Sonic Rollout Inching Closer to Chicago Area: Drive-in Chain Has Avoided Northern Climates, but That May Be Changing
Posted on: Monday, 11 September 2006, 09:00 CDT
By John Schmeltzer, Chicago Tribune
Sep. 11--Dan Kouri had never seen a Sonic Drive-In when he pulled into one in St. Louis with a mini-van loaded with his daughter's basketball team more than three years ago.
But within an hour, Kouri said he was sold on the restaurant's concept. While the basketball team partied on the restaurant's patio, he watched roller-skating carhops delivering food, just the way carhops did while he was growing up in Peoria.
Now Kouri, whose family operates six sit-down restaurants in the Peoria area, including the upscale Lariat Steakhouse, is pouring family money into the first Sonic Drive-In in that region. It is slated to open this month in Bartonville, south of Peoria.
"This is a big change for us going from a family operation to dealing with a chain," he said.
Kouri said the family and its partner, Doug Peterson, have had to learn to deal with outsiders telling them how to run a business. While that part is a change, the family is very familiar with drive-in operations--Kouri's aunt operates Peoria's famous Lou's Drive-In.
But it is also a big change for Sonic Corp., an Oklahoma City-based chain with more than 3,000 outlets that until now has treated the colder, northern half of the United States as a foreign country.
If it does begin to warm up to the north seriously and continues its pace of steady, 15 percent per year expansion, some restaurant industry observers believe Sonic could become serious competition for McDonald's Corp. For most of its 50-year history, McDonald's has been the nation's king of fast food, weighing in with more 13,000 U.S. restaurants--four times the number of Sonics.
"Even today, Sonic is a threat regionally to McDonald's," said John Owens, an analyst with Chicago-based Morningstar Inc. "In Sonic's home state there are more Sonics than McDonald's, and even in Texas, Sonic is pretty close to having the same number."
Owens said Sonic has built a solid business.
"They have a good relationship with their franchisee base and have a lot of room for expansion. Today, the juggernauts in the fast-food industry, McDonald's, Burger King and Wendy's, are having to compete fiercely with these regional guys," he said.
McDonald's spokesman Bill Whitman said the Oak Brook-based hamburger giant welcomes the competition.
"We believe it makes the industry that much stronger," he said. "We also believe it provides customers with more choice and variety, but our position in the marketplace is strong, and customers appreciate the convenience, value and menu choice they get from McDonald's."
The Sonic chain, which is built around a drive-in and outdoor-patio philosophy, has thrived in warmer climates but is preparing to take on even Chicago's sleet and snow in a nationwide expansion that has become more aggressive in recent years.
And it has a built-in Chicago fan base that can't wait for the first Sonic to arrive.
More than 1,500 Chicago-area residents are members of the chain's Sonic Cruisers fan club, even though the nearest Sonic is nearly 150 miles away in Champaign. But in a sign that the chain is on the verge of announcing the expansion of its first outlets to metropolitan Chicago, Sonic this week is hosting its annual franchisee convention at Navy Pier. Still, Cruisers may have to wait for at least two years or more before the first Sonic pops up, according to company officials.
Some Cruisers are fans because they have moved to the Chicago area from an area where a Sonic was located. But others apparently have become hooked simply because they had seen the restaurant's roller-skating carhops on commercials that air on cable television channels such as ESPN, USA and the Comedy Channel.
"I didn't realize how much I enjoyed Sonic and now that I am here I definitely miss it," said Jason Reno, 31, who moved to Chicago about four months ago after working the past eight years in Kansas City, Mo. "They seem to appreciate that you go there, and their drinks and food choices are just amazing ... You just can't get that stuff at places here in Chicago."
The drive-in and carhops touch a nostalgic nerve for many Baby Boomers who grew up going to A&W Root Beer drive-ins or one of the many independent operations that proliferated across America as memorialized by Mel's Drive-In in the 1973 movie "American Graffiti."
