In this FDD Talk post, you’ll learn the following:
- Section I – Estimated initial investment (franchise costs) for a Sonic Drive-In franchise, based on Item 7 of the company’s 2022 FDD
- Section II – Initial franchise fee, royalty fee, and marketing fee for a Sonic Drive-In franchise, based on Items 5 and 6 of the company’s 2022 FDD
- Section III – Number of franchised and company-owned Sonic Drive-In outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD
- Section IV – Background information on the Sonic Drive-In franchise opportunity, including relevant news updates
- Section V – Presentation and analysis of Sonic Drive-In’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:
- 2017, 2018, 2019, 2020, and 2021 average gross sales for the company Sonic Drive-Ins, franchise Sonic Drive-Ins, and all Sonic Drive-Ins (company and franchise) that were open and operating for the entire year
- 2021 average gross sales for traditional company Sonic Drive-Ins, traditional franchise Sonic Drive-Ins, and all traditional Sonic Drive-Ins (company and franchise) that were open and operating for the entire 2021 fiscal year
- 2021 average gross sales for traditional Sonic Drive-Ins (company and franchise) that were open and operating for the entire 2021 fiscal year, by gross sales level (top third, middle third, and bottom third)
- 2021 average gross sales for traditional Sonic Drive-Ins (company and franchise) that were open and operating for the entire 2021 fiscal year, by geographic region (Midwest, Northeast, South, and West)
- 2021 average gross sales for traditional franchise Sonic Drive-Ins at convenience store locations that were open and operating for the entire 2021 fiscal year, by gross sales level (top third, middle third, and bottom third)
- 2021 average gross sales for non-traditional franchise Sonic restaurants that were open and operating as of the end of the 2021 fiscal year, and non-traditional franchise Sonic restaurants that were open and operating for the entire 2021 fiscal year
- 2021 average gross sales; cost of sales; wages; payroll; unit controllable expense; advertising; property tax, insurance, and royalties; and drive-in EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) for all company Sonic Drive-Ins that operated at some point during that year
- Section VI – Key ratios, comparables, computations, and analyses for the Sonic Drive-In franchise opportunity (exclusive content for Platinum subscribers)
Section I – Sonic Drive-In Franchise Costs
- Sonic Drive-In franchise costs, based on Item 7 of the company’s 2022 FDD:
- Initial License Fee: $45,000
- Travel and Living Expenses During Training: $5,000 to $53,500
- Franchisee Certified Training Team Expenses: $48,000 to $72,000
- Prepaid Expenses: $2,000 to $250,000
- Real Property/Occupancy Charge: variable
- Building Costs: $800,000 to $1,100,000
- Site Work: $450,000 to $1,200,000
- Indoor Seating: $0
- Restaurant Equipment: $175,000 to $260,000
- Point-of-Sale System (“POS”), Digital Menu Housings (“POPS”), and Other Technology: $100,000 to $175,000
- External Signage: $50,000 to $150,000
- Beginning Inventory: $20,000 to $50,000
- Advertising Funds: $2,000 to $5,000
- Insurance Premiums: $10,000 to $20,000
- Payroll: $56,000 to $137,500
- Additional Funds (3 months): $5,000 to $25,000
- Total Estimated Sonic Drive-In Franchise Costs (excluding free-standing real estate costs): $1,768,000 to $3,543,000
Section II – Sonic Drive-In’s Initial Franchise Fee, Royalty Fee, and Marketing Fee
- Sonic Drive-In’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:
- Initial License Fee: $45,000
- Royalty Fee: 5% of Gross Sales for Traditional Restaurants; 4% of Gross Sales for Non-Traditional Restaurants
- Brand Fee: 0.90% of Gross Sales
- Advertising Cooperative Fee: 3.25% of Gross Sales for Traditional Restaurants; 1.85% of Gross Sales for Non-Traditional Restaurants
Section III – Number of Franchised and Company-Owned Sonic Drive-In Outlets
- Outlets at the Start of the Year: 3,424
- Outlets at the End of the Year: 3,329
- Net Change: -95
- Outlets at the Start of the Year: 3,329
- Outlets at the End of the Year: 3,251
- Net Change: -78
- Outlets at the Start of the Year: 3,251
- Outlets at the End of the Year: 3,232
- Net Change: -19
- Outlets at the Start of the Year: 176
- Outlets at the End of the Year: 197
- Net Change: +21
- Outlets at the Start of the Year: 197
- Outlets at the End of the Year: 271
- Net Change: +74
- Outlets at the Start of the Year: 271
- Outlets at the End of the Year: 320
- Net Change: +49
Section IV – Background Information on the Sonic Drive-In Franchise
14 Things You Need to Know About the Sonic Drive-In Franchise
Launches New Singles-To-Go Drink Mixes
1. In mid-October 2021, Sonic debuted its Sonic Drink Mix Singles-To-Go in its wildly popular Cherry Limeade, Ocean Water, and Strawberry Lemonade flavors. The introduction of the new drink mixes is Sonic’s latest innovation to offer fans access to the iconic flavors they love when they’re unable to visit one of the brand’s drive-in locations.
