Tyro Smith's'sonic Drive-In '
Sonic Drive-In
Case Background
In 1953, Tyro Smith founded the prototype of the first Sonic drive-In in Shawnee, Oklahoma. Before 1953, he had already tried opening two other restaurants. Smith eventually bought a steak house that had a root beer stand on the lot. He intended to tear the stand down to add more parking for the steak house, but the root beer stand, called Top Hat Drive-In, proved to be more profitable and even outlasted the steak house. While traveling in Louisiana, Smith saw homemade intercom speakers at a hamburger stand that let customer order right from their cars. He liked the idea so much that he contacted the innovator and asked him to install the same intercom for Top Hat. The speaker system was placed, a canopy was added for cars to park under, and “carhops” delivered food directly to the customers’ car. Charlie Pappe, a manager of a local supermarket but looking for a new venture, dined at Top Hat while visiting his friends in Shawnee and was si impressed with the whole concept that he introduced himself to Smith. In 1956, Pappe successfully opened the second Top Hat Drive-In. Four Top Hats had been opened by …show more content…
1958, when Smith and Pappe discovered that the Top Hat name was copyrighted and began searching for a new name. Top Hat’s slogan had been “Service with the Speed of Sound,” so they agreed on Sonic, which means moving at the “speed of sound.” The first Sonic Drive-In was in Stillwater, Oklahoma, and still serves hot dogs, root beer, and frozen favorites on the same site today. Smith and Pappe helped the new partners with the layout, site selection, and operation of their new Sonic Drive-In. they charged a royalty fee of one penny per sandwich bag used by the franchisee. Pappe died in 1967, and Smith was left alone to run the company along with two franchisee who had been invited to run the supply and distribution division of Sonic. In the early days, there was no national advertising and there were no territorial rights. In 1973, a group of ten principal franchise owners, who became the officers and board of directors, restructured the company into Sonic Industries. These groups of directors purchased the sonic name, slogan, trademark, logos, and supply company and offered shares of stock to each store operator. Sonic was now owned by its franchisees and was a publicly traded company. At this point, there were 165 Sonics in the chain. From1973 to 1978, Sonic experienced a period of temendous growth. During this time, 800 new stores were opened. Sonic Advertising Trust was introduced during this period, which established a Sonic School to formally train new managers and launched Sonic’s first advertising campaign. In 1995, Sonic introduced “Sonic 2000”, an aggressive “multi-layered strategyto further unify the company in terms of a consistent menu, brand identity, products, packaging and service”.
A key element of Sonic 2000 was a “new, retrofitted exterior that features futuristic red pylons with fiber-optic lights, oval roofs and new logo”. Between 1996 and 1997, the percentage of customers who recognized the Sonic brand increased from 43 to 66. In 2001, Hudson took Sonic International by opening a store in Monterrey, Mexico, with more restaurants planned in Mexico City. By 2002, 2432 Sonic Drive-Ins operated in more than 30 states and two countries. Sonic grown to be a strong regional competitor, but as Sonic executives pondered additional growth, understanding the nature of the competitive environment became increasingly
important.
Environmental Analysis
Sonic is located primarily in the Sun Belt state and know for its personal carshop service and unique made to order menu item including toaster sandwiches, extra long cheese, coneys, frozen and fountain favorites. SONIC esp. menu allowed the chain to differ itself from other fast food outlets and to avoid price wars with its major competitions. Hamburger are serve in aluminum foil to preserve the heat, drink are put styro rather in cup to preserve cold. Competition is fierce that Sonic’s competitors upgrade their technology to improve the quality of service and gain advantage.
A. General Environment
Sonic is reluctant to enter new geographic regions they wanted to be the “preferred brand” of consumers in every market they enter remaining domestic doesn’t bother them. On the other hand sonic plan to support ongoing expansion in core markets and plans to build developing markets. By limiting their areas, it enhances its operating finances. Although these are report of plan of opening restaurant in Wyoming and Ohio, on the northern states represents going and breaking away from the chain. SONIC has tended to cluster its restaurants in warm climates because the drive in format is not advisable in cold climate.
