In this FDD Talk post, you’ll learn the following:
- Section I – Background information on the Sonic Drive-In franchise opportunity, including relevant news updates
- Section II – Estimated initial investment for a Sonic Drive-In franchise, based on Item 7 of the company’s 2019 FDD
- Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Sonic Drive-In franchise, based on Items 5 and 6 of the company’s 2019 FDD
- Section IV – Number of franchised and company-owned Sonic Drive-In outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of Sonic Drive-In’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 average and median gross sales for traditional Sonic Drive-In restaurants (company, franchise, and total) that were open and operated for the entire 12-month period ended December 31, 2018
- 2018 average and median gross sales for traditional franchise Sonic Drive-In restaurants, traditional company Sonic Drive-In restaurants, total traditional Sonic Drive-In restaurants, non-traditional Sonic restaurants, and franchise C-stores that were open and operated for the entire 12-month period ended December 31, 2018 (by gross sales level)
- 2018 average gross sales and certain expenses for company Sonic Drive-In restaurants that were open and operated for the entire 12-month period ended December 31, 2018
- 2018 EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) for certain traditional Sonic Drive-In restaurants that were open and operated for the entire 12-month period ended December 31, 2018
Section I – Background Information
24 Things You Need to Know About the Sonic Drive-In Franchise
Acquired by Inspire Brands for $2.3 Billion
1. Near the end of September 2018, Sonic Corp. announced that it had entered into a definitive merger agreement under which Inspire Brands would acquire Sonic for $43.50 per share in cash in a transaction valued at approximately $2.3 billion including the assumption of Sonic’s net debt.
2. Inspire is a multi-brand restaurant company whose portfolio includes more than 4,700 Arby’s, Buffalo Wild Wings, and Rusty Taco locations worldwide. According to the press release, following the completion of the transaction, Sonic will be a privately-held subsidiary of Inspire and will continue to be operated as an independent brand.
3. The agreement, which had been unanimously approved by Sonic’s board of directors, represents a premium of approximately 19% per share to Sonic’s closing stock price on September 24, 2018 and a premium of approximately 21% to Sonic’s 30-day volume-weighted average price.
4. Paul Brown, chief executive officer of Inspire Brands, said, “Sonic is a highly differentiated brand and is an ideal fit for the Inspire family. We have tremendous respect for Sonic’s exceptional team of employees and franchise owners, who have built one of the industry’s most distinctive restaurant brands. We’re excited to build on Sonic’s momentum as we leverage our combined expertise and capabilities to better serve guests, further support team members and franchisees and drive long-term growth.”
5. Cliff Hudson, CEO of Sonic Corp., added, “This value-maximizing transaction validates the actions we have taken over the last year to grow traffic and improve sales while delivering differentiated offerings and superior guest service. Our Board of Directors, taking into account the views of shareholders, conducted a comprehensive review of a wide range of strategic options to maximize shareholder value. This transaction delivers significant, immediate and certain value to Sonic shareholders, and the private ownership structure will provide important benefits to our guests, franchisees and employees.”
6. Hudson added, “As one of the largest owner-operators of company-owned and franchised restaurant brands, Inspire appreciates the unique culture of collaboration between Sonic and our franchisees. Sonic franchisees are engaged in planning regarding technology, new products and marketing programs, and the team at Inspire recognizes the central role our franchisees have played, and will continue to play, in Sonic’s success. We look forward to working closely with Inspire as we continue to provide made-to-order American classics, distinctive flavors and the most personalized guest experience in our industry.”
Comedians Jane Krakowski and Ellie Kemper Join Brand’s Iconic “Two Guys” in Advertising Campaign
7. In early March 2018, Sonic launched a new take on its iconic advertising campaign with the addition of comedic actresses Jane Krakowski and Ellie Kemper. In collaboration with the iconic “Two Guys” – consisting of improvisational comedians Peter Grosz and T.J. Jagodowski – the two pairs will be showcased in TV and online advertising while enjoying one-of-a-kind Sonic menu items from the front seats of their cars.
8. Lori Abou Habib, chief marketing officer for Sonic, said, “Jane and Ellie are the ideal pair to cast for this new chapter of the campaign with their strong representations of our brand personality and they bring a fresh female perspective. They exude the brand’s good-natured and fun-loving culture with their lively humor, in addition to being Sonic fans themselves. Jane and Ellie radiate authentic personalities ideal for the Sonic brand and audience.”
9. For more than a decade, the “Two Guys” have been synonymous with the brand’s amusing and
energetic strategy to advertising. Krakowski and Kemper join the comedic, iconic campaign to mark an evolution of the Sonic commercials showcasing female comedians.
10. Krawkoski said, “Ellie and I have been the biggest fans of Sonic – and the hilarious commercials – for years. When we were presented with the opportunity to join a campaign that fully embraces comedy and improv, we knew right away this was going to be fun. We have always appreciated the comedy that Peter and TJ have brought to the Sonic ads and Ellie and I are honored to be the first female comedy duo to be in the Sonic car.”
11. The commercial spots featured new Sonic products and promotions including the launch of the Sonic Signature Slingers – new cheeseburgers starting under 350 calories made with three simple ingredients: 100-percent pure beef blended with savory mushrooms and bold seasoning, becoming the first of its kind in fast food.
12. Additionally, the spots featured exciting new products throughout the summer and the Sonic Nights promotion, offering half-price floats, shakes, and ice cream slushes all made with Sonic’s real ice cream, which ran from March 5 for a limited time at participating locations.