2. Each box of zero sugar, low-calorie drink mixes features six easy-to-use stick packs that can be mixed into a standard, 16.9-ounce-size water bottle, making them perfect for on-the-go moments. Whether traveling, relaxing at the beach, or out at the park with family and friends, Sonic will now be there to refresh fans anytime, anywhere.
3. Lori Abou Habib, chief marketing officer of Sonic, said, “We’re always striving to give our guests new opportunities to enjoy our iconic flavors in new and exciting ways. The new Singles-To-Go Drink Mixes are the perfect way to meet the needs of thirsty Sonic fans wherever life takes them.”
4. The drink mixes became available at HEB and select Walmart locations starting last fall, and at all Dollar General locations in February 2022. Additional retailers will be announced soon. The Jel Sert Company, makers of Sonic gelatin, pudding mixes, and shelf-stable freezer bars, will manufacture the new drink mixes. The partnership was brokered by Sonic’s licensing agency, Brand Central.
Limeades for Learning Initiative Reaches $20 Million Donation Milestone
5. In mid-November 2021, Sonic announced that during the previous month, when the 13th annual Limeades for Learning Fall Voting Campaign concluded, Sonic reached a notable milestone of $20 million in funding since the initiative began in 2009. To date, the national program has funded more than 68 thousand project requests, supporting over 36 thousand public school teachers and benefiting more than 2 million students.
6. Through the Limeades for Learning initiative, Sonic Drive-In, in partnership with education nonprofit DonorsChoose, is able to provide essential funds needed for learning materials and innovative teaching techniques to inspire creativity in public schools across the country. Sonic donates to public school teacher requests multiple times throughout the school year: during the annual Fall Voting campaign, during Teacher Appreciation Month in May, and other special funding events year-round.
7. According to Lori Abou Habib, chief marketing officer of Sonic Drive-In, “Sonic has been a longtime supporter of education. For more than a decade, we have been committed to helping teachers gain access to essential learning materials. Through Limeades for Learning and our partnership with DonorsChoose, we’ve been able to make a meaningful impact in schools across the country, all thanks to our Sonic guests, who support this initiative each time they visit their local drive-in.”
8. Charles Best, founder and CEO of DonorsChoose, said, “Sonic Drive-In has provided essential supplies that help hundreds of students flourish and empower their teachers during this unpredictable school year. We’re celebrating Sonic’s milestone of donating $20 million over the past 13 years through DonorsChoose. Because of their ongoing partnership, classroom visions have come true for teachers in every state in our nation.”
9. Sonic’s support for teachers takes place all-year long and now in the form of an extra special rewards program exclusively for educators called the Sonic Teachers’ Circle. By joining, teachers will receive exclusive rewards redeemable when placing an order online on the Sonic website or in the Sonic App.