A. Industry Environment
Opportunities for Sonic Drive-In * Sonic competes directly with other quick-service restaurants such as McDonald’s, Wendy’s, and Burger King. During the economic downturns, patrons tend to dine at less-expensive quick-service facilities. Hence, the Sonic may capture the customers of its leading competitors because Sonic offers less expensive foods but with taste of quality.
* A National Restaurant Association surveys shows that tree out of ten consumers agree that meals prepared at a restaurant or fast-food place are essential to the way they live. Sonic may be able to compete with its competitor for an advantage in market position and market share as their concept fits their customers way of living.
* Sonic may have the chance to increase its sale and have a advantage over his competitors as its “drive-in” concept is a plus that fits Americans’ way of living as the surveys stated that seven out of ten said that they rather takeout or have food delivery than to eat within the restaurant premises.
* The restaurant industry appears to be on solid ground for the time being and demand remains steady because Americans have less time and energy to prepare their own meals. * the company has many opportunities that it can avail to increase its market share and profits. One such opportunity is the broadening of its food menu. The company can include and offer even more food items in its menu as more variety will attract more customers. * The company can partner and spread its services to non-core markets and also develop new models that work in cold climate and weather. * Sonic Drive-In can focus on entering new markets and attract more adolescent generations as they like the fast food more.
Threats for Sonic Drive-In * The restaurant industry has long been considered mature, yet numerous outlets open and close each day. Competition is fierce and profit margin is small, start-up costs are relatively low to enter the market.
* Other food companies use acquisition strategy rather than construction of new units, to grow, giving them a larger revenue base over which to spread costs and more leverage with suppliers to keep costs down.
* Small local eatery and chains are also available in different places that usually entice customer to try their menu that can be more alike with what well-established chains offers in a less expensive price.
* Beacause of low start up cost, many are enticed to open same business and enter the restaurant industry.
* The top competitors of Sonic Drive-In include Burger King, Wendy’s and McDonald’s. Among these McDonalds poses the greater threat as it offers a variety of food items at very reasonable prices. Also the number of outlets, retailers, franchisers etc of these companies is, much greater than Sonic Drive-In network of branches. The competitors also have presence in international market but Sonic Drive-In does not.
B. Internal Environment Analysis
Strenghts of the Sonic Drive-In
* Sonic leads the fast-food industry in real sales growth, with higher same-store sales each year since 1987.
* Listed on Business Week’s Hot Growth Companies in 2002.
* Earned recognition from the Restaurants & Institutions Annual Choice in Chains Award as an over-all Gold Winner in March 2002 for the fourth consecutive year.
* Listed on Entrepreneur’s Franchise 500 list.
* Listed on Forbes’ list of the 200 Best Small Companies in America for the eighth consecutive year.
* Earned a spot on QSR Magazine’s America’s Hottest Chains list.
* Sonic is known for its personal carshop service and unique made to order menu item including toaster sandwiches, extra long cheese, coneys, frozen and fountain favorites. Sonic menu allowed the chain to differ itself from other fast food outlets and to avoid price wars with its major competitions.
* In 2000, Sonic reported record earnings which had risen 22 percent. Their revenues have grown from $54 million in 1991 to over $400 million in 2002. Net income also has increased during this period from $4 million to over $48 million, and return on equity has gone from a respectable 12.8 percent to over 21 percent.
* The restaurant has various points of quality that add to the value delivered to the customers and makes them more satisfied. Some of the points of quality include Styrofoam cups, aluminum foil, personalized, fast and quick service etc. Weaknesses of the Sonic Drive-In * Sonic often identified with a former spokesman instead of with unique food and carhops. * The business model that the drive ins offer is only applicable and works in areas with warm climate. * The company incurs very high media expenditures every year to market and promote its services.
* Despite the increase in restaurants, Sonic shows reluctance to enter new geographic regions.
* Sonic Corporation and its franchisees were embroiled in a bitter contract dispute over royalties and how many miles of protection radius a franchisee would enjoy.
