Sonic execs discuss new innovations, health careSonic execs discuss new innovations, health care

After reporting flat same-store sales growth during the third quarter last week, Sonic Corp. held its first major investor meeting since 2010 to discuss its plans for growth ahead.

“We are excited to see several interesting consumer-facing initiatives that are likely to position the brand for same-store sales growth down the road,” wrote Alexander Slagle, an equity analyst at Jeffries, in a report after the meeting.

Those initiatives include the development of new menu items and innovative ordering technology, expansion into smaller towns, and a proactive approach to health care.

RELATED
• Sonic expects same-store sales to improve in 2013
• Sonic exploring loyalty program, new ads
• More quick-service restaurant news

Sonic CEO Clifford Hudson

“We’ve, with a 21st-century focus, put together a series of initiatives that are somewhat more akin to what we’ve seen historically,” said chief executive Clifford Hudson.

Sonic executives recently spoke with Nation’s Restaurant about the 3,500-unit, Oklahoma City-based brand’s strategies for the reminder of 2013 and beyond.

New menu innovations

According to Sonic chief marketing officer James O’Reilly, variety and constant innovation are important differentiators for the quick-service company.

Once of the latest innovations being tested at Sonic is a digital menu board system that integrates suggestive selling, Hudson said. The digital interface system is available in four markets, he said, and it has not yet been rolled out to franchisees.

The digital interface activates when a consumer drives into a stall at a Sonic location. From there, the menu board displays daypart-appropriate deals — for example, if it’s morning, the board will display breakfast options — and follows the consumer from initial ordering to departure.

“As you’re waiting for your meal to be delivered, the system would provide prompts for desserts and ice creams,” said Claudia San Pedro, vice president of investor relations, communications at Sonic.

The average amount of time spent in a Sonic stall is 11 minutes, which puts the drive-ins in a unique selling position. In a traditional QSR, executives said, the time at the register is less than a minute.

In addition to the digital integration of the menu boards, the company is also currently testing a point-of-sale system at two company-owned locations, San Pedro said. The point-of-sale system is focused on the back of house and helps Sonic locations manage employee hours and inventory, she said.

“We’re getting ready to implement [the point-of-sale system] in another five stores,” she said, all of which are company owned.

On the menu itself, new products like the premium Asiago Caesar Grilled Chicken Club and an egg white burrito that is still in test are what set Sonic apart and will drive growth and market share in the future, said O’Reilly. A Molten Lava Cake Sundae, he said, is also performing well.

Drinks are also a key area of menu growth for Sonic. O’Reilly noted that there are more than 1 million drink combinations available at the chain, about 20,000 of which are considered light. “We have more light drink combinations than most QSRs have drinks,” he said.

The company has also rolled out black and green iced teas at its locations, O’Reilly said, both of which have already gained traction with consumers.

Health care as a differentiator

(Continued from page 1)

Sonic executives also see the company’s approach to health care as a key differentiator.

The company is taking a proactive stance on the Affordable Care Act, Hudson said, mostly to keep customers and employees happy and engaged.

Sonic has made tremendous profit strides since the recession hit, according to Hudson, and it wasn’t going to let health care get in the way of continued business progress.

“Our discussion with our operators is: Look, the most important thing is your customers and your customer service,” said Hudson.

Claudia San Pedro, vice president of investor relations, communications and treasurer at Sonic, said that the company views its line cooks as potential future managers and executives. The worst thing the company could do is cut back their hours and increase employee turnover, she said, noting that internal skill development is key to future success.

Sonic has worked with a third party to help franchisees and the company figure out how to best implement the new health care mandate, Hudson said.

“The approach we’ve taken is honestly not philosophical,” he said. “Our approach is that it’s coming in 2014. We have to figure out how to make it successful and grow with it instead of running the risk of saying we’re not part of this, cutting people back to less than 30 hours, et cetera.”

Reaching new markets

Brand awareness from national media has been a key driver of new unit success, Hudson said.

When Sonic opened its first location in the town of North Babylon on Long Island, N.Y., it reported average unit volumes of $4.5 million. A standard Sonic reports about $1.1 million in average unit volume.

What drove sales in North Babylon was increased consumer awareness, despite Sonic not having been in the market before. People in the town recognized Sonic from the ads.

“You get through several years of national advertising…the risk of entering a new market is greatly reduced,” Hudson said.

About 70 percent of the company’s media dollars are spent on the national stage, he said. All markets in the U.S. are getting multi-daypart and multi-promotional advertising, he said.

In addition, Sonic changed its expansion strategy to include towns and units with smaller footprints.

A few years ago, Sonic introduced a smaller prototype that cost several hundred thousand dollars less to build than a traditional Sonic drive-in, Hudson said.

The newly designed, smaller units cost about $800,000 to build, he said. And although they’re smaller, their vaulted ceilings, windows and clean design make them feel bigger.

Sonic opened its first small prototype in Tuttle, Okla., which has a population of fewer than 10,000 people, Hudson said. The land itself for the building was cheaper, too, he said, costing only $85,000, versus hundreds of thousands of dollars in urban areas.

“We’re willing to go back now and look at small towns, which we were ignoring for several years,” he said.

Contact Erin Dostal at [email protected].
Follow her on Twitter: @ErinDostal