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Sonic Franchise Cost Not Worth Profit Potential (2022)

Written by: Brooks Gammil
Last Updated: April 21, 2022
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This article is based on its most recent FDDKeep reading or watch the  video originally recorded on Vetted Biz Youtube Channel

Sonic franchises are distinctive drive-in restaurants focusing on a unique menu of quality, made-to-order food products and innovative technology. Sonic Franchising LLC (“Sonic”) licenses the operation of Sonic restaurants, which feature a variety of items such as specialty drinks, ice cream desserts, cheeseburgers, chicken entrees, hot dogs, and more.

The Sonic brand began in the early 1950s. Sonic has offered franchises since 1974. As of January 2021, there were over 3,500 Sonic restaurants operating in 46 states in the United States. There are 3,251 restaurants owned and operated by franchisees and 271 were owned and operated by an affiliate of Sonic. 

Paul J. Brown has been a Member of the Board of Managers since December 2018. He also has been Inspire Brands’ Chief Executive Officer in Atlanta, Georgia since its formation in February 2018. In addition, he has been the Chief Executive Officer of Arby’s Restaurant Group, Inc. (“ARG”), an Inspire Brands brand since 2013. 

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How is the Sonic Franchise Positioned in the Fast Food Industry

Sonic is uniquely positioned to grow within the Fast Food industry after it was acquired from Inspire Brands which owns Arby’s, Buffalo Wild Wings, Jimmy John’s, Rusty Taco, Dunkin’, and Baskin-Robbin. Since Sonic has been around for almost 70 years and with the backing of a multi-brand restaurant company like Inspire Brands they have the management and capital to continue to grow in a competitive industry. 

A comparable company to Sonic is Mcdonalds which has over 13,000 franchise and company-owned units, over 4 times the number of units Sonic has. However, Sonic has a sticky customer base due to its unique drink items and its drive-up business model. 

sonic franchise

How Much is a Sonic Franchise?

The initial Sonic Franchise Fee is $45,000. You have to pay this upfront fee when opening a Sonic franchise.

Sonic Franchise Cost

The estimated total investment necessary to begin operation of a Sonic Franchise ranges from $1,242,200 to $3,537,700 

The following costs are part of the upfront costs included in the initial investment for a Sonic franchise

Many of these are one-time fees that are needed to launch the franchise.

Review the chart below to see how much it costs to buy a Sonic franchise in 2021. 

Sonic Drive-In Franchise Initial Investment

Type of expenditureEstimated lowEstimated highMethod of paymentWhen dueTo whom payment is to be made
Franchise Fee45,00045,000Lump SumAt signing of License AgreementSonic
Payroll56,000137,500As incurredTraining and pre-openingYour employees
Training, Travel and Living Expenses while Training5,00033,500As incurredTrainingHotels, restaurants and airlines
A- Team Trainers48,00092,000As incurredPre-opening and post-openingSuppliers
Advertising Funds2,0005,000As incurredPre-opening periodSuppliers
Beginning Inventory30,000140,000Lump SumPrior of openingSuppliers
Security deposits, impact fees for utilities, utility deposits, business licenses and other prepaid expenses2,000250,000Lump SumPrior to openingSuppliers
Insurance Premiums10,00020,000Lump SumPrior to openingSuppliers
Additional Fund (3 months)5,00025,000As incurredPrior to opening and monthlySuppliers
Miscellaneous Pre-opening Costs5,00058,300As incurredPre-openingSuppliers
LandVariableVariable   
Building and Site Work750,0002,300,000   
Restaurant Equipment175,000260,000   
Point-of.sale System (“POS”) and Digital Menu Housings (“POPS”)84,200136,400  Suppliers
Sonic Sign25,00035,000  Suppliers
TOTAL ESTIMATED INITIAL INVESTMENT (excluding land costs)1,242,2003,537,700   
      
OPTIONAL – Indoor Seating125,000220,000  Suppliers

Owning a Sonic Franchise Requires Ongoing Fees

Royalty: 5% of Gross Sales Monthly

Brand Fee: .9% of Gross Sales Monthly

Advertising Cooperative Fee: 3.25% Monthly

The Food & Beverage industry has an average royalty fee of 5.3% and a marketing fee of 2.3%, indicating Sonic has a royalty fee slightly less than the industry average and a marketing fee slightly higher than the industry average.

How much do Sonic franchise owners make?

