Sonic Corp. delivered disappointing results for its Q4, ended Aug. 31, 2016: System same-store sales decreased 2% (-1.8% same-store at franchise drive-ins; -3% at company drive-ins) due to a decline in customer traffic that higher prices and a higher average could not offset. Management pointed to a “persistent industry-wide slowdown that began in late April” coupled with its lapping very strong sales a year ago as reasons for the performance.
It also reported that its ice cream business had “underperformed” this summer, a decline that CEO Cliff Hudson attributed to “meaningful encroachment from the grocery channel where ice cream sales were growing above the long-term trends. We saw periods of double-digit declines in the core shake activity for the quick service restaurant industry over the summer.” The gap between supermarket and restaurant prices, that has been a boogeyman for so many chains, was partly to blame, he said.
Some analysts were not impressed with the ice cream hypothesis. In a note to client after the meeting analyst Joe Buckley of Bank of America Merrill Lynch wrote, “If true, this does not speak well for the experiential appeal of a visit to Sonic.”
Whether or not low supermarket prices are the culprit, Hudson vowed that Sonic will take less than its 2% to 3% average price inflation in this fiscal year.
But the most interesting part of the call may have been Hudson discussion of how Sonic is using the Point of Personalized Sale (POPS) and Point of Purchase (POP) platforms it has been touting since 2014 to customize point-of-sale messaging. What an individual customer orders at the drive-in screen can change the marketing message or suggested items on that screen.
The changes in suggested selling are determined by transactional trends. “We can change the message or the suggested, so that shows upon the POP screen based on your specific order, which we think has the potential to increase ticket.” Hudson told analysts. “People who ordinarily order X also order Y. People who ordinarily order A also order B. And at a time of day they’ll order A and X.”
“We’re testing segmenting drive-ins based on store characteristics such as demographics, average check, product mix, that’s appropriate for a single store. Then we’re testing the impact of delivering unique messaging to that store based on what we think is the most relevant to that significant customer segment for that store. So, for example, stores that are over-index on breakfast in rural locations would have a different messaging than stores with big happy hour businesses in the metropolitan suburbs.”
In six markets, Sonic is analyzing transactions by trade area to determine which the items and dayparts for suggested selling. Within those markets, the order-screen marketing will vary by individual store.
The ultimate goal, he said, is to truly target individuals and not just market patterns. “That’s something we’ll start moving through the system. Those types of elements—once we move to the mobile order and mobile pay, which we anticipate doing later in 2017—then can enable us to start moving to real personalized data collection and personalized marketing on- and off-premises,” Hudson said.
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