10. Sonic was founded in 1953 by Troy Smith in Shawnee, Oklahoma. When Smith returned home after World War II, he began working in the food industry. After a few failed attempts at running restaurants, Smith purchased a five-acre parcel of land that had a log house and a walk-up root beer stand named the Top Hat. Smith dreamed of turning the log cabin into a steakhouse and continued operating the root beer stand. However, after Smith realized that the root beer stand was making a lot of money off the the sales of root beer, hot dogs, and hamburgers, Smith decided to focus solely on the root beer stand. This was the beginning of Sonic.
11. Initially, customers parked anywhere in the gravel parking lot near the stand and walked up to place their orders. While traveling in Louisiana, Smith saw a drive-in that used speakers for ordering. Smith came up with a similar system and sales immediately tripled. Charles Woodrow Pappe, an entrepreneur, saw Smith’s drive-in concept and was impressed. Pappe eventually convinced Smith to let him open the first franchise in 1956 with just a handshake for an agreement.
12. Thankfully, the partnership worked out and Smith and Pappe actually enjoyed working together. They opened more locations and launched a national franchising program in 1958. The franchising program wasn’t formally structured and they only charged an extra penny for each Sonic-label hamburger bag the company sold. Smith and Pappe changed the company’s name because Top Hat was already trademarked. They chose Sonic because it went well with the new slogan, “Service with the Speed of Sound.”
13. Despite the loose structure of the franchise system, Sonic continued to grow over the next few decades. In the 1970s, the company finally implemented a proper franchising system and standardized the way restaurants were operated. Sonic’s growth continued and by the early 2000s, there were 3,500 restaurants around the United States. In 2018, Atlanta-based Inspire Brands, owner of Arby’s and Buffalo Wild Wings, acquired Sonic for $2.3 billion. Today, Sonic has restaurants across 46 states.
Entrepreneur’s Franchise 500
14. Sonic ranked No. 38 on Entrepreneur’s 2022 Franchise 500 list.
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the Sonic Drive-In Franchise (Item 19, 2022 FDD)
- This Item 19 includes financial information from Sonic’s 2021 fiscal year, which is the period from January 4, 2021 until January 2, 2022; from Sonic’s 2020 fiscal year, which is the period from December 30, 2019 until January 3, 2021; and from the 2017, 2018, and 2019 calendar years (from January 1 until December 31 of each year).
- This Item 19 contains the actual, historical (a) average gross sales of certain Sonic Restaurants for Sonic’s 2021 fiscal year, Sonic’s 2020 fiscal year, and 2017 through 2019; (b) average gross sales for certain Sonic Restaurants for the 2021 fiscal year by gross sales level, type, and geographic region; and (c) EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent) for certain affiliate-owned Sonic Restaurants for the 2021 fiscal year.
Types of Sonic Drive-Ins
- A typical “Traditional Sonic Drive-In” is a Sonic Drive-In where a customer parks in a covered drive-in space and orders through an intercom speaker system. A carhop then delivers the customer’s food directly to the customer’s vehicle.
- Most Traditional Sonic Drive-Ins are freestanding buildings and include a drive-thru lane and a patio, and sometimes also an enclosed patio or indoor seating.
- Some Traditional Sonic Drive-Ins are located at convenience stores or travel plazas (“C-stores”).
- Traditional Drive-Ins are located across the country and in a variety of urban, suburban, and rural locations.
- Traditional Sonic Drive-Ins (other than C-stores) without inside seating typically range in size from 1,100 to 1,700 square feet, including stalls and drive thru, although there are some atypical Traditional Sonic Drive-Ins whose size falls outside this range.
- Traditional Sonic Drive-Ins (other than C-stores) with inside seating typically range from 2,000 to 4,000 square feet.
- The size of Traditional Sonic Drive-Ins that are C-store locations varies with the type of location and ranges from 1,000 to 3,000 square feet.
- A “Non-Traditional Sonic” is a Sonic Restaurant operated at a location such as a food court at a football stadium, mall, military base, or other non-traditional location.
