maintenance, service contractors, laundry and uniforms, operating supplies (other than inventory), trash and recycling, delivery service provider fees and commissions, and bank charges (other than debt service).

Miscellaneous Expenses. All miscellaneous expenses are rolled up into the total Restaurant Controllables percentage.

Manageable Profit. Profit remaining after deduction of sales taxes, discounts, Product Cost, Labor Cost, and Restaurant Controllables, but before the deduction of occupancy costs, insurance (non-employment), continuing license fees, sales promotion program fees, legal fees, accounting fees, and other administrative costs.

Schedule A – Gross Sales for All Locations That Met the Criteria for Inclusion in the Financial Performance Representation (72 units)

Total Gross Sales

Best: $2,753,016
Worst: $549,419
Weighted Average: $1,352,173
Straight Average: $1,232,792
Locations That Outperformed the Weighted Average: 20
Locations That Outperformed the Straight Average: 32

Schedule B – For GC Core 72 (59 units) and GC Core 47 (4 units) Locations That Submitted a Usable P&L to ADQ

GC Core 72 Prototypical Freestanding Building Model

Best

Total Gross Sales: $2,761,510
Total Product Cost: 22.99%
Total Labor Cost: 21.67%
Total Restaurant Controllables: 5.24%
Total Manageable Profit: 49.04%

Worst

Total Gross Sales: $695,155
Total Product Cost: 35.83%
Total Labor Cost: 48.29%
Total Restaurant Controllables: 16.19%
Total Manageable Profit: 2.69%

Weighted Average

Total Gross Sales: $1,378,117
Total Product Cost: 30.57%
Total Labor Cost: 30.44%
Total Restaurant Controllables: 9.57%
Total Manageable Profit: 29.42%

Straight Average

Total Gross Sales: $1,250,587
Total Product Cost: 30.49%
Total Labor Cost: 30.90%
Total Restaurant Controllables: 9.83%
Total Manageable Profit: 28.78%

Locations That Outperformed the Weighted Average

Total Gross Sales: 15 (25%)
Total Product Cost: 29 (49%)
Total Labor Cost: 34 (58%)
Total Restaurant Controllables: 31 (53%)
Total Manageable Profit: 33 (56%)

Locations That Outperformed the Straight Average

Total Gross Sales: 24 (41%)
Total Product Cost: 28 (47%)
Total Labor Cost: 34 (58%)
Total Restaurant Controllables: 31 (53%)
Total Manageable Profit: 34 (58%)

GC Core 47 Prototypical Freestanding Building Model

Best

Total Gross Sales: $1,428,413
Total Product Cost: 26.66%
Total Labor Cost: 26.10%
Total Restaurant Controllables: 5.62%
Total Manageable Profit: 39.60%

Worst

Total Gross Sales: $549,418
Total Product Cost: 39.65%
Total Labor Cost: 35.91%
Total Restaurant Controllables: 16.80%
Total Manageable Profit: 7.64%

Weighted Average

Total Gross Sales: $1,200,834
Total Product Cost: 31.22%
Total Labor Cost: 31.62%
Total Restaurant Controllables: 8.69%
Total Manageable Profit: 28.46%

Straight Average

Total Gross Sales: $1,092,207
Total Product Cost: 32.27%
Total Labor Cost: 32.27%
Total Restaurant Controllables: 10.01%
Total Manageable Profit: 25.45%

Locations That Outperformed the Weighted Average

Total Gross Sales: 2 (50%)
Total Product Cost: 2 (50%)
Total Labor Cost: 1 (25%)
Total Restaurant Controllables: 2 (50%)
Total Manageable Profit: 2 (50%)

Locations That Outperformed the Straight Average

Total Gross Sales: 2 (50%)
Total Product Cost: 2 (50%)
Total Labor Cost: 1 (25%)
Total Restaurant Controllables: 3 (75%)
Total Manageable Profit: 3 (75%)

Schedule C – For Locations That Did Not Submit a Usable P&L to ADQ (9 units)

Total Gross Sales

Best: $1,593,995
Worst: $701,072
Weighted Average: $1,247,223
Straight Average: $1,188,100
Locations That Outperformed the Weighted Average: 4
Locations That Outperformed the Straight Average: 5

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