5 Menu Items That Help Sonic Corporation Beat its Fast Casual Competition

Sonic's stock price rose nearly 11% after last week's quarterly earnings report. Here are 5 reasons why Sonic took off.

Casey Kelly-Barton
Casey Kelly-Barton
Apr 1, 2014 at 11:07AM
The Business

The fast food industry has been losing ground to fast casual outlets since 2009, but Sonic (NASDAQ:SONC) is bucking that trend. Sonic's stock price shot up nearly 11% after last Monday's quarterly earnings report. While chains like Burger King Worldwide (NYSE:BK) and McDonald's (NYSE:MCD) have seen little to no growth in recent same-store sales, Sonic's same-store-sales growth was 1.4% in its second quarter, despite the frequently awful winter weather in many of its markets.

What are Sonic's secrets for getting customers to the drive-in despite the weather? The Motley Fool asked Patrick Lenow, Sonic's vice president of public relations, for the investor relations department's top five menu choices. What they served up is a smart balance of sweet treats, savory upscale items, and smart day-part offerings that make Sonic a draw for customers and investors.

1. A steady revenue stream from fountain drinks
Sonic bases its brand identity on its fountain drink menu, a fitting choice for a chain that started out as a root beer stand. Between the soft drink, slush, and flavor add-in options, Sonic offers its guests more than a million possible flavor combinations. Fountain drinks are a big profit center for Sonic and together with frozen treats, they make up 40% of the chain's total sales, Lenow said.

Besides bringing in customers, who love a good lime-cherry Coke slush, Sonic's daily half-price fountain drink happy hour from 2 p.m. to 4 p.m. "drives traffic at the drive-in during what used to be a slower part of the day."

Source: sonic.com Sonic's shakes are a big draw.

2. Smart ice cream shake strategies
"Our shakes and other frozen desserts are a key pillar of our business," Lenow said. "Last summer we offered 25 total shake flavors and gave our guests half price after 8 p.m. Shake sales soared, and not just during the half-price window. It led to a profitable summer for the entire drive-in network coast to coast."

3. Premium sandwiches for a fast-casual feel
Lenow said research shows customers see Sonic as more of a fast-casual experience rather than quick-service.

"We attribute this perception in part to premium menu items like our chicken sandwiches. For example, right now we have a honey mustard and Swiss chicken sandwich on the menu, and our first premium chicken sandwich was made with aioli and Asiago cheese." Because the fast-casual sector is gaining in popularity, menu items that lend Sonic that shine are important.

4. Breakfast burritos with all-day appeal
Sonic's made-to-order burritos bring in the commuter crowd in the morning and provide a snack or light meal option during the rest of the day. As chains like Sonic and Jack in the Box (NASDAQ:JACK) keep breakfast on the menu at all hours, competitors like McDonalds -- which has dropped hints but never moved beyond morning-only breakfast -- may have to expand their breakfast hours to stay in the game.

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5. Retro appeal with coneys and hot dogs
Sonic stands out among fast-food chains with its extensive and frequently updated hot dog and coney offerings, classic American street food that appeals to kids and nostalgic foodies alike.

"Our coneys and hot dogs give us the opportunity to bridge the past with the present," Lenow said, adding that even Sonic is sometimes surprised by their popularity. "Last year's limited-time pretzel dog sold four times more than estimated. It was so popular that we brought it back for another limited-time run earlier this year."

Sonic is booming
Sonic has its bases covered with variety items throughout the day, a mix-and-match drink menu that keeps things interesting, and premium Americana offerings that appeal to fans of fast-casual dining. Sonic is also appealing to investors.

Sales are strong; for the first half of its fiscal year, Sonic's net income per diluted share rose 25%, and the company expects 14% to 15% earnings-per-share growth for this year. The company plans to repurchase $80 million of its stock and open around 50 new franchise locations by year's end. Those numbers make it a standout among fast food players, and the market is taking notice.