Sonic Competitive Analysis - Texas Tech University
Sonic Competitive Johnnie Davis Analysis Anna Sterling Zane Barnes Nolan Bosworth Shaina Weaver Kimberly Smith Clay Jones Introduction Sonics Main Competitors: McDonalds Burger King Wendys Jack-in-the-Box Main points: Leadership Marketing
Financial Outlook Globalization Sonics History Original location in Stillwater Oklahoma in 1953 First franchise location in Woodward Oklahoma in 1956 1958 new openings in Enid and Shawnee Oklahoma
Sonics History Growth Vast in the 1960s expansion in the 1970s Reorganization Opened of the 1980s 1000th location in 1987 Sonics Headquarters Sonics Leadership J.
Clifford Hudson CEO Been at Sonic for last 34 years Has been president since 1995 Became CEO in 2000 Under Hudsons Leadership Average drive in profit increase Average drive-in sales increase And
increased sales at the store level Sonics Leadership Renee G. Shaffer CIO Became CIO in 2005 Prior to appointment of CIO she served as Treasurer of Sonic Corp. Sonics Leadership Stephen C. Vaughan CFO Member of Sonic Corp. since 1992
Prior to appointment of CFO he served as a Vice President and Treasurer List of Competitors McDonalds Burger King Wendys Jack-in-the-Box Sales per Store Locations McDonalds: Burger
Sonic: $924,709 King: $760,259 $1,031,085 Products Holds true to American Values Drive-In with a retro feel Stick to what made us so popular Convenience with fun, friendly customer service
Menu consists of made to order American classics Hand battered onion rings, tator tots, burgers, chicken finger and even fried pickles Full menu all day Dollar menu Best and only option for drinks More than 168,000 drink combinations First to offer a happy hour Target Market
Both older and newer generations Classic American feel of carhops intrigues all generations First in the industry to air commercials hundreds of miles away Raises awareness and helps with expansion Two Guys advertising campaign Aimed at grabbing peoples attention with humor http://www.youtube.com/watch?v=6qx6pm
XG1Ug&feature=related Why is Sonic Better? We are the best in the world at giving a classic dining experience in a hurry! Level 5 Leader Humility + Will J. Clifford Hudson: CEO and Chairman of the Board
Started as legal council in the 1980s, then CFO and COO Since 1995: Drive in sales have grown from $602,000 to $1.1 million Brand awareness has doubled Revenue is 7 times greater No superstar status or private jet Executive Compensation No link to making a great leader Mr. Hudson has the lowest numbers by far Confront the Brutal
Facts Sonic Sales: $792.97 million, up 4.4% Income: $53.27 million, down 6.5% Jack in the Box Sales: $2.54 billion, up 1% Income: $118.21 million, down 23% Burger King Sales: $2.55 billion, up 9.9% Income: $186 million, down 10.2%
McDonalds Sales: $23.52 billion, up 3.2% Income: $4.31 billion, down 22.6% Stock Prices Past Year Past 10 Years SWOT Analysis -SWOT analysis must be customer focused to gain its maximum benefit; strength is really meaningful only when it is useful in
satisfying the needs of a customer. At this point, the strength becomes a capability (Marketing Strategy, 1998) Sonic SWOT Analysis Internal Factors Strength- Atmosphere/ Happy Hour Weakness- Bad weather Sonic SWOT Analysis External Factors Opportunity- New Markets/International
Expansion Threat- Food borne illness Marketing Strategy A marketing strategy is the process of anticipating future events and determining strategies to achieve organizational objectives in the future The marketing mix or four Ps is made up of product, place, promotion, and price Product Products offered by sonic are:
Food Beverages Customer service Brand image Convenience Atmosphere Place Place or distribution strategies are concerned with making products available when and where customers want them Sonic does not use large centralized distribution center, only uses local suppliers.
Sonic locations are easily accessible and visible Sonics are open from 6 a.m. to 12 p.m. Promotion Promotions help inform, educate, persuade, and remind the public of the benefits offered Advertising Public relations Sales promotions Philanthropy Price Price is what a buyer must give up to
obtain a product Price can be the most flexible element of the four Ps Due to the current rescission disposable personal income has been dramatically decreased Dollar menu also know as a value menu is a competitive weapon Marketing Strategy Conclusion A firm without a good marketing strategy is destined to be over taken by its competition McDonalds is the leader but has no barriers to keep its competitors from
imitating their marketing mix Television advertisements are the most effective way of reach mass amount of customers Marketing Strategy Conclusion Cont. The weakest link in the marketing mix is price; although easily adjusted and very effective the prices of the burger segment can not be reduced much more New and creative products can create temporary increased sales Sonic will have to continually manipulate their four Ps to increase the value to the customers and
Competitive Strategies The quick-service restaurant industry is a highly competitive market that focuses on placing an emphasis on marketing similar products with a different brand image. In the quick-service industry they compete on speed and quality of service, food variety and quality, the number and location of other restaurants, attractiveness of facilities, effectiveness of advertising and marketing promotions, and new product development. Future growth in the fast-food restaurant industry depends on how well retailers are able to innovate, provide value for
money, and keep up and surpass competitors through their own competitive strategies. Competitive Strategies Americas Drive-In sums up Sonics strategy. Sonic is primarily within the United States, and offers more than 3,500 drive-ins from coast to coast. Sonic recently added a dollar-menu to compete with their major competitors.
