EDINA (AP) -- When Warren Buffett bought International Dairy Queen three years ago, securities analysts wondered what the so-called Sage of Omaha saw in the soft-serve ice cream company.
Quick-service companies, which is what the food industry calls fast food, were supposed to be the most mature of the old economy's mature industries. IDQ was among the oldest of these companies and was an originator of the concept of franchising restaurants.
Today, the company has become a sweet fit in Buffett's Berkshire Hathaway investment firm. Growing at about 2 percent per year since the acquisition, the chain now has sales of over $2 billion.
"I know we're supposed to be in a very mature industry, but we see a lot of growth potential," said Chuck Mooty, the president and chief executive officer at IDQ headquarters in Edina.
Dairy Queen has more than 6,000 of its ice cream and food stores across the nation, about 400 more than when Berkshire Hathaway paid $585 million to buy the company in January 1998.
But only in the Midwest and South have these stores reached such a level of saturation to justify national advertising on an ongoing basis, Mooty said. "There's room for growth on both the East and West coasts, which is what we're working on now," he added.
Those efforts should get a boost from Dairy Queen's first national advertising campaign, which started during the college basketball tournament in March. The company's ad agency, Grey Worldwide, began buying network and cable television spots to promote new Blizzard products.
The geographic room for growth sets IDQ apart from some of the other major restaurant chains, Mooty said. McDonald's, Burger King, Taco Bell and other chains have reached domestic saturation points that make growth difficult by opening new stores. Growth then must come from increasing same-store sales from promotions and changes in product mixes -- a more difficult task than opening new stores.
The advertising campaign is costing more than $5 million, and communications director Dean Peters said 30 percent of the ad budget is used on prime-time television. The media campaign also gives Dairy Queen exposure, or what the ad industry calls "reach," to 80 percent of the target audience that consists of 18- to 49-year-old viewers.
The Twin Cities market has 126 Dairy Queen stores and represents one of the most developed designated market areas in the country. But Mooty said there's room for growth in stores here, too.
Investors bought out the founders and formed International Dairy Queen as an operating company in 1962, establishing a headquarters in Bloomington and moving to Edina in 1993. American Dairy Queen is the franchising unit under IDQ.
To diversify, IDQ bought Karmelkorn shops in 1986 and added Orange Julius stores a year later. IDQ also has foreign development rights to Golden Skillet restaurants, but Peters said the latter restaurants remain a minuscule part of the company's business.
IDQ had total revenues of $420 million when Berkshire Hathaway bought it by offering $27 per share in cash or $26 in its corporate stock. Some of the larger shareholders, including members of the Mooty family, took the unusual stock -- the highest priced on Wall Street -- that was then trading at $46,000 per share.
Over the past year, Berkshire Hathaway stock has traded at between $51,600 and $74,600 a share and most recently was trading at around $65,000.
For Dairy Queen, its employees, and its franchise holders, the link with Berkshire Hathaway has been a great curiosity but not much has changed, said Mooty.
Buffett buys companies he likes. He doesn't try to micromanage them from Omaha. And that is proving to be true at Dairy Queen headquarters as well.
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