Sonic: There’s an Industry Slowdown

From by Burger Business
Sonic: There’s an Industry Slowdown

Sonic Drive-In Chairman-CEO Cliff Hudson and EVP-CFO Claudia San Pedro voiced what many have believed for some times: The burger segment, if not the whole restaurant industry, is mired in a slowdown.

For the quarter ended May 31, 2016, Sonic reported a 2% increase in same-store sales (a 2.1% increase at franchise drive-ins and an increase of 0.9% at company drive-ins). The comps were only above water because a higher average check (i.e. higher prices) offset a decline in customer traffic in April and May. A year ago, Sonic reported a 6.1% jump in comp sales.Sonic $5 Boom Box

“The cause of the industry slowdown is difficult to pinpoint,” Hudson told analysts. But he unseasonably wet weather in April and a cool May dampened customer counts at a time the chain is usually promoting cold drinks and ice cream. Instead Sonic had to quickly shift marketing gears and hype Bacon Lover Chili Cheese Coney dogs and a new $5 Sonic Boom Box bundle with a Jr. Deluxe Cheeseburger, 6-inch hot dog, medium tots or fries and a medium soft drink. Hudson called that “a strong tactical response to a sluggish environment.” He added that Sonic will keep to a strategy of spotlighting high-quality, premium-price menu items, mixed with occasional value offerings. An innovative new-product launch is promised for the fall.

June sales have “stabilized but they’re not where we want to be,” said Hudson. As a result, the chain has lowered to 2%-4% from 4%-6% its estimate of full-year same-store sales growth. San Pedro added that “a volatile consumer environment” has resulted in Sonic “seeing more of an industry slowdown.”

It’s not alone in that view. Earlier this week, Nomura analyst Mark Kalinowski downgraded McDonald’s and Wendy’s to Neutral, saying the restaurant industry looks “like it could remain sluggish for the remainder of 2016.” Additionally, “While U.S. restaurant industry same-store sales trends remain weak—as they were in Q1–it’s clear that U.S. burger-sector same-store sales have decelerated meaningfully in Q2. No longer is the burger segment a beacon of brightness for the industry, as it was in Q1. We believe that burger-sector same-store sales in aggregate are only barely positive in Q2 (up by less than a full percentage point), representing a sequential decline of over 200bp.”

Hudson also announced a major refranchising program aimed at increasing to 95% (from about 89%) the share of stores that are franchised. He said “the lion’s share” of company stores and markets sold will go to existing franchisees.


The United Kingdom has voted to leave the Economic Union. What will be the impact on foodservice there and, by extension, globally? Peter Backman, managing director of British foodservice consultancy Horizons, shares his assessment:

“The UK economy will now face a period of uncertainty which is likely to be intense over the next few days and weeks, but will be ongoing for five years or so as Britain finds its new way in the world.

“Notably for foodservice, the pound will remain volatile and will trade at lower rates than over the last few years. Consumer sentiment will probably remain depressed, costs will be elevated, and there will be some uncertainty over employment because of our reliance on European labour.

“The foodservice sector will be less buoyant than it would have otherwise been – but the impact is likely to be felt differently in different areas of the business. Sectors that could benefit include tourism-related business including hotels and leisure, while restaurants, QSR and pubs could lose out. However, profitability, and therefore investment in the sector, is now under threat.

“Overall we could be facing reduced sales, increased costs and lower demand from the home market and while this could be offset to a small degree by more foreign tourists coming here due to the fall in the value of the pound, the eating out market now faces less growth than we predicted for this year and next.”

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