Sonic Corporation

INTRODUCTION

BACKGROUND INFORMATION

In 1953 Sonic Corporation was founded by Tony Smith in Shawnee, Oklahoma
under a different name of the Top Hat. Tony Smith started the company as a
drive-in restaurant featuring hot dogs, hamburgers, and french-fried onion rings.
In the mid-50s Smith was asked by Charles Pappe for assistance in establishing
a similar restaurant in a rural town also located in Oklahoma. This was the
beginning of a partnership between the two men .

CURRENT INFORMATION

In 1991 Sonic Corporation was the fifth largest chain in the fast-food
industry, servicing in the hamburger segment, behind McDonald\'s, Burger King,
Hardee\'s, and Wendy\'s. Sonic has and is still carrying the tradition of being a
high-quality franchise-based organization in the Sunbelt states. The following
case will be broke down into five different stages beginning with early
strategies, problems, new strategies, a ratio analysis, and a recommendation.

EARLY STRATEGIES

UNDER TONY SMITH

Tony Smith introduced the Top Hat as a drive-in restaurant that reduced
start up cost by not having eat-in space. This new restaurant featured drive-in
stalls for automobiles, that were equipped with a two-way intercom enabling
customers to order as soon as they drove in, opposed to conventional practices
of waiting for a carhop to take an order. Delivery of the fresh fast-quality
products was do to the unique design of the kitchen, and the use of carhops.
Sonic Corporation preferred to do things as easy as possible and avoid
sophistication. Another strategy Smith implemented was a collection of
franchise royalties. This was done in a way such that Sonic franchise holders
were required to purchase printed bags at an additional fee that Smith arranged
through a paper-goods supplier.
Pyramid-type selling arrangements were formed by franchisees in money
making efforts by starting other franchises through friends. This lead to
original store managers having a percentage of their own store earnings and a
portion of the new operation of the recruited friend manager. This idea further
developed to multi-ownership of almost all Sonic operations as store managers
were also part owners. This concept of pyramid-type selling carried Sonic
forward with rapid growth.

PROBLEMS

RAPID GROWTH

In the later-70\'s almost one new Sonic store opened per day. The rapid
expansion of Sonic was growing at an uncontrollable rate. With such rapid growth
some stores failed. In these cases Sonic assumed control over failed franchise
units, driving the number of company owned restaurants from 3 in 1974 to 149 in
1979. This rapid expansion of Sonic was a short lived frenzy which resulted in
numerous failures do to lack of planning, market analysis, and requirements for
unit managers. The company was forced to operate the failed franchise as
company units in most cases, to protect the franchise name and reputation. A
loss was posted in 1980 as Sonic began closing some operations.

POOR MANAGEMENT

Reason\'s for the closings were that the board tighten its control which
created an operation that left no services being provided to the franchise
holders, including no advertising cooperation\'s, no management training services,
and no accounting services. In 1983 Smith decided to go outside the companies
parameters and appointed a professional manager that had no ties to Sonic
Corporation in any shape, form, or know how.
Stephen Lynn was introduced to Sonic Corporation as president and chief
executive officer. The new comer, Lynn, was granted the decision to form his
own management team. This team was formed and implemented by mid 1984. By
implementing his own management team Lynn could begin to take problems head on,
after ridding the board members and franchise holders that had significant
conflicting interests that clouded the better judgement of Sonic.

NEW STRATEGIES

TURNING IT AROUND

In an attempt to turn the organization around, Lynn and his newly formed
management team set forth on a strategy that had three key factors: “(1) attack
problems concerning franchise attitude and Sonic\'s image; (2) improve
purchasing; and (3) improve communications.” Marketing was the key to nipping
the attitude problem in the butt. To be successful three main issues had to be
encountered: “(1) the franchise owners and corporate owners had to buy-in to
it; (2) the plan had to be simple enough to be executed; and (3) it had to
provide visible evidence of working by improving profit for the owners.”

MARKET STUDIES

To get this marketing program under way the team identified several
marketing studies: (1) Sonic customers were of high frequency visiting on
average twice a week; (2) there was a trend moving more and more to take-out
orders opposed to eat-in orders; (3) Sonic had fresh high-quality products after
the customer ordered; (4) the unique use of carhops set Sonic aside from the
competition since most