Dairy Queen: Cult Brands

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Dairy Queen, purchased by Berkshire Hathaway (NYSE: BRK-A) in 1998, is one of those mainstream brands with cult status.  That kind of groupie following is a bulletproof way established companies like Apple (NASDAQ: AAPL) and emerging players like Pinkberry stay exciting and differentiated from competition.  Pinkberry is a frozen yogurt company which has had two rounds of funding including $27.5 million from Maveron founded by Starbucks' Howard Schultz.

Given that a share of Berkshire Hathaway is at $119, 490, with a 52-week range of $98,952 to $131,463, investor interest in DQ is unlikely to be as a possible stock purchase.  Their focus would be on exploring how brands cast spells.  Part of DQ's charm is it's uncool. Acquaintances of mine here in the New York Metro area smirk when they suggest we "do DQ."  The chain is, on the surface, simple midwestern, like its corporate parent Warren Buffett. It's not trying to be what it isn't.  So, we customers can relax and be the cool ones.  Another part is the old-fashioned sense of service.  For even the order of a vanilla cone dipped in chocolate, counter help process it with great gravitas.

A sign of groupie love for DQ is the number of non-business books focused on this international franchise of over 5600 stores.  They include “Looking for Salvation at the Dairy Queen” by Susan Gregg Gilmore, “Chevrolet Summers, Dairy Queen Nights,” by Bob Greene, and “Dairy Queen” by Catherine Gilbert Murdock.  In addition, notes BUSINESS INSIDER, DQ has 4.2 million fans on Facebook where it has been since 2009, that is before many other brands saw that bonding opportunity.  It also has 3.6 million fans for its Blizzard Fan Club.

This unique kind of support has helped DQ stand up to competition in all categories.  On the one hand, there is the fast food niche. It has branched out from ice cream and simple food items such as hot dogs to low-end meals which track the McDonald’s (NYSE: MCD) menu. The seriousness of this competitive threat is illustrated by the taste and "like" comparisons done between the two, just like Pepsi v Coke, as you can scan here and here . DQ mimics Mickey D features such as kid-friendly play areas and circus-like colors.

In the frozen dessert category, DQ has remained a contender not only with newbies like Pinkberry but also among titans like Ben & Jerry’s, owned by Unilever, and Haagen-Dazs, owned by General Mills (NYSE: GIS). Since frozen desserts purchased outside the home are perceived to be an affordable indulgence, this category is bound to become glutted. 

DQ pulls off this cult identity even though its stores are franchises, meaning headquarters doesn’t have complete control.  Recently MARKETING SHERPA did a case study of how this is accomplished.  After plenty of trial and error DQ has centralized reputation management by making it easy for customers to reach headquarters through the DQ blog, website form, Facebook page, and toll free number on company bags.  One objective is to shift the conversation from online, that is public, to private.  Another is to resolve a complaint in a way okay to both the franchise owner and customer. 

The question of course for major cult players is what could deflate the enthusiasm.  The classic case of how that could happen was the consumer backlash against Netflix (NASDAQ: NFLX) when it abruptly raised prices about 60 percent.  Late last year it lost 800,000 subscribers in three months.  DQ could lose its Midwestern folksy ethos, which is a component of its cult identity, if it over-reaches for market share and takes on too many of the features of a McDonald’s or new entry to frozen desserts.


Motley Fool newsletter services recommend Apple, McDonald's and Netflix. The Motley Fool owns shares of Apple. janegenova has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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