At first glimpse, it would be easy to mistake Sonic Corp. for a restaurant relic, a service business that drove right into a time warp. After all, drive-in restaurants—with carhops on roller skates delivering burgers and shakes to your window—were the bee’s knees during the Eisenhower administration.
But Sonic, which dates back to 1959, is not just a nostalgic nod to an era before starving suburbanites ordered meals from their Smartphones. The Oklahoma City-based company, which now boasts 3500 locations in 44 states, has weathered fierce competitive threats—including most recently, having its longstanding breakfast all-day menu challenged by arched enemy McDonald’s. Claudia San Pedro, Sonic’s CFO, notes that selling breakfast food outside of morning is just a small portion of its business. Customers, she adds, more appreciate the flexibility of having all menu items available throughout the day. “It’s something they expect from us,” says San Pedro, who became CFO earlier this year.
Management knows about dashed expectations. In 2009, Sonic’s 22 consecutive years of growth in same-store sales came to an abrupt end. As the downturn deepened, so did Sonic’s financial wound: In fiscal 2010, same-store sales decreased by nearly eight percent. “We did some deep soul-searching,” recalls San Pedro, who joined as treasurer in 2006 and rose to vice president of investor relations three years later. “We asked ourselves, ‘What is Sonic about? What do we need to do to revive it?’ We had to think about the brand’s core essence, and what it had always stood for.”
Such an approach to innovation might seem grandiose when applied to a company where Chili Cheese Tots could be considered a breakthrough. But “it was a process, there were a lot of intense meetings and we tried some things that didn’t work,” says San Pedro. “We had to re-examine everything that we did.” Here are some of the actions that resulted:
Improved taste. “Our product quality was still considered good, but we hadn’t really distinguished ourselves,” says San Pedro. Sonic improved some offerings—such as bulking up its burgers—and created others. In 2010, Sonic switched from soft serve to real ice cream. It also introduced the footlong Quarter Coney, a 12-inch hotdog topped with chili and melted cheese. The chain also added sizes, increasing pricing options. In 2011, same-store sales eked out a positive return.
Service stakeholders. Sonic owns ten percent of its units—the rest are franchised—which is about half of the percentage it owned back in 2008. As a group those units were underperforming, San Pedro says, and “would likely fare better under franchisees.” Despite the recession, many franchisees were eager to grow, having built up cash reserves. The move also appealed to shareholders by reducing the volatility of Sonic’s cash flow and business results.
Improved, if not all new, marketing. Looking for a fresh way to become relevant, the company decided to completely re-do its marketing portfolio, hiring new partners to handle everything from menus to media-buying. In 2010, Sonic even ditched its longtime ‘Two Guys’ ad campaign. Two years later, the duo returned. “We told our new agency that we thought we needed the ‘two guys’ back,’” recalls San Pedro. “The agency were more than happy to continue with them, and thought it was important that they continue to evolve”—which they have, much like Sonic itself.