Sonic Corporation Essay Research Paper Sonic CorporationINTRODUCTIONBACKGROUND

Sonic Corporation Essay, Research Paper

Sonic Corporation

INTRODUCTION

BACKGROUND INFORMATION

In 1953 Sonic Corporation was founded by Tony Smith in Shawnee, Oklahoma

under a different name of the Top Hat. Tony Smith started the company as a

drive-in restaurant featuring hot dogs, hamburgers, and french-fried onion rings.

In the mid-50s Smith was asked by Charles Pappe for assistance in establishing

a similar restaurant in a rural town also located in Oklahoma. This was the

beginning of a partnership between the two men .

CURRENT INFORMATION

In 1991 Sonic Corporation was the fifth largest chain in the fast-food

industry, servicing in the hamburger segment, behind McDonald’s, Burger King,

Hardee’s, and Wendy’s. Sonic has and is still carrying the tradition of being a

high-quality franchise-based organization in the Sunbelt states. The following

case will be broke down into five different stages beginning with early

strategies, problems, new strategies, a ratio analysis, and a recommendation.

EARLY STRATEGIES

UNDER TONY SMITH

Tony Smith introduced the Top Hat as a drive-in restaurant that reduced

start up cost by not having eat-in space. This new restaurant featured drive-in

stalls for automobiles, that were equipped with a two-way intercom enabling

customers to order as soon as they drove in, opposed to conventional practices

of waiting for a carhop to take an order. Delivery of the fresh fast-quality

products was do to the unique design of the kitchen, and the use of carhops.

Sonic Corporation preferred to do things as easy as possible and avoid

sophistication. Another strategy Smith implemented was a collection of

franchise royalties. This was done in a way such that Sonic franchise holders

were required to purchase printed bags at an additional fee that Smith arranged

through a paper-goods supplier.

Pyramid-type selling arrangements were formed by franchisees in money

making efforts by starting other franchises through friends. This lead to

original store managers having a percentage of their own store earnings and a

portion of the new operation of the recruited friend manager. This idea further

developed to multi-ownership of almost all Sonic operations as store managers

were also part owners. This concept of pyramid-type selling carried Sonic

forward with rapid growth.

PROBLEMS

RAPID GROWTH

In the later-70’s almost one new Sonic store opened per day. The rapid

expansion of Sonic was growing at an uncontrollable rate. With such rapid growth

some stores failed. In these cases Sonic assumed control over failed franchise

units, driving the number of company owned restaurants from 3 in 1974 to 149 in

1979. This rapid expansion of Sonic was a short lived frenzy which resulted in

numerous failures do to lack of planning, market analysis, and requirements for

unit managers. The company was forced to operate the failed franchise as

company units in most cases, to protect the franchise name and reputation. A

loss was posted in 1980 as Sonic began closing some operations.

POOR MANAGEMENT

Reason’s for the closings were that the board tighten its control which

created an operation that left no services being provided to the franchise

holders, including no advertising cooperation’s, no management training services,

and no accounting services. In 1983 Smith decided to go outside the companies

parameters and appointed a professional manager that had no ties to Sonic

Corporation in any shape, form, or know how.

Stephen Lynn was introduced to Sonic Corporation as president and chief

executive officer. The new comer, Lynn, was granted the decision to form his

own management team. This team was formed and implemented by mid 1984. By

implementing his own management team Lynn could begin to take problems head on,

after ridding the board members and franchise holders that had significant

conflicting interests that clouded the better judgement of Sonic.

NEW STRATEGIES

TURNING IT AROUND

In an attempt to turn the organization around, Lynn and his newly formed

management team set forth on a strategy that had three key factors: .(1) attack

problems concerning franchise attitude and Sonic’s image; (2) improve

purchasing; and (3) improve communications.. Marketing was the key to nipping

the attitude problem in the butt. To be successful three main issues had to be

encountered: .(1) the franchise owners and corporate owners had to buy-in to

it; (2) the plan had to be simple enough to be executed; and (3) it had to

provide visible evidence of working by improving profit for the owners..

MARKET STUDIES

To get this marketing program under way the team identified several

marketing studies: (1) Sonic customers were of high frequency visiting on

average twice a week; (2) there was a trend moving more

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