SONIC® known as America’s drive-in is another iconic franchise brand that has grown to over 3500 units since forming 1959. But how did SONIC get so big? And how much does a SONIC franchise cost and how much can I earn? And is Sonic a good investment? Today on Franchise City
SONIC® was started by OKlahoman Troy Smith who once his Army duties came to a close purchased a hamburger, hot dog and root beer stand called the Top Hat. He started working at the rack of dawn delivering bread and then work all day and into the night at the Top Hat. When Troy and new partner Charles (Pah-pay) tried to copyright the name however they discovered it was already copyrighted! At the time America was fascinated with all things Atomic so Sonic seemed a good tie in. In 1959 the first franchise agreement was drawn up and royalties back then amounted to 2 cents per hamburger. The carhops on roller skates were added in and by 1970 SONIC had almost 100 locations and 12 million in gross sales. SONIC went public in 1991 and their “two guys” advertising campaign was launched in 2003 and has become one of the most popular QSR campaigns in history.
Your estimated initial investment to begin operation of a Traditional Sonic Drive-In franchise ranges from approximately $865,000 to $3,641,300 including the $45,000 franchise fee that must be paid to Sonic.
Your maximum royalties will be 5% of gross sales and are based on your revenue, brand fee is .9% of gross sales, and advertising co-op is 3.25% of gross sales.
So how much is Mr. Hudson paid to run Sonic? let’s take a look. According to Salary.com for 2017 Sonic’s CEO pulled in Three million one hundred and fifty five thousand. That works out to about $12,570 dollars per working day assuming every working day was attended. That’s a lot of mushroom burgers! During his stay Mr. Hudson has created a rare senior management team that is comprised mostly of women and minorities and a board that is is also predominately includes the same. Mr. Hudson says growing up in an era of segregated schools formed his current business views.
A few things you want to be aware of in the FDD. Page 5 Item 5 states that if you have not found a suitable location approved by Sonic within 6 months the contract may be terminated and they’ll keep $15,000 of your $45,000 franchise fee. Item 17 on page 25 refers to rights of termination -and you don’t have any. There is a 20 year term on traditional stores with one 10 year renewal and you should be aware of – NON COMPETITION COVENANTS – which requires no involvement in any competing business for 18 months within 3 miles of your former sonic or within 20m miles of any sonic restaurant – even those under construction
So how much money can I earn with a Sonic franchise? Sonic is one of the few franchises that actually lists their earnings on their website – here is a screen capture. So you can see that the earnings range is so large as to almost be useless data, for franchised restaurants the range of earnings is from $164,000 to $4.1m. Now what Sonic doesn’t show you, and this is taken from Sonic’s 2017 FDD financials as you can see the earnings of the lowest stores has been shrinking from $213,000 in 2015, to $190,000 in 2016 down to the $164,000 in 2017. Average gross sales also dropped from 1.283m in 2016 to 1.252 in 2017. and top store from 4.3 to 4.1.
Now the franchises can manipulate the data in such a way as to sound as appealing as possible, taken from their website “It’s a great time to own a SONIC Franchise” and “”SONIC franchise owners saw average gross sales-by-store increase from $1,072,000 in 2012 to $1,252,000 in 2017, with 25 percent of our stores exceeding $1.5 million in gross sales in fiscal year 2017” You see what they did here – they reached back to 2012 and ignored that pesky data point the year before that would indicate that gross sales have actually shrank from the prior year.
If you are an investor this chart will also be of interest outlining revenues based on geographic location. Looks like the South and the Midwest don’t frequent Sonic as much as their West and Northeast counterparts.
So what do you think? Is the mushroom burger a good idea and have you tried them? Is Clifford Hudson a good CEO or is he overpaid? Will Sonic continue to grow or is their brand on the decline? Comments down below don’t forget to like and subscribe and hit that bell for updates. If you need help finding a franchise call the experts at Franchise City – search over 600 franchise opportunities on our website.