Earlier this year, several franchisee associations filed suit against Dairy Queen in a Michigan federal court, arguing the company was forcing them to convert to the new concepts. The suit was dismissed in June but an attorney representing the franchisees says they are considering options.
Branding experts worry that the company’s latest efforts might be too little, too late for Orange Julius, a concept Dairy Queen has largely kept on the sidelines with virtually no promotional support, even as the market for smoothies and other blended drinks took off.
“I think it is a neglected brand,” says marketing strategist Jack Trout, president of Greenwich, Connecticut-based Trout & Partners, Ltd. “It’s out there but I don’t think there’s been anything done with it. It’s a place holder.”
Meanwhile, smoothie sales in the U.S. reached $2.45 billion in 2007, up 139 percent from 2002, according to Chicago-based market research firm Mintel. Sales are projected to rise another 68 percent from 2007 to 2012, with most of the growth occurring in 2010.
Using a research sample that drew in part from the 350 largest chain restaurants, Mintel said the total number of smoothie items on the menus of restaurants surveyed rose to 536 through the third quarter of 2007 from 473 in the first quarter of 2006.
“Every major smoothie chain is in aggressive expansion mode—but the market will become saturated sooner rather than later, especially if chains do not clarify their unique selling propositions,” the March 2008 report said.
In addition to category leader Jamba Juice, several quick-serves have in recent months jumped on the smoothie/juice bandwagon, including Taco Bell, Jack in the Box, Starbucks, and industry leader McDonald’s, which has been steadily adding items to its arsenal of premium drinks.
“It’s certainly not a mature business,” says Bob Goldin, executive vice president at market research firm Technomic. “There is opportunity, but the big chains are going to focus on it. There’s going to be some heavyweights battling it out.”
All the more reason, say marketing strategists, that IDQ should move quickly and decisively to re-establish brand positioning for Orange Julius, the granddaddy of blended drinks. The company got its start in 1926 when founder Julius Breed opened an orange juice stand in Los Angeles.
Two years later, Freed’s friend Bill Hamlin developed a drink mixture that was easier on the stomach, and thus began sales of the frothy blended concoction that evolved into the longstanding Orange Julius drink.
“They have a great legacy,” says Denise Lee Yohn, a branding consultant who has worked with Jamba Juice. “That seems like a potential leverage point.” Yohn likens Orange Julius’s brand attributes to those of the A&W restaurants, which play on nostalgia and old-fashioned goodness.
Orange Julius skews more toward a female demographic. In fact, 70 percent of Orange Julius purchases are made by women, Nissen says, stressing that the inclusion of the brand under Dairy Queen’s banner carries little threat of cannibalizing sales of more indulgent treats such as Dairy Queen Blizzards or Waffle Bowl Sundaes.
“Dairy Queen, it’s about fun and deliciousness and flavors and indulgence,” he says. “On the Orange Julius side we’re finding it’s not just what the flavor is but what does it do for me, how does it make me feel?”
Analysts believe that adding a brand like Orange Julius to existing Dairy Queen locations can help to offset the so-called veto factor, which occurs when a group of would-be consumers with varying preferences can’t find what they’re looking for at one location and opt to go somewhere else instead.
“To have both under one roof seems like a very plausible strategy that I like a lot,” says Brian Moore, an equity analyst for Wedbush Morgan Securities who covers Jamba Juice. “I view the Dairy Queen brand as strong enough to support the lesser Orange Julius brand if they do it properly.”
In the near term, IDQ’s support for Orange Julius will come by way of continued product innovation. The company is already exploring offerings such as light smoothies, including some with exotic fruits and functional benefits like anti-oxidants and pro-biotics, Nissen says.
But whether IDQ can create a brand identity for Orange Julius without a national marketing campaign remains to be seen. Unlike the Dairy Queen system, which is large enough to support national co-opted advertising, Dairy Queen/Orange Julius does not have enough scale.
Instead operators must rely on local efforts such as coupons, flyers, on-the-street sampling, and other creative means to reach out to new customers.
“The Dairy Queen story is told largely on national television,” Nissen says. “Orange Julius is going to be more word of mouth.”
That limited approach sometimes adds up to headaches for innovative franchisees like Chicago’s Goldman.
“Theres’ definitely frustration based on the lack of marketing,” he says. “Every month they’re coming out with a new smoothie. Let people know we have them before you offer alternatives.”