The Courier-Journal from Louisville, Kentucky • Page 37

THE COURIER-JOURNAL LOUISVILLE, KY. FRIDAY, NOVEMBER 23, 1990. Assault on a Queen Venerable ice-cream chain gears for McCompetition 1 'f 1 '3 I 4TV iAntf "Omt fettomixi --yl I i i Iff Fj' 1 P. Sullivan, president and chief executive of International Dairy Queen Dairy Queen's Minneapolis-based parent. "We are in an enviable position right now, but we have got to maximize our advantages to stay ahead." The major element of the corporate strategy seems to be to improve greatly the cleanliness and appearance of the 5,000 Dairy Queen restaurants worldwide and to add menu items, like a grilled-chicken sandwich and lower-calorie versions of the most popular ice cream treats.

Another element is to join hands with Druther's International a privately held Louisville restaurant chain that operates 145 restaurants, primarily in small towns in Kentucky and surrounding states. The two companies signed an agreement in September that allows Druther's to be a territory operator of Dairy Queens. Druther's has already converted its restaurants in Fairdale and Taylorsville to Dairy Queens. About 100 Druther's will be remodeled and open as Dairy Queens by March 1, said Mike Kull, Druther's senior executive vice president. Druther's opened its first fast-food restaurant in Middletown in 1963.

Last year, the firm had sales of about $95 million. Dairy Queen officials also suggest their restaurants' status as the local hangout the place to go after a high school football game will continue to give it an edge. And they are counting on their emphasis on soft ice cream, which accounted for half the $1.5 billion in estimated sales at Dairy Queen franchises last year, because no competitor has as broad a dessert menu. Dairy Queen should also benefit from the fact that its entire operation is franchised. The absence of company-owned stores means management's attention is focused primarily on helping the franchisees.

Finally, many of Dairy Queen's 4,600 domestic outlets were built years ago, when the expense of acquiring land and building and equipping a restaurant was far less Dairy Queen CEO Michael P. Sullivan pushes restaurant cleanliness, new menu Items NEW YORK TIMES as ways to keep small-town strength. Aware of the threat, Dairy Queen has shown uncharacteristic boldness. Under Sullivan, head of the chain since 1987, Dairy Queen began a program called Image, providing franchisees low-interest loans and partial refunds on royalties so they can improve their restaurants. So far, about 1,000 outlets have signed up.

Dairy Queen has also quickened the pace of product introductions. Having scored a huge success five years ago with the Blizzard, an immense cup of soft vanilla ice cream with candy or fruit blended in, Dairy Queen recently added a low-calorie cousin, the Breeze, that uses frozen yogurt. Other new items include a grilled-chicken sandwich; the use of cholesterol-free vegetable oil to cook french fries, onion rings and fried-chicken sandwiches, and a waffle-cone sundae. Demand is good for firms helping put out bad news I ffJ 1 Iff i By ERIC N. BERG New York Times News Service MINNEAPOLIS Dairy Queen, whose Dillybar and Peanut Buster Parfait frozen desserts and Brazier Burgers have become staples of small-town America, is about to learn if it can withstand an onslaught from the Big Mac.

For years, Dairy Queen restaurants have prospered by operating in small towns, often ignored by the giants of fast food McDonald's, Burger King and Wendy's. In fact, even though many of its outlets offer only desserts, the Dairy Queen chain has been among the most successful in the industry, producing double-digit sales and profit gains year after year. This has held true even in the last 12 months, when overall fast-food results have slumped. "It's been a hit-'em-where-they-ain't strategy that has worked quite well," said Ronald L. Strauss, the fast-food analyst at William Blair a Wall Street firm.

But the honeymoon may be near an end. Unable to expand much further in big cities and along major highways because almost all the prime locations are taken, McDonald's Corp. has said it will focus next on suburbs and small towns, perhaps with new restaurants like the Golden Arch Cafe, a diner being tested in Tennessee. While Burger King a subsidiary of Grand Metropolitan PLC of Britain, and Wendy's International Inc. have no similar tests under way, industry experts say that to sustain growth, they, too, will need to concentrate on smaller towns.

"It's very much a concern," said Jerry Taylor, a Dairy Queen operator in Pine River, about 170 miles northwest of Minneapolis. He is one of 4,019 North American franchisees, some of whom own more than one unit. That concern is being addressed at corporate headquarters. "We've got to enhance our position so that we are not a knockover," said Michael Record plant still spinning out the vinyl Associated Press GLOVERSVILLE, N.Y. Michael Hornung is a vinyl romantic.