Sonic strives for potential customers to feel like they are the best option for drinks. Customers can order more than 168,000 drink combinations making Sonic Your Ultimate Drink Stop! Sonic was also the first of our competitors to offer a happy hour every day to encourage customers to come in for half-price drinks. Sonic is unique from other fast-food restaurants in that food is brought to you by carhops. Advertising Companies try to compete at the lowest cost
possible and differentiate themselves through their advertising. Each of the quick-service restaurants incorporate their own themes and characters to help bring out their core values, ideas, and products. Effective advertising is necessary to compete with and stand out from each of the large quickservice chains. Advertising Sonic took the comedy route for their advertisements.
Sonics new advertising and commercials are meant to appeal to the younger generation as well as the original customers. They use the slogan "It's not just good... it's Sonic good," implying a higher standard of quality than normal fast-food restaurants. Objectives Growth is another important aspect of Sonics continued success. Because this industry is highly competitive, growth is very important to keep market share.
Sonics buildings stand out from competitors because they have a new, unique look. This is the second redesign that they have had in 10 years. Sonic Corporation says that their primary objective is to maintain their position as, or to become, a leading operator in terms of the number of quick-service restaurants within each of their core and developing markets (Sonic 10-k). Market Outlook/Financial Data The
Current Market The restaurant industry, like most other industries, has felt the wrath of the current, global economic downturn. Sonic has seen a decrease in earnings per share since 2007 and Value Line revenue estimates for 2009 are down almost $5 million. Market Outlook/Financial Data Year 2004 2005 2006 2007 2008 2009
Average earnings growth per year: SONC MCD BKC 0.68 1.93 0.05 JACK 1.14 0.81
1.97 0.44 1.24 0.88 2.30 0.24 1.52 1.01 2.91 1.09
1.89 0.97 3.67 1.38 2.00 0.85 3.85 1.45 2.05
4.37% 12.73% 186.73% 10.67% (EPS figures from Value Line and respective 10Ks) Sonics slow earnings growth is attributed to reduced consumer traffic due to the economy and a corresponding rise in input prices. Sonic is not seen as a value fast food establishment and this has kept its growth slower than its competitors. Market Outlook/Financial Data Debt
Structure Sonic has $780 million in total debt; $733 million of this is long term. The last two fiscal years the company has posted current liabilities in excess of current assets. In times of economic prosperity this can be viewed as positive by investors as long as the company is growing. In Sonics case tapping our ample retained earnings makes the most sense. Market Outlook/Financial Data Z-Scores The Z-Score measures the probability of bankruptcy as a function of current assets, current liabilities, total assets,
net sales, retained earnings, equity, and operating income. On a more positive note, Sonics more than adequate retained earnings and solvency left it with a Z-Score second only to McDonalds when compared with its closest competitors. Firm Z-Score Z-Score Scale >2.99=Safe Zone 1.8-2.99=Grey Zone <1.8=Distress Zone McDonalds Sonic Burger King Jack in the Box
4.37 3 2.51 2.38 Market Outlook/Financial Data The restaurant industry and the quick service segment in particular have a much better three to five year outlook than the current conditions allude to. The market is not getting smaller, people just arent eating out as much. Value oriented fast food chains could actually see gains, as consumers forego the sit down restaurants in favor of the cheaper fast food. Sonic will have to focus on its strengths, new
value menu, and increasing market share. Market Outlook/Financial Data Sonics Strengths 50s classic drive-thru theme commands slight price premium and creates a market niche. New value menu starting to increase sales. Summer ad campaign and later hours Widest drink selection of any quick service chain Sonic must-dos Defend niche and continue expansion in the
south Find ways to expand into northern states Increase popularity of new value menu Market Outlook/Financial Data The average revenue growth rates for the last six years and positive sales change in the last twelve months are good signs that the new value menu and long term growth initiatives are having and Revenue Growth Rates impact. Year 2004
2005 2006 2007 2008 2009 Average revenue growth per year: SONC MCD BKC JACK 536.4 19065
23500 2620 2570 7.07% 3.59% 6.98% 1.95% (Revenue figures from Value Line) Market Outlook/Financial Data
(Percentages in pie chart from QSR Magazine, 2008) (Sales change percentages from QSR Magazine) Market Outlook/Financial Data Summary and Growth Rates Sonic is leading the competition in both annual revenue growth and annual positive sales change. EAR Valuation method has the current stock price undervalued by almost $10.00 using 10.6% required rate of return. Value Line growth rates: Sales (16%), Cash Flow (13.5%),
Earnings (15%) All of these measures point to a futures rise in share price and increase in market share. Sonic is positioned very well in the event of an economic turnaround. Conclusion Sonic Corporation has grown to be a competitor in the quick-serve food industry Through Sonics unique atmosphere and marketing campaigns, along with their financial strategy, they have established themselves amongst some of the largestnamed restaurants Sonic has also made themselves known across borders in Mexico, and we will see if this continues
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