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 It might mean: 1-An affiliate-own business: Is a type of business where the main company owns less than 50+% of the other companies. It’s… 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.
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.
The initial Sonic Franchise Fee is $45,000. You have to pay this upfront fee when opening a Sonic franchise.
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.
|Type of expenditure||Estimated low||Estimated high||Method of payment||When due||To whom payment is to be made|
|Franchise Fee||45,000||45,000||Lump Sum||At signing of License Agreement||Sonic|
|Payroll||56,000||137,500||As incurred||Training and pre-opening||Your employees|
|Training, Travel and Living Expenses while Training||5,000||33,500||As incurred||Training||Hotels, restaurants and airlines|
|A- Team Trainers||48,000||92,000||As incurred||Pre-opening and post-opening||Suppliers|
|Advertising Funds||2,000||5,000||As incurred||Pre-opening period||Suppliers|
|Beginning The value of the total finished and unfinished goods and materials the business holds for future sale.||30,000||140,000||Lump Sum||Prior of opening||Suppliers|
|Security deposits, impact fees for utilities, utility deposits, business licenses and other prepaid expenses||2,000||250,000||Lump Sum||Prior to opening||Suppliers|
|Insurance Premiums||10,000||20,000||Lump Sum||Prior to opening||Suppliers|
|Additional Fund (3 months)||5,000||25,000||As incurred||Prior to opening and monthly||Suppliers|
|Miscellaneous Pre-opening Costs||5,000||58,300||As incurred||Pre-opening||Suppliers|
|Building and Site Work||750,000||2,300,000|
|Point-of.sale System (“POS”) and Digital Menu Housings (“POPS”)||84,200||136,400||Suppliers|
|TOTAL ESTIMATED The amount of funds necessary to begin operations of a business or franchise including the first three months of operation. (excluding land costs)||1,242,200||3,537,700|
|OPTIONAL – Indoor Seating||125,000||220,000||Suppliers|
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.
|Number of restaurants||Average Gross The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue.||Median Gross Sales||Gross Sales Range||Percent of Restaurants that Attained or Surpassed the Average Gross Sales||Number of Restaurants that Attained or Surpassed the Average Gross Sales|
|Total of Company Drive-Ins and Franchise Drive-Ins||3,467||1,611||1,514||379-4,717||43||1,504|
|Number of restaurants||Average Gross Sales||Median Gross Sales||Gross Sales Range||Percent of Restaurants that Attained or Surpassed the Average Gross Sales||Number of Restaurants that Attained or Surpassed the Average Gross Sales|
|Total of Company Drive-Ins and Franchise Drive-Ins||3,323||1,341||1,259||398-4,028||43||1,424|
|2019 Average||2019 Margin||2020 Average||2020 Margin|
|Total Cost of Sales||333,618||26.9||365,830||26.9|
|Vacation, Holiday, Sick and Severance||3,796||0.3||6,583||0.5|
|Supplies & Office Supplies||7,212||0.6||9,277||0.7|
|Laundry & Uniforms||1,577||0.1||1,448||0.1|
|Cash Over/ Short||1,416||0.1||1,224||0.1|
|Total Unit Controllable Expense||102,470||8.3||118,869||8.7|
|Fees paid by a franchisee to their franchisor in order to operate a franchise location. They are usually on a weekly or monthly basis.||51,777||4.2||56,544||4.2|
|Total Property Tax, Insurance & Royalties||74,515||6.0||80,531||5.9|
|Total Reported Expenses||1,005,570||81.1||1,048,945||77.1|
As seen in the profit and loss chart above, in 2019 an average Sonic franchise had an EBITDAR ( Total earnings received by a business based on the U.S. Income Tax Return. The financial numbers of these earnings depend on the type of… Before A payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at… Taxes A reduction in the value of an asset over time, due to wear and tear. 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.
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 A particular form or branch of economic or commercial activity. Subindustries are often referred to as categories on Vettedbiz.com as well as selling price multiples for larger systems like Burger King where more transaction data is available.
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.
|Jan 3,2021||29/12 ,2019||31/12 ,2018||07/12 ,2018||Aug 31,2018|
|Franchise royalties and fees (includes $15,043, $10,323, $557, $2339 and $10,127 from Affiliates, respectively)||$245,801||$194,729||$10,714||46,911||$182,570|
|Management and support fees (includes $0, $8,837, $0, $1,802 and $8,330 from Affiliates, respectively)||–||8,837||–||1,802||8,560|
|Fund administration revenue||13,863||11,953||652||3,024||–|
|Lease revenue (includes $12, $31, $0, $16 and $1,559 from Affiliates, respectively)||2,227||2,033||104||488||2,400|
|Costs and Expenses|
|Selling, general and administrative (includes $29,608, $27,234, $12,529, $0 and $0 to Affiliates, respectively)||61,046||114,157||21,325||63,969||74,616|
|Depreciation and The term “amortization” refers to: • In accounting, Amortization is very similar to depreciation, it’s a decrease in the value of an intangible asset, which…||50,090||55,444||4,023||6,290||18,484|
|Impairment of long-lived assets||–||50||–||–||55|
|Other operating expense ( Income, also known as earnings or profits, is money that a person or a business receives in return for working, providing a product or…), net||3,579||(23)||30||(159)||(107)|
|Total costs and expenses||114,715||169,628||25,378||70,100||93,048|
|Income (loss) from operations||184,068||48,637||(13,876)||(17,772)||100,900|
|Interest expense (includes $6,079, $5,009, $276, $1,319 and $4,560 to Affiliates, respectively)||39,760||33,762||2,147||9,375||32,972|
|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 debt||6,752||–||–||–||1,140|
|Net interest expense||44,032||17,260||1,823||4,722||19,504|
|Income (loss) before income taxes||110,036||31,377||(15,699)||(22,494)||81,396|
|Provision (benefit) for income taxes||17,944||5,422||(3,689)||(6,776)||17,342|
|Net income (loss)||$92,092||$25,955||$(12,010)||$(15,718)||$(64,054)|
In 2020 the Sonic franchisor had a When the earnings in a given period of time is more than the expenses in a business. 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.
|Restaurant type||Year||Restaurants at the Beginning of the Year||Restaurants at the End of the Year||Gross Change|
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
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 Having put someone or something through a careful examination. At Vetted Biz, we put franchises and businesses through a careful examination and benchmarking of… Biz website for thousands of franchises available for your investment.