He plays albums at home and keeps a 'record player in his office. He also has resisted pleas from his 21-year-old son to "get with it" and buy a compact disc player. As director of operations at MCA Manufacturing record and tape plant in Gloversville, Hornung runs one of the few remaining U. S. operations that manufacture vinyl records.

"It's sad to think there may come a day when records are no longer made," Hornung said. "Demand for vinyl has fallen off, but we're still producing it. It's still selling." The 37-year-old plant presses vinyl with songs by Elton John, Tom Petty and the Heartbreakers, Bobby Brown, the Oak Ridge Boys and others. MCA also owns Motown Records and the jazz-oriented GRP Records label. Records account for 20 percent of recorded-music sales nationwide, said Hornung, who added that the plant might be the only place in the country where 45s are still made.

Developments this year seem to indicate the demise of the record. Chrysalis and PolyGram announced that with a few exceptions, all their new releases will be on cassette tape and CD only. Warner-Elektra-Atlantic reported that it will cut out more than 40 percent of its viayl catalogue. That means 1,205 album titles owned by the conglomerate will no longer be available on records. The Tower Records chain said it will Recessionary Market strategist Robert Robbins is a fella who knows you can't win 'em all.

In May with the Dow industrial average around 2800 Robbins predicted the index would shoot up to 3200 in May 1991. Well, six months have gone by and the Dow is in the doghouse off 9 percent to 2539.36. So you probably figure Robbins thinks he made a dumb estimate. No way, said Robbins, who is sticking to his forecast despite a bevy of problems ranging from a sagging economy to the Persian Gulf crisis. "We have the best buying opportunities since the 1987 crash," he said.

"The damage is over; the Dow bottomed out last month at 2365." Robbins, of the Atlanta-based Robinson Humphrey Co. brokerage firm, says the rea- than it is today. "McDonald's, Burger King and Wendy's will have to do a lot of business to support the new locations they will be paying for," said William Hale, a restaurant consultant in Danvers, Mass. "Even after they come into Dairy Queen's home turf, they will still be the high-cost producer." Still, restaurant experts say Dairy Queen must improve operations to counter incursions by the industry giants. When they were the only big name in town, many Dairy Queen owners became complacent and let their restaurants become dirty, unattractive and inconsistent, experts say.

Also, approximately 500 of the restaurants have only ice cream on the menus and are open only summers. Experts say many could be driven out by new competition. ASSOCIATED PRESS Sisters recording at MCA's plant still known to make the records. the association said. About 446 million tape cassettes also were sold.

Cassette players are favored by young people, said Mick Borthick, Chrysalis' head of production, and most other music lovers have been seduced by the clearer sounds of CDs. Hornung said his plant is not planning to manufacture CDs. Instead, it is expanding its tape-production capabilities. But the Gloversville factory still makes. 7-inch and 12-inch records and will continue to do so as long as there is demand for them, he said.

"Bless them," Cohen said. But in contrast to its larger rivals, which have been opening hundreds of new restaurants a year, Dairy Queen has chosen not to expand. In fact, Dairy Queen's total number of outlets worldwide has held steady for nearly a decade. Dairy Queen's go-slow strategy of focusing on existing operations has paid off handsomely. In the 1980s, corporate revenues from sales of paper products and food to franchisees, and from royalties and interest income nearly tripled to $255 million from $77.8 million; net income rose to $23.3 million from $4.7 million; and earnings per share shot up to $2.48 from 27 cents.

Analysts are predicting another record performance this year, with income of $26 million on sales of $280 million. structuring." Such advice was one of the reasons Greyhound Lines Inc. hired Sitrick to help lead the strike-battered bus company through bankruptcy reorganization. Many companies offering crisis-management advice say that they would prefer to become involved with a troubled company as early as possible four or six months before the firm winds up in court. "That's the ideal," said Stephen H.

Case, a bankruptcy lawyer in the Washington office of Davis Polk Wardwell. "The fact of life is that these things usually are handled at the last minute." Another fact is that five years ago most troubled companies, especially those faced with a bankruptcy court date, would not have bothered to call a public relations firm at all, Case said. But the increasing complexity of business reorganizations has changed the "mum's-the-word" approach to corporate fiscal crises. Instead, they are seeking what Jaffe likes to call "rumor control." Rumors often start when companies choose to squelch information, causing their employees, stockholders, suppliers and bankers to dig for their own answers to tough questions, said attorney Alan S. Gover, a bankruptcy lawyer in the Houston office of Weil, Gotschal and Manges.

