Why Dairy Queen is popular around the world

At the 2023 Berkshire Hathaway annual meeting Dairy Queen CEO Troy Bader spoke with Yahoo Finance’s Executive Editor Brian Sozzi about overseeing international and domestic growth of the company, his outlook on sales in 2023, and how consumer behavior is changing around food.

Bader said he foresees a lot more growth in China in the year to come. “They’re mainly treated-oriented right now… [We can] leverage that love of treats for fantastic food and [we have] really got a model that’s wonderful.” Bader added that Dairy Queen is focused on using “local flavors because that’s what’s going to bring [the customers] in and create that initial appeal…” for customers around the world.

When it comes to sales and inflation, Bader said that they’ve “yet to see strong signs of recession,” but that customer behaviors have changed. “We’re seeing younger people and people with families right now, they are starting to manage their checks a little bit differently," Bader added, noting that the price value is becoming more important overall.

Key moments:
00:02:30 Presence in China
00:04:02 Inflation impact
00:04:56 Reacting to consumer behavior
00:06:17 Working with Greg Abel

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BRIAN SOZZI: And joining me now is Troy Bader, Dairy Queen CEO. Troy, good to see you, really, from the celebration of Warren Buffett here in Omaha, Nebraska. Thanks so much.

TROY BADER: Absolutely. Thank you for coming by our Dairy Queen booth and giving us some time.

BRIAN SOZZI: Full disclosure, I was talking to you off-camera, I've never tried Dairy Queen. What am I missing?

TROY BADER: First of all, I think you might be one of the only people in the US that hasn't yet. So we've got to change that. You are missing honestly some of the best, most craveable products that you can get on the treats side but also on the food side with our chicken strips and our signature stack burgers. So we've got to get her out to get a Blizzard treat in your hands and in your mouth.

BRIAN SOZZI: Fair enough. So what is the footprint in terms of Dairy Queen across the country? How many locations do you have open? And what are you seeing in the business right now?

TROY BADER: Dairy Queen has just under 7,300 locations worldwide. And we are in the US, Canada, and more than 20 other countries around the world.

BRIAN SOZZI: 7,300?

TROY BADER: 7,300.

BRIAN SOZZI: How many in the US?

TROY BADER: We have about 4,300 in the US, about 690 or so in Canada. And the balance are in international markets.

BRIAN SOZZI: I think I've been living under a rock. I can't believe I've never had Dairy Queen. But let's go overseas. Where are you big overseas? And why is that the case?

TROY BADER: Our biggest international market is China. We have 1,250 locations, as of yesterday, I think, in China. It's our fastest-growing market right now. And it's really an amazing story and view of-- we've been there over 20 years now. But what's really happening is, the affinity for Dairy Queen continues to grow.

It's becoming aspirational for many of the younger people to say, I want Dairy Queen, not just to try it because it's a treat, but I want Dairy Queen to be part of my life into the future. And they're sharing with their friends, which is exactly why Dairy Queen, in its 83 years in the United States, that's the rich history. That's what's made Dairy Queen what it is.

When I have a product or an occasion and I want to share it with you as my friend or with my family, that brand becomes more meaningful. I have this emotional connection not because-- not only because of the products but because now, I've shared moments. And my memories are really tied to those moments which tie right back to the brand. And that's Dairy Queen's secret sauce, if you will.

BRIAN SOZZI: I think a lot of investors on the Yahoo Finance platform that invest in restaurants invest in China through the lens of Starbucks. It's what they know. Having said that, what are you seeing in terms of their economic recovery in China? What does your business look like in terms of sales growth? And what are they buying off the menu there? Is it a localized menu?

TROY BADER: No. What we'll see is you're still going to see the treat-- they're mainly treat-oriented right now. Now, we are in the midst of working with our franchisees over there to talk about a food and treat concept. Pretty early on, we're excited about that because now, as the brand has developed, no different than it did in North America, we have the treats.

Now you leverage that love of treats for some fantastic food. And you've really got to model that's wonderful. So right now, it is treat-oriented in China. And Blizzard is still the number one seller. So when you asked about localization, when you go get a blizzard, it's going to be the same type of product, right? This is a blend in with coffee, with treats and baked goods and cookies and on and on and on. But we will localize those flavors because the palate in China is going to be different than the palate in the US, which is different from the palate in Mexico.

