Dairy Queen steers clear of China’s restaurant mid-market

It is also shunning a price war in the burger space, opting to go premium.

Dairy Queen’s Blizzard & Burgers restaurant chain isn’t waging a price war against rivals in China and is instead targeting consumers who care about quality more than money.

“We want to be a value-for-quality brand — not value for money — that’s why we use the best ingredients like our 100% Australian Angus beef hand-crafted patties and brioche buns made with New Zealand Butter,” said Alan Hsu, CEO of the CFB Group, the master franchisee of Dairy Queen & Papa Johns in China.

He noted that for a brand to succeed in the world’s second-most populous nation, it has to price its menu on the low side, which involves scaling the business to turn a product into a commodity. One can also go premium.

“In China, it’s not those on the bottom or top that decline; it’s the middle player,” Hsu said. “We don’t want to become a middle-mainstream player. We want to go to that segment where consumers care about quality more than about money.”

The CEO said the pricing war in China has become more aggressive, especially for those competing in the lower-price segment.

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“We have seen a lot of players over the past year competing in the pricing war, but if you will notice, their profitability has declined [from] last year,” he said in an email. “We don’t want to go there, that’s why we don’t have a very aggressive expansion number.”

Dairy Queen is targeting 100 restaurants for Blizzards & Burgers by 2030 and would add 250 more stores for Dairy Queen this year, Alan said. The company has about 1,500 DQ restaurants in China.

McKinsey and Company in July said confidence remained low amongst Chinese consumers due to financial uncertainty. But there are promising signs of a gradual recovery, with retail sales in the first quarter rising by 4.7% after a 3.7% increase in April and May.

Consumers are also trading up in certain product categories, whilst cutting back in others. The selective spending pattern shows that consumers prioritise value and quality in some areas, even as they seek to save money in others.

Hsu said he sees Blizzards & Burgers as a premium fast-food brand with a simple menu using high-quality ingredients. “We don’t want to make the menu complicated. But the burgers need to be very good.”

Breakfast, lunch and dinner

The company did a study to understand what consumers value most in a burger. “First is the meat —  it has to be juicy,” he said. “The buns needed to be soft and creamy. The vegetables needed to be fresh.”

Hsu said they tried 65 burgers and did eight runs of consumer testing before whittling the choices down to five — the DQ Classic, DQ Signature Burger, Avocado Beef Burger, Bacon Burger, and the Shanghai Style Worcestershire Flavoured Beef Burger.

To be clear, Blizzards & Burgers is the same brand. Aside from the hot food, it also offers Dairy Queen’s top ice cream desserts, though locations will be different.

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For 200 sq metre flagship restaurants, Dairy Queen Blizzard & Burgers will target the most visible superclass A shopping malls, leading image shopping malls or the most prominent locations in a city.

DQ Customized Cake restaurants will cover zones with upscale consumers or white-collar professionals living or working in busy city areas. Hsu said these restaurants must be along the street to capture the late-night segment. These are about 80 square metres in size.

DQ regular restaurants will cover A to C shopping malls, travel hubs and tourist attractions across Tiers 1 to 5 cities. A good EBITDA (earnings before interest, taxes, depreciation, and amortisation) will be the only criterion and they will be 30 to 70 square metres big.

The company will also set up 15 to 30-square-metre concept stores in high-traffic areas.

“Our goal is to cover the whole consumer journey,” Hsu said. “In the future, we will have a breakfast segment. We will have coffee in our restaurants. Then for lunch, they can get a burger.”

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“After lunch, they can get an ice cream, afternoon tea or dessert. Then they can have dinner. After dinner, they can have ice cream or just come to enjoy some time with each other,” he added.