Sonic Drive-in: SWOT Analysis

Since opening in 1953 in Oklahoma City, Oklahoma, Sonic Drive-Ins have been a popular restaurant that has symbolized the retro cultural heritage of America. Surely, the publicly traded company with the ticker symbol SONC has enjoyed extensive growth over the last fifty years. The company still has its headquarters in Oklahoma City, despite having thousands of locations around the nation. According to Sonic’s corporate website, “SONIC has more than 3,500 drive-ins coast to coast and serves approximately 3 million customers every day” (Sonic, 2012). This restaurant draws its unique reputation from the fact that it offers a 1950’s drive-in experience, filled with rollerblades and bright signs. From a business perspective, Sonic is in the lucrative fast food industry and has enjoyed strong growth with its franchising model. Indeed, over 3,000 of their locations are franchise-owned, and this figure is growing by a rate of twenty-five locations per year (Sonic, 2012). 

Sonic’s menu and unique offering in the marketplace have been the foundation for its success. With a menu that is indicative of a 1950’s burger joint, customers all around the country enjoy what Sonic has to offer. The employees who tend to customers in their cars, called carhops, offer their services by roller-skating up to the customers and delivering food first hand. Sonic’s website lists its carhops as a strong part of their corporate brand: 

What's more, Carhops check back to ensure a quality experience. Each customer receives a mint with a drink, dessert, or meal purchase - a tradition started by company founder Troy Smith Sr. to remind customers they are worth a mint at SONIC. (Sonic, 2012)

Also, Sonic is operated by a talented team of executives that are led by Clifford Hudson, the Chairman of the Board and Chief Executive Officer (Sonic Annual Report, 2011, p. 3). According to their 2011 Annual Report, the company did almost half a billion dollars in revenue with over 300 employees working in the corporate office in Oklahoma City. A major part of Sonic’s brand has been its extensive drink menu. Indeed, many of their marketing materials boast almost 400,000 different drink combinations as part of their Drink Shop® (Sonic, 2012). 

SWOT Analysis

Strengths

Sonic’s brand and market position offer many strengths with respect to the rest of the restaurant industry. For example, they have been successful with their franchising model of letting individuals license their brand and utilize their distribution in order to purchase raw foods for the restaurants. This places the risk, or liability, for potential failure in the hands of the companies that are operating the restaurants. However, a major reason for Sonic’s success and its continued prosperity will rely on its heavy marketing efforts. For example, alongside television commercials, Sonic is moving quickly into the technological age with innovative approaches. Its mobile ordering system called On the Go is both innovative and indicative of a new age of utilizing new media types for getting more business: “According to Sonic, the service is cost-effective and all orders are prepaid and integrated into the company’s merchant accounts” (Kats, 2011, para. 2). With the utilization of new innovative technologies and intense marketing efforts through social media, Sonic has many strengths with regards to its branding strategy. 

Another major strength is Sonic’s popular menu items. Their food has gained notoriety in the market place, even with the launch of new products like hot dogs. According to a recent article and interview of Sonic’s CEO, Clifford Hudson, “the foundation for the chain’s latest success was already on the menu…” (Ravenberg, 2012, para. 1). With new and exciting products like hot dogs, “Each hot dog and topping was scrutinized to identify not only the right flavors but also the vendors that could meet the needs of the 3,600-unit chain” (Ravenberg, 2012, 1). This new product offering represents a core strength in the way in which Sonic is positioning itself in a competitive landscape of fast-food vendors: “Growing on the peripheries of our existing core market has a lower risk element than hopscotching," argued Clifford Hudson (CEO) (Arellano, 1999, para. 1). Essentially, Sonic’s future success and prosperity rest in its great menu that customers love and the potential of offering new products that fall in line with that menu as well as customer expectations.

Weaknesses

Despite Sonic’s strengths, its climate restrictions are a formidable challenge. Because drive-in locations are mostly oriented towards warmer weather, Sonic’s market capitalization is inherently limited. Looking at Sonic’s Annual Report in 2011, their location map already reflects serious limitations in terms of where they are operating (see figure 1).

(Figure 1 omitted for preview. Available via download).