- Non-Traditional Sonics typically range in size from 800 to 1,500 square feet, although there are some atypical Non-Traditional Sonics whose size falls outside this range.
- “Company Drive-Ins” are Sonic Restaurants that SRI, the franchisor’s affiliate, owns and operates, or that a partnership or limited liability company in which SRI owns a majority interest owns and operates.
- “Franchise Drive-Ins” are Sonic Restaurants that Sonic’s franchisees own and operate.
- Sonic’s affiliate periodically buys Sonic Restaurants from and sells Sonic Restaurants to franchisees. For transactions during its 2021 fiscal year and its 2020 fiscal year, Sonic includes the restaurants as Company Drive-Ins if its affiliate owned and operated the restaurants for the majority of the year, and it includes the restaurants as Franchise Drive-Ins if a franchisee operated the restaurants for the majority of the year.
- For the transactions from 2017 through 2019, Sonic included any Sonic Restaurant that its affiliate bought from or sold to any franchisee during the year as a Franchise Drive-In, regardless of when that purchase or sale happened during the year.
- Sonic calculated the figures in this Item 19 using information that its affiliates and franchisees provided. Sonic derived the gross sales of Franchise Drive-Ins from unaudited monthly financial reports that franchisees submitted to compute royalty fees. Sonic used gross sales data that it collected from franchisees’ POS systems to cover any monthly financial reports that franchisees failed to submit.
- Sonic’s 2020 fiscal year contained 53 weeks, so for the financial performance representations covering the 2020 fiscal year, Sonic removed the Gross Sales from the 53rd week in order to show an accurate year-over-year comparison.
Part 1 – Average Gross Sales for 2017-2020
2021 Fiscal Year – Average Gross Sales
- Company Drive-Ins (271 restaurants): $1,374,000
- Franchise Drive-Ins (3,184 restaurants): $1,708,000
- Total of Company Drive-Ins and Franchise Drive-Ins (3,455 restaurants): $1,681,000
2020 Fiscal Year – Average Gross Sales
- Company Drive-Ins (267 restaurants): $1,346,000
- Franchise Drive-Ins (3,200 restaurants): $1,633,000
- Total of Company Drive-Ins and Franchise Drive-Ins (3,467 restaurants): $1,611,000
2019 Calendar Year – Average Gross Sales
- Company Drive-Ins (169 restaurants): $1,272,000
- Franchise Drive-Ins (3,154 restaurants): $1,345,000
- Total of Company Drive-Ins and Franchise Drive-Ins (3,323 restaurants): $1,341,000
2018 Calendar Year – Average Gross Sales
- Company Drive-Ins (170 restaurants): $1,204,000
- Franchise Drive-Ins (3,316 restaurants): $1,268,000
- Total of Company Drive-Ins and Franchise Drive-Ins (3,486 restaurants): $1,265,000
2017 Calendar Year – Average Gross Sales
- Company Drive-Ins (224 restaurants): $1,147,000
- Franchise Drive-Ins (3,237 restaurants): $1,256,000
- Total of Company Drive-Ins and Franchise Drive-Ins (3,461 restaurants): $1,249,000
Part 2 – Breakdown of Average Gross Sales for 2021
Traditional Franchise Drive-Ins, by Gross Sales Level – Average Gross Sales (2021 Fiscal Year)
- Top Third (1,060 restaurants): $2,406,000
- Middle Third (1,060 restaurants): $1,627,000
- Bottom Third (1,059 restaurants): $1,096,000
- Total (3,179 restaurants): $1,709,000
Traditional Company Drive-Ins, by Gross Sales Level – Average Gross Sales (2021 Fiscal Year)
- Top Third (90 restaurants): $1,845,000
- Middle Third (91 restaurants): $1,291,000
- Bottom Third (90 restaurants): $988,000
- Total (271 restaurants): $1,374,000
All Traditional (Franchise and Company) Drive-Ins, by Gross Sales Level – Average Gross Sales (2021 Fiscal Year)
- Top Third (1,150 restaurants): $2,373,000
