Sonic boom: Restaurant chain refocuses on expansion

At the Sonic in East Norriton, Sacoya Jones delivers - on skates. The recession was rocky for two local partners, but they have big plans.
At the Sonic in East Norriton, Sacoya Jones delivers - on skates. The recession was rocky for two local partners, but they have big plans. (CLEM MURRAY / Staff Photographer)
Posted: June 30, 2014

Sonic. The word denotes megaspeed, the speed of sound, to be precise. Indeed, it was speed - of service - that a small Oklahoma chain of burger-and-root-beer drive-in restaurants wanted to convey by adopting Sonic as its name in 1959.

Today, with orders roller-skated to customers in their cars; a full-service, made-to-order menu offered all day; and a dizzying selection of drinks - there are 1.3 million possible combinations, frozen and otherwise - Sonic Corp. is publicly traded, with 3,500 drive-in restaurants in 40 states.

It expanded into new markets confident of its uniqueness, dedication to quality, and a hefty national advertising budget. Then, it entered the Northeast just in time for a recession. Imagine a roller-derby pileup.

"You almost couldn't pick a worse time within the last 20 years to go into business," said John Budd, a 1989 University of Pennsylvania graduate and Sonic's chief development and strategy officer.

Consequently, Sonic's Philadelphia-area penetration - as far west as Ephrata and east into South Jersey - stands at 13 locations, half the number it expected by now, Budd said. That's down from a peak of 22 before the recession proved to be a giant development, if not appetite, suppressant.

It was heartburn for franchisees Don Welsh and Tom Scurria. The Aramark veterans and longtime friends liked what they saw when, looking for a fresh business opportunity, they visited Sonic headquarters, in Oklahoma City, and 70 restaurants.

They signed on in 2005, opening Pennsylvania's first Sonic in 2006 in Ephrata, two more in 2007 (Morgantown and Lancaster), and two in 2008 (Limerick and Mount Joy).

"Heavy, heavy, heavy focus on planning" and doubling down on the business by focusing on the customer are how they not only got through the recession but actually grew through it, Welsh said.

Their Simple Tie Ventures L.P. is now Sonic's largest Pennsylvania franchisee, with 11 of the state's 27 restaurants. Welsh, 48, of Malvern, and Scurria, 58, of Mullica Hill, also own a Sonic in Audubon, Camden County - one of three recession casualties under prior owners that they reopened in 2012. The only year Welsh and Scurria did not add a new restaurant was 2011.

"Our goal is to get to 20 in the next four years," said Scurria, who hopes more Sonic franchisees enter the market to build concentration, preferably to 50 restaurants in the next five to 10 years.

The franchise fee is $45,000, with an additional $1.1 million to $1.6 million needed for site development, Budd said. Average annual sales per restaurant are $1.1 million, with the busiest, on Long Island and in Arizona, doing about four times that, said company spokesman Patrick Lenow.

"One of the challenges for us in established markets like the Northeast is you don't have a lot of open land," Budd said.

Sonic's focus the last few years, he said, has been trying to find conversion opportunities - fast-food businesses that did not survive the recession.

Site selection and visibility contributed to some Sonic failures in the Northeast, Budd said: "It's easy to get lost in the sea of everything."

Welsh and Scurria, Delaware County natives with fond childhood memories of a long-gone drive-in restaurant, the Root Beer Mug, on Chester Pike in Ridley, said a Sonic franchise seemed a natural fit - with some tinkering.

Welsh said they explained to Sonic CEO Clifford Hudson during his visit here on a summer day four years ago: "We can't enjoy this in January."

That led to the chain's adoption in some markets of an indoor dining room that Welsh and Scurria helped develop and have so far included at their Sonics in Ridley and East Norriton. They include flat-screen TVs and fireplaces.

Sonic, which last week reported fiscal third-quarter revenue growth of 3.8 percent from the year-ago quarter, to $152.18 million, and same-store-sales growth of 5.3 percent, plans to open 1,000 new restaurants nationwide over the next 10 years.

Budd said one-third of the locations opening over the next year would have dining rooms.

"That's more to widen our service offerings," he said. "It's not to stray from our drive-in roots."

But the hot dog buns for cheesesteaks are definitely gone - another Welsh and Scurria influence. The sandwiches now include hearty rolls from Philadelphia-based Amoroso's Baking Co.

"We just could not serve a cheesesteak on a hot dog bun," Welsh said.

Time will tell whether any of it is enough to get more of the region's fast-food devotees to drive past McDonald's, Wendy's, Burger King, and the like to get to a Sonic, said John Stanton, professor of food marketing at St. Joseph's University.

"They have to change people's habits," Stanton said. "That takes a little bit of time."

He's not a fast-food fan, he said, yet Sonic has managed to impress him.

"I thought that they were going to pull out of the market, not expand," Stanton said. "So I give them credit for that."


BY THE NUMBERS

Sonic's results for fiscal 3d quarter:

$16.8M

Net income.

$0.30

Per diluted share.

15%

Earnings-per-share growth.

5.3%

Same-store-sales growth.

10

New restaurants opened.

$38.8M

Franchise royalties and fees.

$11M

Stock buyback.

3,500

Total restaurants, 10 percent company-owned.


dmastrull@phillynews.com

215-854-2466

@dmastrull

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