* Sonic battles high turnover, low employee morale and difficulty attracting applicants.
* Sonic did not have a system-wide information system to track sales data or share resources.
Problem Statement Sonic is lack of consolidation of their actions with their corporate and franchise stores as well as with information technology that provides easy communication access. Because of this, the franchise was a loose collection of 1,000 independent restaurants operating in 19 states. Sonic had no advertising program and even purchasing cooperative. Menus varied from store to store- “slaw dogs served up in the Carolina; ice cream sundaes peddled by a renegade franchisee inTexas; deep-fried ‘Picke-Os’ furtively sold in Sonic’c own backyard [Oklahoma City].” Thus, their customers become confuse and that the company has a difficulty in making their “growth” plan into reality.
Alternatives Course of Action
ACA #1 The Sonic Drive-In may partner with information technology providers that can provide them withcentralized access to a broad range of communications tools, sales data reporting features, and franchising group communications and support resources. Advantages: 1. There will be easy communication access with each corporate and franchise stores. 2. It will be easy for the store owners and executives to track their sales and report it those concerned. 3. There will be an efficient communication in real time.
Disadvantages:
1. System-wide information technology will be costly and it may not be afford by the company. 2. It will take time and proper training for the employees to learn and adapt the new technology installed in their chain.
ACA #2 Sonic management executives and store owners and managers may jointly conduct meetings monthly or periodically so that they can talk with different issues regarding their business and set and impose standards that every chain should follow and abide with.
Advantages:
1. Consolidated actions will be imposed in every Sonic Drive-In chains. 2. Contract disputes and varied service offerings will be prevented and, if possible, will be eliminated. Working ethics will be improved. 3. Suggestions concerned with product innovations and improvement in service quality will be entertained and put into subject.
Disadvantages: 1. Some executives may not attend the meeting regularly. 2. Time-consuming.
Recommended Alternative and Action Plan
ACA #2 Sonic management executives and store owners and managers may jointly conduct meetings monthly or periodically so that they can talk with different issues regarding their business and set and impose standards that every chain should follow and abide with.
Functional Areas:
Marketing
Marketing head or marketing manager must be the one to lead the marketing department in making an advertising program and promotional campaigns that may lure customers and thus, develop customer loyalty with the Sonic chains. The main objective of the marketing department is to entice customers and even new franchisers for a venture and at the same promote and broaden markets for the chain and develop market penetration. Effective promotional activities and advertising can be a big help in promoting Sonic Drive-in, hence, customers will discover what Sonic Drive –in offers that its competitors doesn’t have and at the same time franchiserd will be lure ti invest in Sonic.
Production The main objective in the production area is to maintain and, if possible, improve the quality of their product competitively and ensure the satisfaction for their customer as it worth the cost they pays. Production manager should make sure that work is carried smoothly and efficiently with the quality standard of the company. Competitive and favorable quality of products will definitely lure customers and eventually gain their loyalty. Franchisers will be attracted to franchise another Sonic Drive-In chain if they noticed that there is a good quality in their product, customer loyalty is gained and the reputation of the whole company is clear and pleasing to the eye of the public.
Organization Management Sonic’s management objective is to maintain a smooth-flowing relationship in the company and encourage employees to participate actively in making innovations and improving their products and service quality. Closely monitoring their sales and operations and helping them to solve their concerns can eventually help them maintain higher sales and improve each Sonic’s Drive-In stores. They will also be the one to remind and encourage store managers and franchisers to attend to the set meeting so that they will continue gaining higher sales and improve their services.
Finance
The finance department headed by the finance manager must find ways in which they can improve their cash management practices so that they can save up and earn greater income that can help the company expand and become more stable. They must cut unnecessary expenses and allocate enough funds in projects that will create innovation and improvement in the quality of their service for a greater customer satisfaction.