Achieves Expansion Milestone with First Location in Alaska
13. In mid-January 2019, Sonic announced plans to open its first drive-in in the state of Alaska later this year. Owned and operated by local businessmen Larry Clark and Cameron Johnson, the new Sonic Drive-In will start serving Alaskans in Wasilla, Alaska near 2100 E. Parks Highway.
14. Johnny Jones, vice president of development and construction for Sonic, said, “Alaska has long been on our development wish list, and we’re pleased to have found a strong franchisee group to build the brand in the state. We’re confident the brand will do well in Alaska, bringing a unique menu and dining experience to this new community under the leadership of two locals.”
15. The new Sonic Drive-In is being developed by Larry Clark, long-time Wasilla resident and business owner, and Cameron Johnson, Wasilla native and local developer. With a convenient double drive-thru, an indoor dining room, and drive-in stalls, guests will be able to stop by for a quick bite to eat or enjoy a leisurely meal from the comfort of their car.
16. Clark said, “I once joked with my wife that I would buy her a Sonic Drive-In after she asked for a Cherry Limeade and later this year, this will flourish into reality. I grew up in the south where Sonic is a way of life. Alaska has been my home for 13 years now, and I can’t wait to introduce my community to this brand I know and love.”
17. Sonic Drive-In was founded in 1953 by Troy Smith in Shawnee, Oklahoma as the Top Hat Drive-In. The Top Hat was already a hamburger, hot dog, and root beer stand when Smith bought it and he continued the business.
18. Originally, Smith had customers park in a gravel parking lot and walk up to the stand to place their orders. After seeing a drive-in that used speakers for ordering in Louisiana, Smith implemented the speakers at Top Hat and hired carhops to deliver the food. Smith’s sales tripled immediately.
19. Around this time, Charles Woodrow Pappe, an entrepreneur, chanced upon the Top Hat Drive-In and was impressed by what he saw. Pappe and Smith quickly became friends and struck up a deal to open the first Top Hat franchise in Woodward, Oklahoma based on nothing more than a handshake. Two years later, Smith and Pappe built two more Top Hat Drive-Ins in nearby Enid and Stillwater.
20. As their business grew, Smith and Pappe wanted to trademark the Top Hat name, but found that it was already trademarked. They decided to change the company’s name to Sonic in 1959, which worked with their existing slogan, “Service with the Speed of Sound.”
21. Although Smith and Pappe were franchising additional Sonic locations at the time, there was no formal royalty plan and they only charged an extra penny for each Sonic-label hamburger bag the company sold – Smith and Pappe split these proceeds. There were also no joint marketing plans, standardized menus, or detailed operating requirements in place at this time for Sonic franchisees.
22. Over the next decade, Sonic continued to expand across the United States through franchising. In 1967, the year Pappe died, there were 41 drive-ins; by the end of the 1970s, there were 1,000 locations. In 1983, Smith retired from day-to-day operations, but still made appearances at the grand opening of new locations. At this time, C. Stephen Lynn stepped in as president.
23. In 1986, Lynn and a group of investors completed a $10-million leveraged buyout and took Sonic private. In 1991, Sonic became a publicly-traded company again and it continued to grow in the 1990s and 2000s. In 2018, Atlanta-based Inspire Brands, owner of Arby’s and Buffalo Wild Wings restaurants, acquired Sonic for $2.3 billion.
Entrepreneur’s Franchise 500
24. Sonic Drive-In ranked No. 3 on Entrepreneur’s 2019 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of Sonic Drive-In franchise costs, based on Item 7 of the company’s 2019 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Sonic Drive-In’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 3,149
- Outlets at the End of the Year: 3,291
- Net Change: 142
- Outlets at the Start of the Year: 3,291
- Outlets at the End of the Year: 3,360
- Net Change: 69
- Outlets at the Start of the Year: 3,360
- Outlets at the End of the Year: 3,424
- Net Change: 64
- Outlets at the Start of the Year: 377
- Outlets at the End of the Year: 267
- Net Change: -110
- Outlets at the Start of the Year: 267
- Outlets at the End of the Year: 228
- Net Change: -39
- Outlets at the Start of the Year: 228
- Outlets at the End of the Year: 176
- Net Change: -52
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
- This Item 19 contains certain information about (a) Gross Sales for Sonic restaurants for the 12-month period ended December 31, 2018; (b) Gross Sales for Sonic restaurants for the 12-month period ended December 31, 2018 by Gross Sales level, type, and certain geographic location; (c) Gross Sales and Certain Expenses for Company Drive-Ins for the 12-month period ended December 31, 2018; and (d) EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) for certain Traditional Sonic restaurants for the 12-month period ended December 31, 2018.
- In this Item 19, “Average Gross Sales” consists of the average of reported Gross Sales for the applicable Sonic restaurants for the designated time periods and groups.
- “Median Gross Sales” is the middle value of the sequence of reported Gross Sales arranged in value order.
- “Gross Sales” include all sales from the Sonic restaurants, excluding sales tax and discounts, and has the same definition as “Gross Sales” as defined in the License Agreement.
- The performance results included in this item relate to historical results. Some Sonic outlets have earned this amount. Your individual results may differ. There is no assurance that you’ll earn as much.
- The Gross Sales of Franchise Drive-Ins used in this Item 19 were derived from unaudited financial reports submitted by franchisees for the purpose of computing royalty fees. Sonic compiled the Gross Sales of Company Drive-Ins on the basis of generally accepted accounting principles, consistently applied.
Part 1 – Statement of Average Gross Sales and Median Gross Sales for the 12-Month Period Ended December 31, 2018 (Traditional Sonic Drive-Ins) ($ in thousands)
- Franchise Drive-Ins also include those drive-ins that changed from a Company Drive-In to a Franchise Drive-In, or vice versa, during the period.