Erroneous information can cause employees to panic and abandon ship, and it can cause suppliers to stop shipping, customers to stop shopping and creditors to start suing all of which can hurt a company's chances for survival, Gover said: NO STOCK TABLES The nation's financial markets were closed yesterday for the Thanksgiving Day holiday. a 3200 Dow index. But Robbins believes the premium is worth it, based on his firm's sizzling profit-growth projections of 35 percent a year over the next three to five years. Home Depot plans to expand its 125-store chain by 25 percent a year for the next three to five years. Earnings estimates from Robinson Humphrey: $1.35 a share in the fiscal year ending Jan.

31, 1991, up from 95 cents a year earlier, $1.85 in fiscal 1992. Robbins' 12-month price target: $45, a 25 percent gain. Other picks Robbins says can rack up profit gains of 25 percent to 35 percent a year over the next five years: T2 Medical, Intelligent Electronics, Nucor Corp. and Freeport McMoRan. He sees average 12-month price gains of 30 percent.

Gannett News Service Bert Simonds checked a 45-rpm Andrews in Gloversville, N. the only U. S. factory The Washington Post Companies in trouble are dumping the notion that no news is good news, and that couldn't be better news for public relations firms and business consultants. From Los Angeles to Washington, D.

PR firms are honing a new specialty teaching clients hit hard by the economic downturn how best to disseminate information to their employees, suppliers, bankers and customers. A number of these self-described "crisis management" companies are new, such as Sitrick and formed about three years ago by people who had worked with corporate turnaround artist Sanford Sigoloff. Others are PR firms like Kekst Inc. that once specialized in mergers and acquisitions but have since moved to what they consider a better opportunity for growth. "Two years ago, local real estate firms were calling me to help them market their properties," said Jay M.

Jaffe, president of the Washington-based PR firm Jaffe Associates Inc. "Today, they are calling me to help them with bankruptcy filings. I'm getting at least one Chapter 11 call a week," said Jaffe, referring to the bankruptcy code provision under which many businesses seek to reorganize. Operating in teams of three to five people, PR firms often arrive at the doorsteps of a beleaguered client on the eve of seeking protection from creditors. Sitrick advises troubled companies to: Create a crisis-management team to address communications issues.

Make the lawyers part of that team. Restrict who can speak to the media. Ensure there are people specially trained to handle the calls of shareholders, bondholders and vendors. Decide what the story should be, stressing, for example, "the difference between laying off 3,000 people in a company and 'saving' 28,000 jobs by re credit further. Robbins sees yields on 30-year Treasury bonds sinking from 8 Vt percent to 7 3A percent by mid-1991.

Lots of value. The Standard Poor's 500-stock index is trading at 13.3 times Robbins' 1990 earnings estimates vs. an average historical multiple of 14 over the past few decades. Low dividend yields. The 500 is yielding 3.8 percent, even below the 3.9 percent it yielded when the Dow hit its crash low of 1987.

Robbins' No. 1 stock: Home Depot (closing Wednesday at $34.62 fc), the fast-growing do-it-yourself home-improvement retailer. The stock sells at a lofty 26.6 times current year's earnings double the 500 shaken strategist's faith in no longer sell 7-inch single records because several major labels won't accept returns on unsold records. "Record buyers are in the minority," said Robert Cohen, manager of the Finyl Vinyl record store in New York. "Vinyl is becoming a specialty item." In 1982, the year before CDs were introduced, manufacturers shipped 244 million records for sales of $2 billion, according to the Recording Industry Association of America.

Last year, manufacturers shipped only 34 million records for sales of $220 million. By comparison, 207 million CDs were shipped in 1989 for sales of $2.6 billion, signs haven't DAN DORFMAN son for the market's sharp sell-off the run-up in oil prices after Iraq's Aug. 2 invasion of Kuwait is history. Oil has taken the Dow for an unexpectedly bearish ride, but it hasn't ended the long-term bull market that began in 1982, Robbins said. For the next three months, or until oil drops to $23 a barrel (U.S.

benchmark crude closed at $29.63 Wednesday), he sees fmi 4m 1 stock prices flowing the opposite direction from crude. After that pow! Robbins predicts Iraqi leader Saddam Hussein will leave Kuwait either peacefully or by force. And oil, he said, could drop to as low as $16 a barrel by mid-1991. Such a decline should help ease fears of a recession and more inflation, paving the way for a sizable market rebound. Here's what else is boosting our bull's confidence: Falling inflation.

Robbins sees the consumer price index minus food and energy falling from 4 Vi percent to 4 percent by mid-1991. He sees a further drop to 3 percent in two to three years. Falling interest rates. Lower inflation could prompt the Federal Reserve to ease.