A Farewell to Dairy Queens

On a recent Thursday afternoon, the front lawns of Lockney, a South Plains farming town of fewer than two thousand, were still dusted with the windblown residue of the cotton harvest. Main Street was largely deserted, and most of the storefronts were empty. Though locals long ago became hardened to news of economic woes, the latest casualty was one that few could fathom: the local Dairy Queen, the iconic fast-food mainstay of small-town Texas, closed in late October. “They came in during the night and took everything,” said Buster Poling, Lockney’s city manager.

Now the store is a hollow shell sitting in the shadow of the town’s rusted water tower. Its red roof is marked with a teardrop-shaped scar where the DQ logo once perched. Inside, the menu boards have been stripped clean. On a side window, “Go Horns” is still written in white shoe polish, a tribute to the local high school football team, whose fans would gather at Dairy Queen after games.

The old saying that every Texas town has a Dairy Queen is no longer true for many communities, especially the agricultural hamlets of the Panhandle, which have been disproportionately affected by a spate of closures. On October 30, Vasari LLC, which operated about 70 Dairy Queens across Texas, Oklahoma, and New Mexico, filed for bankruptcy and announced it was closing 29 stores, 10 of them in the Panhandle.

In Haskell, about 150 miles southeast of Lockney, city manager Janet Moeller was so concerned when she heard about the closure in her town that she called her counterpart in Graham to see if the owners of its Dairy Queen would buy the Haskell site and reopen it. So far, nothing has come of the request. “It’s devastating for Haskell,” she said.

Vasari’s explanations for its troubles are puzzling. Its bankruptcy filing claims that many of its restaurants are located in “prime oil country” and were hurt by declining oil prices. Yet only three—in Hobbs, New Mexico; Denver City; and Seagraves, all southwest of Lubbock—are close to the oil patch. Most are in cities like Post, Claude, and Perryton, in the heart of cotton country. Vasari also blamed its demise on Hurricane Harvey, claiming that it ruined inventory and damaged stores. But most store closures weren’t in areas battered by the storm. (Neither Vasari officials nor their bankruptcy attorneys responded to requests for comment.)

Deep in the bankruptcy documents, in a subsequent filing, Vasari hinted at a more deep-rooted problem: while some of its stores were profitable, the company “as a whole [was] facing net operating losses that [could not] continue unabated.” That might have left the Panhandle locations particularly vulnerable. Though most seemed to be doing a healthy business, at least in the eyes of locals, supplying remote towns miles from the interstate is an expensive proposition. Vasari doubtless burned through a lot of money paying for gas, cargo space air-conditioning, and truckers’ salaries in order to get frozen burger patties and soft-serve ice cream to restaurants that weren’t exactly booming. “In small-town fast-food restaurants, the profit margins are small,” said Mary Dawson, an associate dean at the Conrad N. Hilton College of Hotel and Restaurant Management, at the University of Houston.

Vasari, the second-largest Dairy Queen operator in the country, was formed in 2012 to buy 69 Texas stores from another bankrupt company, Roundtable Corp., for about $11 million. In 2013, Vasari itself was acquired by Eagle Merchant Partners, an Atlanta private equity firm. EMP hoped to remodel and expand Vasari’s Dairy Queen locations and capitalize on the growth of “quick-service restaurants,” a category that had seen 20 percent sales increases after the Great Recession, as families sought cheaper dining options. But that bump was short-lived. Vasari’s higher-volume stores in the Dallas–Fort Worth area soon faced mounting competition from a new crop of frozen yogurt shops and joints like Twisted Root Burger Co., which calls itself a “flip flop and baseball cap” joint. “Millennials aren’t eating at fast-food outlets,” Dawson said. And declining revenue meant Vasari’s city stores were less able to prop up its lower-volume rural locations.