- Middle Third (1,150 restaurants): $1,597,000
- Bottom Third (1,150 restaurants): $1,081,000
- Total (3,450 restaurants): $1,683
All Traditional (Franchise and Company) Drive-Ins, by Geographic Location – Average Gross Sales (2021 Fiscal Year)
- Midwest (490 restaurants; 14% of total): $1,654,000
- Northeast (53 restaurants; 2% of total): $1,888,000
- South (2,482 restaurants; 72% of total): $1,653,000
- West (425 restaurants; 12% of total): $1,867,000
- Total (3,450 restaurants; 100% of total): $1,683,000
Traditional Franchise Drive-Ins at C-Store Locations, by Gross Sales Level – Average Gross Sales (2021 Fiscal Year)
- Top Third (15 restaurants): $1,663,000
- Middle Third (16 restaurants): $1,107,000
- Bottom Third (15 restaurants): $773,000
- Total (46 restaurants): $1,170,000
Non-Traditional Sonics – Average Gross Sales (2021 Fiscal Year)
- There were 6 Non-Traditional Sonics operating at the end of Sonic’s 201 fiscal year, all of which franchisees own and operate. Sonic excluded one that was temporarily closed for over a month during 2021. The following is the average gross sales during Sonic’s 2021 fiscal year for the remaining 5 Non-Traditional Sonics:
- Total (5 restaurants): $757,000
Part 3 – Profit and Loss/EBITDAR for Company Drive-Ins
- The following table shows the average gross sales, the average of certain listed expenses, and the average EBITDAR during its 2021 fiscal year for all of the Company Drive-Ins that operated at some point during that year. All of the Company Drive-Ins are Traditional Sonic Drive-Ins.
- Sonic included only Company Drive-Ins and not Franchise Drive-Ins in this last financial performance representation because it does not have sufficient expense data from the Franchise Drive-Ins to include them.
- To calculate these figures, Sonic first aggregated the Gross Sales and listed expenses for all of its Company Drive-Ins throughout the 2021 fiscal year, including from Company Drive-Ins that its affiliate opened, closed (permanently or temporarily), acquired, or sold during the year. It then divided the totals by the number of Company Drive-Ins that operated during that year, adjusting for the Company Drive-Ins that its affiliate opened, closed (permanently or temporarily), acquired, or sold during the year to reflect only the period during which Sonic’s affiliate owned them.
2021 Fiscal Year – Averages
Gross Sales: $1,380,798 (100.0%)
Cost of Sales
- Food: $339,802 (24.6%)
- Paper: $44,581 (3.2%)
- Delivery: $5 (0.0%)
- Total Cost of Sales: $384,388 (27.8%)
- Crew Salaries: $323,028 (23.4%)
- Management Salaries: $49,093 (3.6%)
- Bonus: $15,089 (1.1%)
- Vacation, Holiday, Sick, and Severance: $6,149 (0.4%)
- Fringe Benefits: $14,481 (1.0%)
- Workers’ Compensation: $4,159 (0.3%)
- Payroll Taxes: $35,690 (2.6%)
- Total Payroll: $447,689 (32.4%)
Unit Controllable Expense
- Utilities: $35,116 (2.5%)
- Supplies and Office Supplies: $9,921 (0.7%)
- Contract Services: $16,821 (1.2%)
- BOS/POS Related: $6,594 (0.5%)
- Card Fees: $40,193 (2.9%)
- R&M: $20,324 (1.5%)
- Laundry and Uniforms: $1,917 (0.1%)
- Cash Over/Short: $1,597 (0.1%)
- Total Unit Controllable Expense: $132,482 (9.6%)
- Local Advertising: $63,107 (4.6%)
- National Marketing: $11,255 (0.8%)
- Total Advertising: $74,362 (5.4%)
Property Tax, Insurance, and Royalties
- Property Taxes: $14,341 (1.0%)
- Insurance: $9,184 (0.7%)
- Royalties: $61,352 (4.4%)
- Other: $0 (0.0%)
- Total Property Tax, Insurance, and Royalties: $84,878 (6.1%)
Total Reported Expenses: $1,123,798 (81.4%)
Drive-In EBITDAR: $256,999 (18.6%)
- The dollar figure in the “Gross Sales” row reflects the average aggregate gross sales for the Company Drive-Ins.