Business Policy and Strategy
Summer Class
Monday - Friday 10:00 am – 12:00 nn
Case Analysis: Sonic: America’s Drive-In
Submitted by: Esplana, Maria Isabel Cabading, Romylene Frances
Submitted to: Prof. Enrique Rodrigo
Case Background
In 1953, Tyro Smith founded the prototype of the first Sonic drive-In in Shawnee, Oklahoma. Before 1953, he had already tried opening two other restaurants. Smith eventually bought a steak house that had a root beer stand on the lot. He intended to tear the stand down to add more parking for the steak house, but the root beer stand, called Top Hat Drive-In, proved to be more profitable and even outlasted the steak house. While traveling in Louisiana, Smith saw homemade intercom speakers at a hamburger stand that let customer order right from their cars. He liked the idea so much that he contacted the innovator and asked him to install the same intercom for Top Hat. The speaker system was placed, a canopy was added for cars to park under, and “carhops” delivered food directly to the customers’ car. Charlie Pappe, a manager of a local supermarket but looking for a new venture, dined at Top Hat while visiting his friends in Shawnee and was si impressed with the whole concept that he introduced himself to Smith. In 1956, Pappe successfully opened the second Top Hat Drive-In. Four Top Hats had been opened by …show more content…
1958, when Smith and Pappe discovered that the Top Hat name was copyrighted and began searching for a new name. Top Hat’s slogan had been “Service with the Speed of Sound,” so they agreed on Sonic, which means moving at the “speed of sound.” The first Sonic Drive-In was in Stillwater, Oklahoma, and still serves hot dogs, root beer, and frozen favorites on the same site today. Smith and Pappe helped the new partners with the layout, site selection, and operation of their new Sonic Drive-In. they charged a royalty fee of one penny per sandwich bag used by the franchisee. Pappe died in 1967, and Smith was left alone to run the company along with two franchisee who had been invited to run the supply and distribution division of Sonic. In the early days, there was no national advertising and there were no territorial rights. In 1973, a group of ten principal franchise owners, who became the officers and board of directors, restructured the company into Sonic Industries. These groups of directors purchased the sonic name, slogan, trademark, logos, and supply company and offered shares of stock to each store operator. Sonic was now owned by its franchisees and was a publicly traded company. At this point, there were 165 Sonics in the chain. From1973 to 1978, Sonic experienced a period of temendous growth. During this time, 800 new stores were opened. Sonic Advertising Trust was introduced during this period, which established a Sonic School to formally train new managers and launched Sonic’s first advertising campaign. In 1995, Sonic introduced “Sonic 2000”, an aggressive “multi-layered strategyto further unify the company in terms of a consistent menu, brand identity, products, packaging and service”.
A key element of Sonic 2000 was a “new, retrofitted exterior that features futuristic red pylons with fiber-optic lights, oval roofs and new logo”. Between 1996 and 1997, the percentage of customers who recognized the Sonic brand increased from 43 to 66. In 2001, Hudson took Sonic International by opening a store in Monterrey, Mexico, with more restaurants planned in Mexico City. By 2002, 2432 Sonic Drive-Ins operated in more than 30 states and two countries. Sonic grown to be a strong regional competitor, but as Sonic executives pondered additional growth, understanding the nature of the competitive environment became increasingly
important.
Environmental Analysis
Sonic is located primarily in the Sun Belt state and know for its personal carshop service and unique made to order menu item including toaster sandwiches, extra long cheese, coneys, frozen and fountain favorites. SONIC esp. menu allowed the chain to differ itself from other fast food outlets and to avoid price wars with its major competitions. Hamburger are serve in aluminum foil to preserve the heat, drink are put styro rather in cup to preserve cold. Competition is fierce that Sonic’s competitors upgrade their technology to improve the quality of service and gain advantage.
A. General Environment
Sonic is reluctant to enter new geographic regions they wanted to be the “preferred brand” of consumers in every market they enter remaining domestic doesn’t bother them. On the other hand sonic plan to support ongoing expansion in core markets and plans to build developing markets. By limiting their areas, it enhances its operating finances. Although these are report of plan of opening restaurant in Wyoming and Ohio, on the northern states represents going and breaking away from the chain. SONIC has tended to cluster its restaurants in warm climates because the drive in format is not advisable in cold climate.
