Business

Sonic plans to make its drive-ins a common sight in Southland

RestaurantsRestaurant and Catering IndustryFood IndustrySonic Corporation

The slushies and skating carhops at Sonic Corp.'s drive-ins are a relative rarity in Los Angeles County, where 12 scattered units are overwhelmed by hundreds of McDonald's and dozens of Burger Kings.

But Sonic, based in Oklahoma City, hopes to become a major player in Southern California, home to quick-service rivals such as Carl's Jr., Wienerschnitzel and Fatburger.

By 2020, the company — and its popular Cherry Limeade, tater tots and chewable ice — plans to have 300 California units up and running. The chain has opened 60 restaurants in California in the 24 years it has been in the state.

Expansion in Los Angeles, a city ever-hungry for the next hot fad, will be tricky — especially for an operation whose "style hearkens back to yesterday," in the words of one executive.

"There's this question of how to be retro and still be cool," spokesman Patrick Lenow said. "A whole new generation is out there that frankly doesn't know what a drive-in is."

Sonic traces its roots to a small root beer stand in Shawnee, Okla., in 1953.

Since then, Sonic has grown to some 3,500 outlets in 44 states. Nearly half are in Oklahoma, Texas, Tennessee, Arkansas and Louisiana.

The company, which has tripled its franchise sales team in the last six months, hopes to be in all 50 states by the end of the decade.

In the next year, at least two new stores are set to open in Los Angeles County. Sonic executives, who said they're looking for franchisees already running multiple fast-food outlets, said they are in talks with several potential partners in Southern California.

Sonic has about 150,000 employees throughout its system. The planned California expansion could add an additional 50 workers per restaurant, executives said.

Among the possible initial sites for new Sonic units: near Los Angeles International Airport, Culver City and Palm Springs, executives said.

"In this part of the country, we're a 60-year-old start-up," Lenow said.

Sonic has recently been opening smaller prototype stores around its Oklahoma home base, which executives say have been better suited to rural communities. But the new setup is also proving to be well adapted to urban areas and regions with pricey real estate such as Southern California, said Bob Franke, Sonic's senior vice president of franchise sales.

The smaller-scale eateries generally have 12 to 16 parking stalls, compared with some units in Texas and elsewhere that have as many as 30. The new buildings are 20% smaller than Sonic's older 1,900-square-foot structures.

The streamlined design represents a roughly 15% reduction in property and building costs, Franke said.

For a year and a half, Sonic has also tested technology that it intends to put into all new units. Instead of seeing a menu board when pulling into a stall, customers will be able to order via an interactive screen. They can also pay using a smartphone.

The company hopes to someday use the same technology to enable patrons to place orders online or by phone ahead of arrival before they arrive.

But Sonic says its best competitive advantage in the crowded Los Angeles market will be its food.

Its menu — hot dogs, snacks, burgers and more — is available all day long. Sonic boasts that customers are able to create more than 1 million flavor combinations of its drinks, which together with desserts make up 40% of the chain's sales.

"They're very profitable sectors, which makes us attractive to franchisees," Lenow said.

On the Nasdaq exchange, where it trades under the SONC ticker, Sonic has been on a two-year tear, soaring more than 190%. On Monday, the stock closed down 2.4%, or 47 cents, to $19.25 a share.

In its first quarter, which ended Nov. 30, Sonic said its net income rose 27% to 14 cents a share, or $8.2 million, from 11 cents, or $6.1 million, a year earlier, helped in part by a $500,000 tax ruling. Revenue ticked up less than 1 percent to $126.7 million. Sales at Sonic outlets open at least a year increased 2.2%.

The company said after the market closed Monday that it expects up to 15% earnings-per-share growth in the 2014 fiscal year, though it warned that "the macroeconomic environment and its impact on consumer confidence" might affect results.

Sonic says that it avoids deep discounting, which makes its food more expensive than others in the fast-food industry. Lenow said the company is "trying to elevate the food to the quality of fast casual" — a sector that includes investor darlings such as Chipotle Mexican Grill and Panera Bread Co.

Quick-service restaurants such as Sonic represent a growing sector of the U.S. restaurant industry, which experienced flat foot traffic overall last year, according to research from NPD Group Inc.

But customer visits to quick-service eateries were up 1% for the year that ended in September compared with a year earlier, according to NPD. Fast-casual establishments enjoyed an 8% boost in patrons.

NPD is projecting a slightly better year for all restaurants in 2014, with quick service continuing to outpace the rest of the industry.

"We're not looking to mess with what works," Lenow said. "But consumers are more adventurous now than ever before."

tiffany.hsu@latimes.com

Twitter: @tiffhsulatimes


Copyright © 2014, Los Angeles Times
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RestaurantsRestaurant and Catering IndustryFood IndustrySonic Corporation
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