All DQ stores to offer Orange Julius

March 26, 2012

All DQ stores to offer Orange Julius

All DQ stores to offer Orange Julius

International Dairy Queen Inc. will begin rolling out the Orange Julius brand to all of its stores this summer to tap into the growing smoothie category.

Orange Julius products now are offered at more than 800 Dairy Queen restaurants in the United States and Canada, the majority of which are small Dairy Queen/Orange Julius Treat Center mall locations. That leaves more than 4,000 stores that don’t yet have those items, including many of the larger, more food-focused Brazier and DQ Grill & Chill sites.

Dairy Queen announced the decision to its franchisees in January, and all stores will be expected to participate. Stores that add Orange Julius as part of the upcoming rollout will carry a more limited selection of “Julius Originals” and “Fruit Smoothies” products than what is typically offered at standalone Orange Julius stores or the co-branded Treat Center locations.

“Our goal is to get Orange Julius into any location that can support it,” said Troy Bader, Dairy Queen’s chief operating officer for the U.S. market. “Orange Julius gives us an opportunity to grow in the beverage category and to drive frequency, especially in the p.m. snack category.”

While some customers may buy a smoothie instead of a Blizzard or malt, Dairy Queen’s research indicates that roughly 75 percent of Orange Julius sales are incremental sales from people who otherwise wouldn’t have purchased anything.

That could be especially true with health-conscious women who otherwise might not order anything when they take their kids to Dairy Queen, said Darren Tristano, executive vice president at Chicago-based restaurant consulting firm Technomic Inc.

“You know ice cream is bad for you, but smoothies are perceived as a more healthful indulgence,” he said, noting that it also could generate more sales in the morning.

A medium Orange Julius Original has 290 calories and no fat, and a 3-Berry Blast smoothie has 510 calories and one gram of fat. By comparison, a medium chocolate malt has 800 calories and 27 grams of fat.

Modest investment
While Dairy Queen and its franchisees battled in the past over the conversion of Brazier stores to DQ Grill & Chill, the Dairy Queen Operators’ Association (DQOA) says its members are on board with the Orange Julius rollout.

“I think the majority of stores are going to embrace this,” DQOA Executive Director Josh Schmieg said. “They’re looking for products to compete with chains that are offering smoothies.”
Dairy Queen declined to disclose what additional equipment franchisees will need to install for the Orange Julius offerings, but Bader said the “investment is really quite reasonable for a rollout of this nature.”

Tristano estimated that the costs likely will be between $5,000 and $10,000 per store for equipment and signage.

There’s also some concern that older, smaller stores may lack counter space for equipment and back-of-house storage for ingredients. Dairy Queen hasn’t yet determined whether some stores may receive exceptions to opt out of the rollout.
“It might require some creativity,” Bader said of the space constraints. “But for the right opportunity, people always find a way to be creative.”

Schmieg said franchisees also want the option to independently source Orange Julius ingredients, as they’re allowed to for Dairy Queen products. He said the company has agreed to allow that, but it will be difficult to find alternative suppliers before the rollout begins this summer.

Lost nostalgia?
Dairy Queen bought the Orange Julius chain in 1987 and began adding it to its small Treat Center locations the following year. The company started to expand the offerings to food locations in 2005, though most stores still don’t have them.
Dairy Queen decided to expand those efforts this year, pointing to the rapid growth of the smoothie category over the past few years. London-based market-research firm Mintel Group estimates that the segment generates $3 billion in annual sales, thanks largely to the growth of Jamba Juice and, more recently, the introduction of a line of fruit smoothies at McDonald’s Corp. in 2010.

“The Orange Julius brand has been around for more than 85 years. It’s even older than Dairy Queen, so the brand has a lot of value,” Bader said. “So, when we decided to focus on the smoothie category, it was obvious that Orange Julius was definitely the way to go.”

Tristano said he was a big fan of Orange Julius when he was growing up in the 1970s, but he believes the brand has faded since then. Therefore, it may take some time for it to start gaining traction again.

“I’m not sure there’s a lot of nostalgia or loyalty at this point, because it has diminished so much,” he said.

However, that gives Dairy Queen an opportunity to refresh the brand as it integrates it into the core Dairy Queen concept, Tristano said. He expects the company to rely on in-store promotion of Orange Julius products to existing customers at first, then gradually broaden its marketing efforts around the brand over time.

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Trendy Restaurants Should Thrive As Economy Improves

March 26, 2012

Trendy Restaurants Should Thrive As Economy Improves

Trendy Restaurants Should Thrive As Economy Improves

By MARILYN MUCH, INVESTOR’S BUSINESS DAILY

Trendy restaurants that survived or thrived during belt-tightening years should cash in as consumers are willing and able to eat out more often.

Quality food at attractive prices has been a winning menu for Chipotle Mexican Grill (CMG), Buffalo Wild Wings (BWLD) and Panera Bread (PNRA). They all should benefit as job and economic growth gradually improve. Rising gas prices are a head wind, though.

Commodity costs for corn and wheat are down from last year’s highs, but remain high for meat such as pork and chicken wings.

Chipotle’s sales and profits have climbed at double-digit rates the past 12 quarters, despite rising commodity prices for meat ingredients such as pork and chicken wings.

“The prospect for better consumer spending feeds into better sales … combined with the outlook for lower commodity costs both for later this year and into next year, will position the group for even better earnings trends,” said Morgan Keegan analyst Robert Derrington.

Shares of all three chains are trading at or near all-time highs.

Fast-casual chains should continue to be the fastest-growing sector in sales and expansion.

Sales are likely to rise 5% to 8% this year excluding menu price hikes, forecasts Darren Tristano, executive vice president at industry consultant Technomic.

They offer nearly the same quality as casual restaurants, but for only a couple dollars more per person than fast food, says Miller Tabak analyst Stephen Anderson.

Take fast-casual burrito chain Chipotle. Sales and profits have climbed at double-digit rates the past 12 quarters. Q4 same-store sales jumped 11.1% — highest in the industry, says Anderson.

Profit growth should accelerate to 31% in Q1 vs. 23% in Q4, according to Thomson Reuters analysts.

“Things definitely seem to be looking up,” said spokesman Chris Arnold.

Costs To ‘Level Off’
Chipotle narrowly missed profit forecasts for the past two quarters due to rising food costs, but Arnold expects those pressures to “level off” sometime this year.

The company says it has no plans for a systemwide menu price increase, though it will raise prices in the Pacific region.

Chipotle opened its first Asian-theme eatery, ShopHouse Southeast Asian Kitchen, in Washington, D.C., last September. Arnold says it has been “well-received.”

Bakery-cafe Panera has enjoyed double-digit earnings and sales growth for the last eight quarters. Analysts see profit growth accelerating to 23% in Q1 vs. 17% in Q4.

Improved quality of items such as soup, sandwiches and salads has helped fuel long-term growth, Derrington says. So have catering sales and its MyPanera loyalty program, which had 9.5 million members as of Q4.

After struggling for years, casual-sit chains overall finally began to see same-store sales turning positive about this time last year, says Tristano. He expects the uptick to continue this year.

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