A. Industry Environment
Opportunities for Sonic Drive-In * Sonic competes directly with other quick-service restaurants such as McDonald’s, Wendy’s, and Burger King. During the economic downturns, patrons tend to dine at less-expensive quick-service facilities. Hence, the Sonic may capture the customers of its leading competitors because Sonic offers less expensive foods but with taste of quality.
* A National Restaurant Association surveys shows that tree out of ten consumers agree that meals prepared at a restaurant or fast-food place are essential to the way they live. Sonic may be able to compete with its competitor for an advantage in market position and market share as their concept fits their customers way of living.
* Sonic may have the chance to increase its sale and have a advantage over his competitors as its “drive-in” concept is a plus that fits Americans’ way of living as the surveys stated that seven out of ten said that they rather takeout or have food delivery than to eat within the restaurant premises.
* The restaurant industry appears to be on solid ground for the time being and demand remains steady because Americans have less time and energy to prepare their own meals. * the company has many opportunities that it can avail to increase its market share and profits. One such opportunity is the broadening of its food menu. The company can include and offer even more food items in its menu as more variety will attract more customers. * The company can partner and spread its services to non-core markets and also develop new models that work in cold climate and weather. * Sonic Drive-In can focus on entering new markets and attract more adolescent generations as they like the fast food more.
Threats for Sonic Drive-In * The restaurant industry has long been considered mature, yet numerous outlets open and close each day. Competition is fierce and profit margin is small, start-up costs are relatively low to enter the market.
* Other food companies use acquisition strategy rather than construction of new units, to grow, giving them a larger revenue base over which to spread costs and more leverage with suppliers to keep costs down.
* Small local eatery and chains are also available in different places that usually entice customer to try their menu that can be more alike with what well-established chains offers in a less expensive price.
* Beacause of low start up cost, many are enticed to open same business and enter the restaurant industry.
* The top competitors of Sonic Drive-In include Burger King, Wendy’s and McDonald’s. Among these McDonalds poses the greater threat as it offers a variety of food items at very reasonable prices. Also the number of outlets, retailers, franchisers etc of these companies is, much greater than Sonic Drive-In network of branches. The competitors also have presence in international market but Sonic Drive-In does not.
B. Internal Environment Analysis
Strenghts of the Sonic Drive-In
* Sonic leads the fast-food industry in real sales growth, with higher same-store sales each year since 1987.
* Listed on Business Week’s Hot Growth Companies in 2002.
* Earned recognition from the Restaurants & Institutions Annual Choice in Chains Award as an over-all Gold Winner in March 2002 for the fourth consecutive year.
* Listed on Entrepreneur’s Franchise 500 list.
* Listed on Forbes’ list of the 200 Best Small Companies in America for the eighth consecutive year.
* Earned a spot on QSR Magazine’s America’s Hottest Chains list.
* Sonic is known for its personal carshop service and unique made to order menu item including toaster sandwiches, extra long cheese, coneys, frozen and fountain favorites. Sonic menu allowed the chain to differ itself from other fast food outlets and to avoid price wars with its major competitions.
* In 2000, Sonic reported record earnings which had risen 22 percent. Their revenues have grown from $54 million in 1991 to over $400 million in 2002. Net income also has increased during this period from $4 million to over $48 million, and return on equity has gone from a respectable 12.8 percent to over 21 percent.
* The restaurant has various points of quality that add to the value delivered to the customers and makes them more satisfied. Some of the points of quality include Styrofoam cups, aluminum foil, personalized, fast and quick service etc. Weaknesses of the Sonic Drive-In * Sonic often identified with a former spokesman instead of with unique food and carhops. * The business model that the drive ins offer is only applicable and works in areas with warm climate. * The company incurs very high media expenditures every year to market and promote its services.
* Despite the increase in restaurants, Sonic shows reluctance to enter new geographic regions.
* Sonic Corporation and its franchisees were embroiled in a bitter contract dispute over royalties and how many miles of protection radius a franchisee would enjoy.
* Sonic battles high turnover, low employee morale and difficulty attracting applicants.