Without having more locations in the northern, colder areas, of the nation, Sonic is missing out on many other potential market opportunities. This represents a serious weakness because it limits the company geographically with respect to warmer areas. Also, weather and climate-related concerns also make Sonic a somewhat seasonal business. 

Opportunities

Sonic Drive-ins have an immense opportunity to expand because of international growth and new menus for colder markets. Because Sonic’s drive-in model caters to warm climates, the company can potentially offer new products to account for northern states that are colder. Their dominant brand can be adapted to offer more for areas where the summer months are short and limited in terms of customers wanting to experience the traditional drive-through experience. Also, Sonic has the growth of the fast-food industry to its advantage. The fast-food industry has grown tremendously in the last thirty years and it will continue to do so if trends continue. According to Fast Food Nation by Eric Schlosser, “in 1970, Americans spent about $6 billion on fast food; in 2001, they spent more than $110 billion” (2002, p. 10). Even with this dated figure, the fast-food industry is a lucrative market that is experiencing intense growth. Finally, Sonic has yet to make an international presence like other brands like McDonald's. This is an immense opportunity because it can increase the company’s market capitalization in other nations that do not have this market niche filled yet. Because of this, Sonic has an opportunity to capitalize on this growth by expanding into other markets that delve outside of its climate restricted one in the United States alone.

Threats

Sonic faces some serious threats due to the competitive landscape of the fast-food industry. Mainly, even with difficult economic times, other companies like McDonald's are experiencing stronger market capitalization because they are more cost-effective than Subway. Surely, this larger market capitalization is apparent when we take into account that McDonald's has over 30,000 restaurants in the world and is growing at a much more accelerated rate (Schlosser, 2002). Restaurants like McDonald's, Burger King, Wendy’s and others are inexpensive, convenient and take less time in terms of individual transactions than Sonic’s drive-in the model. In essence, Sonic’s model of a drive-in service represents the price point of fast-food restaurants but the experience of going to a traditional sit-down restaurant from your car. This is a serious threat because the drive inexperience is a much smaller niche than the traditional fast-food model. 

Discussion

As we have seen, Sonic carries a celebrated and strong brand that is indicative of a 1950’s style retro drive inexperience, just like the movies. However, Sonic has a unique market position because not many other franchised national brands offer the same experience to customers. A major strength of Sonic’s business model has been its aggressive marketing efforts and a push towards innovative technologies such as mobile ordering and social media. Also, its franchise model has limited the company’s risk to location failure because other entrepreneurs and companies are inherited the risk, while Sonic still collects licensing and distribution fees. Despite this, a major weakness that Sonic has is its limited geographical availability due to colder weather. As they drive-in experience is central to the brand, expanding into colder markets can be difficult as consumers want to enjoy the weather as part of their dining experience. A major opportunity for Sonic is to move into colder markets as well as international ones. Finally, a major threat that Sonic faces is the stiff competition by companies such as McDonald's and Burger King that has expanded into having more locations and more diverse menus.

(Figure 2 omitted for preview. Available via download).

References

Arellano, K. (1999, June 4). The Sonic boom - Denver business journal. Business News - The Business Journals. Retrieved from http://www.bizjournals.com/denver/stories/1999/07/05/story6.html

Kats, R. (2011, April 29). Sonic Drive-In rolls out mobile ordering pilot program in 71 locations Mobile Commerce Daily. Retrieved from http://www.mobilecommercedaily.com/sonic-drive-in-rolls-out-mobile-ordering-pilot-program-in-71-locations

Ravenberg, C. (2012, April 21). MenuMasters 2012: Sonic, America's drive-in. Nation's Restaurant News Home Page. Retrieved from http://nrn.com/archive/menumasters-2012-sonic-americas-drive

Schlosser, E. (2002). Fast food nation. New York: Penguin Books.

Sonic Annual Report. (2011). Sonic Corp - 2011 Annual report to stockholders. Sonic Corp. Retrieved from http://ir.sonicdrivein.com/annuals.cfm

Sonic. (2012). Fact sheet - Corporate profile. Sonic, America's Drive-In. Retrieved from http://corporate.sonicdrivein.com/Profile/FactSheet