Considering a Sonic Drive-In Franchise? Don’t Overlook These 12 Important Franchise Fees

If you are considering a Sonic Drive-In franchise, don’t get blindsided by these 12 important franchise fees (from the initial franchise fee, to the royalty fee, to 10 other fees found in Items 5 and 6 of Sonic Drive-In’s 2019 FDD).

1.  Initial Franchise Fee:  $22,500 (for Non-Traditional) to $45,000 (for Traditional)

• The Traditional License Agreement requires that you pay the $45,000 initial franchise fee to Sonic, and the Non-Traditional License Agreement requires that you pay the $22,500 initial franchise fee to Sonic. These payments are due when you sign the License Agreement.

• The franchise fee for the Traditional License Agreement does not vary from franchisee to franchisee, except as stated below and except for isolated occasions in which Sonic waives the initial franchise fee in connection with the re-opening of closed Sonic Drive-Ins, as part of a development incentive as discussed below, and other special circumstances.

• The initial franchise fee for a Non-Traditional License Agreement may also be reduced or waived for certain Non-Traditional Sonics such as those located in facilities that typically contract with third-party food service companies that, in turn, operate one or more franchised food concepts in the facilities.

• Those facilities typically include universities and schools; stadiums, arenas, and other sport and entertainment venues; airports and other transportation facilities; hospitals; and museums, zoos, and other public facilities.

• Sonic does offer other forms of license agreements with different franchise fees pursuant to certain contractual obligations with existing franchisees.

• From time to time, Sonic may offer development incentives to certain franchisees. These incentives may include reduced or waived franchise fees, royalty fees, and/or advertising fees. These incentives may be offered to certain franchisees in good standing based on market needs, development impact, or other reasons.

• Sonic has the right to terminate your Traditional License Agreement (1) if within one year after its date (a) you abandon construction of the Sonic Drive-In, assign your lease for the Sonic Drive-In, or give up your interest in the Sonic Drive-In, or (b) you fail to open to the public the Sonic Drive-In; or (2) if within six months after its date you fail to have a site approved for the Sonic Drive-In.

• You have the right to terminate your Traditional License Agreement if within one year from its date you do not consummate a lease or purchase a site for your Sonic Drive-In. If the Traditional License Agreement terminates for any of these reasons, Sonic will refund $30,000 of the initial license fee and will retain the remaining $15,000.

• Sonic has the right to terminate your Non-Traditional License Agreement within one year after its date if: (1) you fail to purchase or lease a site for the Non-Traditional Sonic; (2) you abandon construction of the Non-Traditional Sonic, assign your lease for the Non-Traditional Sonic, or give up your interest in the Non-Traditional Sonic; or (3) you fail to complete construction of the Non-Traditional Sonic.

• If Sonic terminates your Non-Traditional License Agreement within one year after its date for any of those reasons, Sonic will refund two-thirds of the initial licensee fee and will retain the remaining one-third.

2.  Deposit:  $10,000 for each Sonic Drive-In scheduled for development under the agreements

• The Development Agreement and the Single Store Commitment Agreement each require the payment to Sonic of a non-refundable deposit of $10,000 for each Sonic Drive-In scheduled for development under the agreements.

• Sonic will credit the full $10,000 deposit towards the franchise fee for each Sonic Drive-In opened under the Development Agreement and the Single Store Commitment Agreement. The developer must pay the balance of the franchise fee when he or she signs the License Agreement for the Sonic Drive-In being developed.

3.  Royalty Fee:  5.0% (maximum) of Gross Sales

• Due Date:  Payable monthly on the 10th day of the next month.

• Gross Sales include all revenues from the franchised location, excluding sales tax (“Gross Sales”).

4.  Brand Fee:  0.90% of Gross Sales

• Due Date:  Payable monthly on the 10th day of the next month.

• Payable to the Sonic Brand Fund.

5.  Advertising Cooperative Fee:  3.25% (minimum) of Gross Sales

• Due Date:  Payable monthly on the 10th day of the next month.

• Payable to the advertising cooperative.

6.  Additional Training Fee:  $500 per person

• Due Date:  Prior to training.

• Sonic trains one principal and one manager at no charge.

7.  Transfer Fee:  $3,000

• Due Date:  Prior to transfer.

• Fee of $1,000 payable when you transfer a controlling interest to a person already qualified as a Sonic franchisee. The transfer fee increases to $3,000 if the transferee is not already qualified as a Sonic franchisee.

8.  Audit Fee and Surcharge:  cost of audit plus 10% of unpaid amounts

• Due Date:  When billed.

• Payable only if audit shows an understatement of at least 3% of Gross Sales or unpaid advertising expenditures of at least 3% of the amount required.

9.  Late Charge:  1.75% per month of amount overdue

• Due Date:  When billed (monthly).

10.  Technology Fee:  0.25% of Gross Sales

• Due Date:  Payable monthly on the 10th day of the next month.

• Payable to the Brand Technology Fund.

11.  Renewal Fee:  $9,000 for Traditional and $4,500 for Non-Traditional

• Due Date:  6 to 12 months prior to renewal.

12.  Other:  will vary

• Due Date:  Will vary.

• Sonic may establish new or modify existing operating procedures, policies, practices, requirements, and guidelines, which may require you to incur additional expense.

• Payable to Sonic, non-refundable, and non-transferable. In some circumstances, royalties may be waived or reduced in workout or troubled location situations.