Franchisee reinvents eatery, another retains brand

But Chris Patrick, who once owned six Dairy Queen locations throughout East Tennessee, has eschewed the iconic brand for another, Skinny Minniz, developed by his girlfriend Kelly Clayton, which serves similar but lower-calorie, cooked-to-order, locally-sourced versions of Dairy Queen fare.

Patrick chose to strike out with a new concept — which he and Clayton hope to eventually franchise themselves — after new investments were required by franchisees by Diary Queen, which was acquired by Warren Buffett’s Berkshire Hathaway in 1998.

He’s not alone.

“We’re seeing, as a system, in the last several years a reduction of the number of Dairy Queen stores, in the U.S.,” says Josh Schmieg, executive director of the Dairy Queen Operators and Cooperative. “For every 50 stores we build or re-image or re-face we might lose 50 stores.”

Patrick estimated renovations to the Lenoir City location would have cost about $300,000. “For the small business owner (in this economy) it’s tough for him to go borrow money,” he adds.

“We can’t say anything bad about Dairy Queen,” he says. “They were going in a different direction.”

Sales at Skinny Minniz, which opened in April, are good but haven’t reached the store’s previous levels. Still, Patrick says they’re moving in the right direction, and he’s been able to maintain the DQ-era staff of 10 employees.

Many DQs haven’t been so lucky. The Lenoir City location was the last of six Dairy Queens Patrick once owned in Morristown, Newport, Kodak, Pigeon Forge and Gatlinburg and then sold several years ago. Since then, he says, “all of them have closed.”

Napkins and handshakes

Founded in 1940, Dairy Queen introduced America to soft-serve and the food franchise business.

In the early days, some franchises developed from territorial agreements in which owners bought rights to a particular city, region or even state, sub-franchising stores within that region to individual operators.

“Some of these contracts were written on napkins, some of these contracts were done on a handshake,” says Dean Peters, associate vice president of communications for Dairy Queen.

Schmeig is careful not to blame corporate policy for local stores’ demise, attributing much of the decline to the older stores’ locations in areas no longer heavily trafficked, changing dynamics in the fast-food and ice cream businesses — with competitors ranging from McDonald’s to Marble Slab — and the passing of generations.

“Many operators that have elected to remove themselves from the system are doing so because it’s been a family business and the next generation is not interested,” he says. “They don’t want to work 75 hours a week in the summer when the Dairy Queens’ make hay. We’re seeing a lot of those first- and second-generation Dairy Queen operators just retiring.”

Bruce Bean and his family are second-generation owners of three Dairy Queens in Cookeville and Smithville, Tenn.

The company’s downtown restaurant in Cookeville, opened in 1957, stands as the town’s oldest restaurant to stay in one family, and Bean serves as the president of the Tennessee Dairy Queen Operators Association and Cooperative.

Aided by his wife and two sisters and their families, the Beans chose to carry on where their retired parents, Herman and Rebecca, left off. They’ve modernized the Smithville store — after a semi-truck ploughed through the front window — as well as the older of two Cookeville locations.

“It’s a lot harder in the restaurant business than what most people think it is,” Bean says. “You have to enjoy people, and you have to be able to work with people.”

Dairy Queen is encouraging franchise owners to adopt its new Grill and Chill brand — one of three store concepts— but Bean stopped short by choosing not to install a fountain drink station that would have displaced two tables and, he believes, would have hurt the restaurant’s profit margin.

Given the economy and competition, Bean wonders if he’s doing the right thing.

“Am I going to be able to pay it back? We’ve seen our cost of goods just drastically increase this year. I’m paying more (for ice cream) than I’ve ever paid since I’ve been in business,” he says. “(The cost increases have) really affected us, and there’s really only so much that you can pass on to the consumer.”

Bean says he’s seen Dairy Queens across the street go out of business when faced with the cost of improving their stores.

The Maryville store, for example, had a “huge, huge business,” he says, but chose to sell and the location now houses a pizzeria.

Dairy Queen may now be an international brand, but the restaurants are local businesses, Bean says.

Patrick is also emphasizing those local roots as he builds the new Skinny Minniz brand.

Working with local vendors, he created a healthier menu of old standbys — including burgers, barbecue, hot dogs, fries and ice cream treats, cutting calories and revamping the kitchen to focus on fresher, local ingredients cooked to order. The ice cream is 97 percent fat free. The bacon cheeseburger is 450 calories.

The restaurant has other local flavors: Thursday nights a local band plays outside. A portion from the sale of ice cream cakes is donated to a Knoxville charity, Kidz Team, which assists parents whose ill children require extended hospital stays. A produce stand sets up on weekends in the parking lot.

Ultimately, Patrick would like to franchise Skinny Minniz, believing the popularity of healthier, more community-oriented fast-food fare will continue to grow.

It’s the restaurant’s history, however, that’s been the most helpful in luring customers back since Skinny Minniz opened this spring.

“They still call it the old Dairy Queen,” says Natalie Carrera, head of marketing for the nascent enterprise.

Patrick laughs. “We have a lot of people who come in and don’t know we’ve changed.”