So we want to make sure we've got those local flavors because that's what's going to bring you in and create that initial appeal. Once you have developed that flavor, now you want to expand with us a little bit more into some really unique and aspirational flavors as well. So that's where it starts.

BRIAN SOZZI: 7300 locations, this year, how much in terms of sales will you do? And will that be up year over year?

TROY BADER: In 2022-- we've had three years of record sales again. And in 2022, we have more than $5.7 billion in sales on a global basis. First four months, we are up in a healthy number, I would say high single digits through the first four months of this year as well. So we're really excited about what 2023 holds as well.

BRIAN SOZZI: Let's go back to the US. Any signs of a recession in your business?

TROY BADER: Yeah, it's hard. We haven't yet seen, I would say, strong signs of recession. I actually anticipated, going into this year, that we'd see a little bit more now starting in the second quarter. So we haven't seen it. But I will pause for a moment to say, consumer behavior is beginning to change a little bit.

I think we're seeing a little bit of that trade down to quick service restaurants again. And what we're seeing is younger people and people with families right now, they are starting to manage their check a little bit differently. The price value is becoming a little bit more important than it was during the pandemic years.

During the pandemic, people had a lot of money in their pockets. And they didn't have other entertainment options. So we were selling more items and larger sizes and higher-priced items. Now people are coming back to say, I probably need to tighten the purse strings a little bit more. So I'm buying fewer items. And I'm going to have to start mixing in a little bit more value. So that's what we're seeing.

BRIAN SOZZI: How do you respond to that?

TROY BADER: What we have to do is two things. Number one, Dairy Queen is never going to be the low-cost provider because we're going to continue to focus on quality. When you get one of our products, we want to make sure that it is a high-quality product that, when you take that first bite, you're thinking about when you're going to come back for more.

So within that context though, it comes to two things. When we think of value, price is a component. It's not the only component. It's about the experience. If you come in and say, I got great products for a reasonable price and, at the end of the day, I walked away with having a really good experience and I want to go back, that's the value we're really looking for. Price will be a component.

We have our $7 meal deal in the US. We have a meal deal in Canada. That's important. That's coming with a sundae as well as your chicken strips or your burger and your fry and a drink. So it's a heck of a good deal.

So we want to make sure that we're providing price value that's right for Dairy Queen. Franchisees' margins are really getting diminished because of inflation. So we need to be mindful of that. But we are going to have price value. But we're going to give you a great experience. That's the key.

BRIAN SOZZI: I was talking to Brooks Running CEO Jim Weber, of course, another Berkshire Hathaway-owned company. And he said something I didn't realize, maybe investors didn't realize. He now reports to Greg Abel. Do you report to Greg?

TROY BADER: I report to Greg as well.

BRIAN SOZZI: And then I'll put the same question to you that I did to him. How is that different than dealing with Warren?

TROY BADER: Yeah, it's interesting. When I took over as CEO, January 1 of 2018. So I reported to Warren for a very short period of time because just after that is when they made the transition where Greg Abel took over all the noninsurance businesses. And so I don't have the history that Jim probably has to say before and after.

But I will tell you, Greg is fantastic. Greg is such a quick learner. He didn't know our business. And it took him very little time to figure out, here are the details of the business, here are the drivers, and here's what we need to do to make sure that it's right for our customer and it's right for, obviously, our franchisees and, by extension, Berkshire.

BRIAN SOZZI: Troy, great to see you. Thanks for spending some time with us here at Yahoo Finance. And then for the first time ever, you guys got me a cherry-- what is it?

TROY BADER: Cherry Dilly Bar.

BRIAN SOZZI: Cherry Dilly Bar. First time having Dairy Queen.

TROY BADER: The first time he's going to have Dairy Queen.

BRIAN SOZZI: It smells like cherries.

TROY BADER: It should.

BRIAN SOZZI: Troy, this is really good.

TROY BADER: All right.

BRIAN SOZZI: I've been missing out for 41 years of my life. Troy, good to see you. Appreciate it.

TROY BADER: Good to see you. Thank you.