Fiscal Year 2020

 Number of restaurantsAverage Gross SalesMedian Gross SalesGross Sales RangePercent of Restaurants that Attained or Surpassed the Average Gross SalesNumber of Restaurants that Attained or Surpassed the Average Gross Sales
Company Drive-Ins2671,3461,240701-2,81842111
Franchise Drive-Ins3,2001,6331,540379-4,717441,402
Total of Company Drive-Ins and Franchise Drive-Ins3,4671,6111,514379-4,717431,504

12 Months Ending December 31, 2019

 Number of restaurantsAverage Gross SalesMedian Gross SalesGross Sales RangePercent of Restaurants that Attained or Surpassed the Average Gross SalesNumber of Restaurants that Attained or Surpassed the Average Gross Sales
Company Drive-Ins1691,2721,257641-2,3874780
Franchise Drive-Ins3,1541,3451,259398-4,028431,345
Total of Company Drive-Ins and Franchise Drive-Ins3,3231,3411,259398-4,028431,424

 

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Profits and Loss Data of Traditional Company Drive-Ins For 2019 and 2020 Fiscal Year

 2019 Average2019 Margin2020 Average2020 Margin
Gross Sales1,239,475 1,361,175 
Food294,23623.7324,58723.8
Paper39,3313.241,2303.0
Delivery510.0120.0
Total Cost of Sales333,61826.9365,83026.9
Crew Salaries293,93023.7301,23322.1
Management Salaries52,1824.248,7163.6
Total Wages346,11127.9349,94925.7
Bonus24,0361.97,6340.6
Vacation, Holiday, Sick and Severance3,7960.36,5830.5
Fringe Benefits7,1230.65,3900.4
Workers Compensation5,2930.44,1040.3
Payroll Taxes33,7082.733,2002.4
Total Payroll73,9566.056,9114.2
Utilities33,5832.732,2302.4
Supplies & Office Supplies7,2120.69,2770.7
Contract Services7,1950.610,4770.8
BOS/POS Related6,0990.55,4020.4
Card Fees24,9022.034,9032.6
R&M20,4871.723,9081.8
Laundry & Uniforms1,5770.11,4480.1
Cash Over/ Short1,4160.11,2240.1
Total Unit Controllable Expense102,4708.3118,8698.7
Local Advertising58,2054.762,5254.6
National Marketing16,4241.314,3311.1
Total Advertising74,3606.076,8565.6
Property Taxes17,1651.416,3521.2
Insurance5,5730.47,6340.6
Royalties51,7774.256,5444.2
Other0.0
Total Property Tax, Insurance & Royalties74,5156.080,5315.9
Total Reported Expenses1,005,57081.11,048,94577.1
Drive-In EBITDAR233,90518.9312,23022.9

Key insights

As seen in the profit and loss chart above, in 2019 an average Sonic franchise had an EBITDAR (Earnings Before Interest Taxes Depreciation Appreciation Rent) of $233,905 on $1,239,475 of sales. This represents a margin of 18.9%. But the franchisee will still need to pay for interest, taxes, and rent which would most likely bring the margin to around 10%. Therefore on a midpoint investment of $2,389,950 and a profit margin of 10%, it would take 20 years to get a return on your initial investment.

In 2020 an average Sonic franchise had an EBITDAR (Earnings Before Interest Taxes Depreciation Appreciation Rent) of $312,230 on $349,949 of sales. This represents a margin of 22.9% but the franchisee will still need to pay for interest, taxes, and rent which would most likely bring the margin to around 13%. Therefore on a midpoint investment of $2,389,950 and a profit margin of 13%, it would take 14.5 years to get a return on your initial investment.


The company is backed by a powerful restaurant firm Inspire Brands which will help push Sonic’s unique menu items and drive up business models. Sonic is in a great position to use new technology and automation to thrive in the growing fast food market.


Is the Sonic Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Sonic franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the broader franchise industry as well as selling price multiples for larger systems like Burger King where more transaction data is available.

Under $1 Million Net Sales Estimated

Selling Price = Net Sales * 0.34 $1 Million – $5 Million Net Sales

Estimated Selling Price = Net Sales * 0.86 Over $5 Million Net Sales

When you go to sell one Sonic franchise based on a net sales multiple of 0.34 and net sales averaging $1,361,175 in 2020 it would sell for $462,000. This is significantly lower than the average investment of $2,389,950. That being said, although land costs are NOT included in the initial investment, the building costs are. Most Sonic franchisees are making their return back from building the Sonic from the ground up and selling the building together with the land to a REIT (real estate investment trust).

