Sonic Wins With ‘VLTOs’; Revamping Burgers

Sonic Wins With ‘VLTOs’; Revamping Burgers
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Sonic Drive-Ins reported sales that vindicated its targeted daypart marketing strategy. At the same time, the company said it soon will make improvements in the menu category it has ignored for the past two years: burgers.

For its fiscal year ended Aug. 31, 2015, Sonic reported a 7.3% increase in same-store sales (7.3% for its 3,139 franchised units and 6.9% for the 387 company-owned stores). For Q4, comp sales were up 4.9% for franchised and 4.5% at company units. Pricing increases accounted for 3% of the gain for fiscal 2015.

Sonic boneless wings

Targeted promotions direct sales to dayparts.

Average unit volumes for the fiscal year were $1.24 million at company and $1.26 million at franchised stores. The goal is to increase the AUV to $1.5 million by 2020. Company restaurant margins increased to 16.5% from 15.6% in fiscal 2014.

Some of the sales success has come from chain’s continuing strategy of targeting specific dayparts with promotions, such as by offering energy drinks for $1.49 before 10 a.m. or half-price drinks and slushes between 2 p.m. and 4 p.m. each day. Milkshakes are half price after 8 p.m. to increase evening sales. Lately, Sonic has been doing what can be called “VLTOs” or very limited-time offers, usually just for a single day. Cheeseburgers were half price all day on August 13, for example. Corn dogs were just 50¢ all day on August 27. It is promoting its Boneless Wings now with a buy-one-get-one-free deal only on Mondays from 5 p.m. to close.

Sonic daypartsSonic Corp. CEO Cliff Hudson told analysts on Monday that the chain’s food costs might be a bit higher in its fiscal 2016 because of improvements to its neglected burger lineup. That suggests an increase in burger sizes or quality in the near future. It’s a long overdue improvement: the last new burger Sonic promoted was the Island Fire Burger in October 2013. Since then it has focused instead on hot dogs, adding Chili Cheese Pretzel Dogs, Bread Dogs and Lil Doggies minis LTOs. Chicken promos have included Boneless Wings, Super Crunch Chicken Strips, Cheesy Pub Chicken sandwich and Honey Mustard & Swiss Chicken sandwich.

Hudson said Sonic has felt no impact from McDonald’s all-day breakfast launch, but followed that up with a promise that the chain would be introducing “more and different” new breakfast products in fiscal 2016 than it traditionally has. Mornings account for 12% of Sonic sales (although breakfast foods are available all day).

Total franchisee investment in fiscal 2015 was $164.4 million, compared with $105.9 million the previous year. Much of the increase was due to addition of customer-engagement (menu screens, social media and a new app) and POS equipment. These and inventory management systems combined to reduce food & packaging costs in 2015, Hudson said.

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