- “Costs of Sales” includes all costs for food and food-related supplies, beverages, paper products and supplies (including bags, napkins, and cups), employee meals, and delivery costs for these items, less supplier rebates.
- “Fringe Benefits” includes group medical and dental insurance costs for your employees, which will vary depending on many factors, including the coverage and the group’s loss experience. Because the total employee base is much smaller for franchisees than for Sonic, franchisees might encounter higher relative costs in providing comparable health benefits.
- “Total Payroll” includes the wages and salaries for restaurant general managers, assistant managers, and crew members, along with bonus and similar payments, workers’ compensation payments, and payroll taxes. Crew for a Sonic Drive-In is generally about 25 employees, including both full-time and part-time workers and 3 assistant managers.
- “Management Salaries” is for one working manager’s fixed base salary.
- “Total Payroll” does not include any salaries or other costs for any district managers or other multi-unit managers. They also do not include any salaries or other costs for corporate or field employees who provide services to all or a number of the Company Drive-Ins.
- “Total Unit Controllable Expense” will vary depending on the restaurant’s location and the rates negotiated with various vendors. They include the following categories of expenses:
- (a) Utilities, such as electricity, gas, water, sewer, and telephone.
- (b) Office and cleaning supplies used at the Company Drive-Ins in the ordinary course of business. This category does not include the costs of personal protective equipment (like gloves and masks) and other cleaning and safety supplies required to address the COVID-19 pandemic. Consistent with industry practice, these costs are not reflected at the restaurant level.
- (c) Services under contracts signed at the Company Drive-In level, such as trash removal, landscaping, security/monitoring systems, pest control, grease trap services, and snow removal.
- (d) Service contracts related to maintenance for the Company Drive-In’s computer systems, including both the back-of-store systems and the point-of-sale systems.
- (e) Bank, interchange, and other fees payable on credit and debit card transactions.
- (f) Repair and maintenance costs at the Company Drive-Ins, including repairs, upgrades, and maintenance related to signage, lot, building, equipment, and technology, that are not considered capital expenditures according to Sonic’s accounting policies.
- (g) Costs for uniforms and laundry services.
- (h) Cash over/short at the Drive-Ins.
- “Total Advertising” includes payments to the Sonic Marketing Fund, Sonic Brand Fund, and Brand Technology Fund, all of which are part of National Marketing expense, and Local Advertising expenditures. Sonic included contributions to advertising cooperatives as part of Local Advertising. Some Company Drive-Ins pay 3.5% of gross sales to their advertising cooperatives and others pay 5%.
- “Total Property Taxes, Insurance, and Royalties” includes expenses that the Drive-Ins incur for property taxes, insurance, and royalty payments as defined in the License Agreement. This figure only covers property taxes (other than property taxes that are paid as part of lease rent) and does not include any federal income tax, local income tax, or gross profits tax that may apply.
- Franchisees pay Sonic royalties at varying rates depending on when they signed their License Agreements and the gross sales levels at their Franchise Drive-Ins. For this financial performance representation, Sonic imputed a royalty rate for the Company Drive-Ins that reflects the blended royalty rate that franchisees paid Sonic for their Franchise Drive-Ins.
- “Drive-In EBITDAR” means earnings before interest, taxes, depreciation, amortization, and rent. EBITDAR is a measure of store-level cash flow that is commonly used in the restaurant industry. As is customary, it excludes expenses related to the acquisition or lease of real property, as well as all debt service costs, whether principal or interest.