Dairy Queen has long been a staple of small-town Texas, and although we have 585 restaurants, more than any other state, the chain didn’t actually start here. In 1938, J. F. “Grandpa” McCullough and his son, Alex, first sold their newly invented soft-serve at an ice cream parlor owned by Sherb Noble, in Kankakee, Illinois. The product proved to be a hit. Two years later, Noble became the first DQ franchisee when he opened a soft-serve shop in Joliet—he called it Dairy Queen because Grandpa often referred to the cow as “the queen of the dairy business.”

Even Mark Cuban can make a Blizzard

In 2002 Dallas Mavericks owner Mark Cuban criticized the head of NBA officiating, saying, “I wouldn’t hire him to manage a Dairy Queen.” Cuban then accepted an invitation to manage a Dairy Queen. He had trouble with the Q swirl on top of the soft-serve cones.

Dairy Queen reached Texas in 1946, when Missouri businessman O. W. Klose and his son, Rolly, bought the franchise rights and opened a store on Guadalupe Street in Austin, near the University of Texas campus. Rather than selling just ice cream and desserts, though, Klose added burgers and other savory items, which set Texas Dairy Queens apart from others across the country. (Dairy Queens in some other states now offer these options, but Texas Dairy Queen menus remain unique.)

To this day, virtually every Dairy Queen is a franchise; only two, both in Minnesota, are company owned. (International Dairy Queen Incorporated is based in Minneapolis and is now owned by Warren Buffett’s Berkshire Hathaway.) That’s markedly different from the growth strategies of chains like McDonald’s and Burger King, which have always maintained a healthy number of company-owned outlets. That, plus the chain’s lower franchise fees and shorter wait times for prospective owners, made Dairy Queen appealing to small-town entrepreneurs. Soon stores were popping up across rural Texas, and they became ingrained in the social fabric.

“Before the Dairy Queens appeared the people of the small towns had no place to meet and talk; and so they didn’t meet or talk, which meant that much local lore or incident remained private and ceased to be exchanged, debated and stored,” Larry McMurtry wrote in his 1999 memoir Walter Benjamin at the Dairy Queen: Reflections on Sixty and Beyond. (Benjamin, a German philosopher, pronounced his name “Ben-ya-meen,” so the title rhymes.) 

Last summer, when Republican representative Will Hurd conducted a series of meetings with constituents, he hosted them at Dairy Queens across his district, which stretches from San Antonio to El Paso. That wouldn’t surprise the 1,200 residents of Gruver, near the border of the Texas and Oklahoma panhandles, where many used to begin their workday in the fields at the now-shuttered Dairy Queen. “That’s where the farmers would meet in the mornings and drink coffee,” said city manager Johnnie Williams. 

While local ownership had been a linchpin in Dairy Queen’s growth, operators like Vasari changed the economics of franchising, Dawson said. In the nineties, well-heeled investors began rolling up mom-and-pop businesses across the country, from plumbing to pest control, hoping to boost profitability by providing economies of scale. Dairy Queen, with its disparate owners, got caught up in the trend. The result has been baleful for small towns. Although a local owner might be willing to fight through lean times, pay employees out of his own pocket, and keep the store open out of a sense of community, operations like Vasari have to weigh those concerns against the profitability of their entire operation.

Vasari hopes to reach a consensual reorganization with its creditors that would enable the company to move swiftly through bankruptcy. If approved, the company could exit bankruptcy as early as this spring. In Lockney and many other Panhandle towns, though, the Dairy Queen is unlikely to return, regardless of how the company’s financial woes are resolved.

Many of the communities affected by Vasari’s bankruptcy were already struggling, so losing even a small employer is significant. The loss is about far more than jobs or sales tax revenue. At Lockney’s Davis True Value hardware store, at the end of Main Street, Felipe Gatica, a retired mechanic, wandered in and started joking with the store’s co-owner, Ricky Griffith. But when asked about the Dairy Queen, he turned somber. “It’s a sad deal,” he said. “It’s a letdown for the community.”