Wednesday, April 25, 2018

Dairy Queens of the Southwest - Canaries in the Coal Mine

DQs have always been more vulnerable than other fast-food outlets:
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.

...The old saying that every Texas town has a Dairy Queen is no longer true for many communities.

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.

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