If you owned multiple Sonic franchises, you do have the ability to make more of your money back. Franchise owners with over $5 million in sales have a median multiple of 0.86 So, if you had 10 franchises this would be $13.6 million in sales. And you could sell your chain of restaurants for about $11.7 million. This still represents a loss when just considering the business and it is important to review the real estate costs/ eventual sales as well. 

sonic franchise

Sonic Franchisor Income Statement:

Sonic Industries Services Inc. Consolidated Statements of Income

 Jan 3,2021 29/12 ,201931/12 ,201807/12 ,2018Aug 31,2018
Revenues     
Franchise royalties and fees (includes $15,043, $10,323, $557, $2339 and $10,127 from Affiliates, respectively)$245,801$194,729$10,71446,911$182,570
Management and support fees (includes $0, $8,837, $0, $1,802 and $8,330 from Affiliates, respectively)8,8371,8028,560
Fund administration revenue13,86311,9536523,024
Lease revenue (includes $12, $31, $0, $16 and $1,559 from Affiliates, respectively)2,2272,0331044882,400
Other6,89271332103418
Total Revenues268,783218,26511,50252,328193,948
Costs and Expenses     
Selling, general and administrative (includes $29,608, $27,234, $12,529, $0 and $0 to Affiliates, respectively)61,046114,15721,32563,96974,616
Depreciation and amortization50,09055,4444,0236,29018,484
Impairment of long-lived assets5055
Other operating expense (income), net3,579(23)30(159)(107)
Total costs and expenses114,715169,62825,37870,10093,048
Income (loss) from operations184,06848,637(13,876)(17,772)100,900
Interest expense (includes $6,079, $5,009, $276, $1,319 and $4,560 to Affiliates, respectively)39,76033,7622,1479,37532,972
Interest income (includes $8,220, $15,892, $276, $4,384 and $13,932 from Affiliates, respectively)(2,480)(16,502)(324)(4,653)(14,608)
Loss on extinguishment of debt6,7521,140
Net interest expense44,03217,2601,8234,72219,504
Income (loss) before income taxes110,03631,377(15,699)(22,494)81,396
Provision (benefit) for income taxes17,9445,422(3,689)(6,776)17,342
Net income (loss)$92,092$25,955$(12,010)$(15,718)$(64,054)
      

franchise specialist

Sonic Income Statement Key Insights: 

In 2020 the Sonic franchisor had a profitable year. With a net income of $92 million and revenues of $269 million. The franchisor had a net income increase of 250% from 2019 to 2020.  We can see the increase through an increase in revenues and decreasing costs from 2020 to 2021. 

Sonic Unit Openings / Closings: 

System-wide Outlet Summary

Restaurant typeYearRestaurants at the Beginning of the YearRestaurants at the End of the YearGross Change
Franchised20183,3603,42464
20193,4243,329(95)
20203,3293,251(78)
Company-Owned2018228176(52)
201917619721
202019727174
Total Drive-Ins20183,5883,60012
20193,6003,526(74)
20203,5263522(4)

Sonic franchises have been declining over the last three years averaging a closing of 36 units a year. However, company franchises have grown over this same period at an average of 14 units a year. 


“I LOVE THE DIRECTION OF THE BRAND. IT’S INVESTING IN AUTOMATION. INVESTING IN THE CUSTOMER EXPERIENCE, IT SUPPORTS ITS FRANCHISEES AT A LOT OF DIFFERENT LEVELS AND A LOT OF DIFFERENT DISCIPLINES.”  – MAX GELWIX, MULTI-UNIT FRANCHISEE IN CALIFORNIA


Conclusion

With a powerful restaurant firm like Inspire Brands supporting and backing the Sonic franchise and their commitment to keeping their restaurants updated with new technology and automation to ensure further customer satisfaction, Sonic is better positioned than most in the fast-food industry. That being said, fast food is not one of our favorite industries at Vetted Biz. 

We strongly recommend you speak to at least 5 Sonic franchisees to better understand the financials (see questions to ask). Think Sonic franchise is the right franchise for you, or are you interested in other franchise opportunities in the Food and Beverage Industry? Check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.  

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