Enthusiasts say it's a combination of Sonic's food, ranging from authentic Coney Island hot dogs with cheese and chili to made-to-order hamburgers that don't come from a warming oven, and an enthusiastic staff that excite its loyal fans.
Sonic was rated sixth among fast-food outlets in a consumer survey conducted by the trade publication Restaurants and Institutions. Oak Brook-based McDonald's was 14th out of 16 chains that were rated. The top spot was clamed by In-N-Out Burger, a three-state chain with 200 restaurants based in California.
"We do a lot of customization. We will make it any way you want," said Drew Ritger, Sonic's senior vice president of franchise development and distribution, noting the chain offers more than 168,000 drink combinations.
Ritger said the chain has a lot of room to grow in the East, West and Midwest. Of the more than 3,000 restaurants it has, about 1,125 are concentrated in Oklahoma and Texas, he said. Sonic recently has opened restaurants in Oregon and Pennsylvania. Over the next 12 months the chain anticipates it will open about 200 new restaurants, growth it wants to maintain for the next few years.
"In the past we haven't had to grow into colder weather markets to maintain our growth, but we don't think it will be a big deal," he said. "There are days that are blizzards, but people will still eat out and shop and behave normally."
Even though the chain is preparing to roll its operation into the coldest parts of the Midwest, complete with cold-weather gear for its carhops, it is just beginning its rollout in California, where it operates 31 drive-ins.
Unlike McDonald's, which is focused on breakfast and lunch, Sonic's business is spread throughout the day and evening, said Kathryn Vorisek, a fund manager for Fiduciary Management Associates.
Vorisek said she thinks Sonic's consumer-oriented approach offers fun and relatively healthy food.
"I would describe it more as an experience than going through a McDonald's drive-through for a burger and fries," said Vorisek, a mother of three young children. "It will remain to be seen how successful they will be as they move into northern territories. But so far, so good."
Unlike many restaurant chains, including McDonald's, Sonic has recorded 20 straight years of sales growth at restaurants open a year or more. And franchisees say they make more money per year despite recording fewer sales than industry-leader McDonald's. A typical franchisee-operated McDonald's will gross about $1.5 million annually, while a typical Sonic will gross $1.1 million.
During the past two decades, the chain's sales have grown an average of about 4 percent per year, while earnings have risen by about 15 percent per year.
Estimated sales for Sonic's franchised and company-owned drive-ins total $3.2 billion. The company reported that net income in fiscal 2005 rose 20 percent, to $75.4 million, or $1.21 per share, compared with $63 million, or $1.02 per share, the year prior. Results for fiscal 2006, which ended Aug. 31, will be reported in October.
Sonic's stock, which has split three times in the past five years, closed Friday at $21.80, up 18 cents, on the Nasdaq stock market.
Unlike other franchise chains that require a flat franchisee fee, Sonic franchisees pay a graduated royalty fee to the parent company. While the franchisee is getting established, royalties total 1 percent of sales. As they become more established, the royalty increases to a maximum of 5 percent of sales. McDonald's, on the other hand, imposes a royalty fee of 4 percent of sales, plus a rental fee that can range from 4.5 percent to as much as 11 percent of sales.
"I continue to tell people that we are a different concept with a different level of service," said Chuck Harrison, chief executive of the chain that traces its roots to when its founder operated the Top Hat Drive-In in Shawnee, Okla., in 1953, two years before McDonald's founder Ray Kroc opened his first restaurant in Des Plaines.
"As a result, we have continued growing through different economic cycles, including the 1973 oil embargo," said Harrison, who has seen the company's market cap rise to $1.6 billion from $180 million during his years with the company.
Peterson is confident the Bartonville Sonic will be a hit with Peoria-area consumers and kids.
"We're already scouting new sites along Interstate 80 towards Chicago," he said.
jschmeltzer@tribune.com
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Source: Chicago Tribune
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User Comments (1)
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Posted by Luis on 02/05/2008, 21:05 it sucks where and actually when is sonics opening in chicago area |
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