* Sonic did not have a system-wide information system to track sales data or share resources.
Problem Statement Sonic is lack of consolidation of their actions with their corporate and franchise stores as well as with information technology that provides easy communication access. Because of this, the franchise was a loose collection of 1,000 independent restaurants operating in 19 states. Sonic had no advertising program and even purchasing cooperative. Menus varied from store to store- “slaw dogs served up in the Carolina; ice cream sundaes peddled by a renegade franchisee inTexas; deep-fried ‘Picke-Os’ furtively sold in Sonic’c own backyard [Oklahoma City].” Thus, their customers become confuse and that the company has a difficulty in making their “growth” plan into reality.
Alternatives Course of Action
ACA #1 The Sonic Drive-In may partner with information technology providers that can provide them withcentralized access to a broad range of communications tools, sales data reporting features, and franchising group communications and support resources. Advantages: 1. There will be easy communication access with each corporate and franchise stores. 2. It will be easy for the store owners and executives to track their sales and report it those concerned. 3. There will be an efficient communication in real time.
Disadvantages:
1. System-wide information technology will be costly and it may not be afford by the company. 2. It will take time and proper training for the employees to learn and adapt the new technology installed in their chain.
ACA #2 Sonic management executives and store owners and managers may jointly conduct meetings monthly or periodically so that they can talk with different issues regarding their business and set and impose standards that every chain should follow and abide with.
Advantages:
1. Consolidated actions will be imposed in every Sonic Drive-In chains. 2. Contract disputes and varied service offerings will be prevented and, if possible, will be eliminated. Working ethics will be improved. 3. Suggestions concerned with product innovations and improvement in service quality will be entertained and put into subject.
Disadvantages: 1. Some executives may not attend the meeting regularly. 2. Time-consuming.
Recommended Alternative and Action Plan
ACA #2 Sonic management executives and store owners and managers may jointly conduct meetings monthly or periodically so that they can talk with different issues regarding their business and set and impose standards that every chain should follow and abide with.
Functional Areas:
Marketing
Marketing head or marketing manager must be the one to lead the marketing department in making an advertising program and promotional campaigns that may lure customers and thus, develop customer loyalty with the Sonic chains. The main objective of the marketing department is to entice customers and even new franchisers for a venture and at the same promote and broaden markets for the chain and develop market penetration. Effective promotional activities and advertising can be a big help in promoting Sonic Drive-in, hence, customers will discover what Sonic Drive –in offers that its competitors doesn’t have and at the same time franchiserd will be lure ti invest in Sonic.
Production The main objective in the production area is to maintain and, if possible, improve the quality of their product competitively and ensure the satisfaction for their customer as it worth the cost they pays. Production manager should make sure that work is carried smoothly and efficiently with the quality standard of the company. Competitive and favorable quality of products will definitely lure customers and eventually gain their loyalty. Franchisers will be attracted to franchise another Sonic Drive-In chain if they noticed that there is a good quality in their product, customer loyalty is gained and the reputation of the whole company is clear and pleasing to the eye of the public.
Organization Management Sonic’s management objective is to maintain a smooth-flowing relationship in the company and encourage employees to participate actively in making innovations and improving their products and service quality. Closely monitoring their sales and operations and helping them to solve their concerns can eventually help them maintain higher sales and improve each Sonic’s Drive-In stores. They will also be the one to remind and encourage store managers and franchisers to attend to the set meeting so that they will continue gaining higher sales and improve their services.
Finance
The finance department headed by the finance manager must find ways in which they can improve their cash management practices so that they can save up and earn greater income that can help the company expand and become more stable. They must cut unnecessary expenses and allocate enough funds in projects that will create innovation and improvement in the quality of their service for a greater customer satisfaction.
Business Policy and Strategy
Summer Class
Monday - Friday 10:00 am – 12:00 nn
Case Analysis: Sonic: America’s Drive-In
Submitted by: Esplana, Maria Isabel Cabading, Romylene Frances
Submitted to: Prof. Enrique Rodrigo