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Sonic Franchise Cost Not Worth Profit Potential (2022)

Written by: Brooks Gammil
Last Updated: December 2, 2021
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Sonic Drive In

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. 

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 an 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 their unique drink items and their drive up business model. 

Sonic Drive-In Franchise Costs & Fees | America's Best Franchises

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 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 Inventory 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
Land Variable Variable
Building and Site Work 750,000 2,300,000
Restaurant Equipment 175,000 260,000
Point-of.sale System (“POS”) and Digital Menu Housings (“POPS”) 84,200 136,400 Suppliers
Sonic Sign 25,000 35,000 Suppliers
TOTAL ESTIMATED INITIAL INVESTMENT (excluding land costs) 1,242,200 3,537,700
OPTIONAL – Indoor Seating 125,000 220,000 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 industry average and a marketing fee slightly higher than the industry average.

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How much do Sonic franchise owners make?

Fiscal Year 2020

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
Company Drive–Ins 267 1,346 1,240 701-2,818 42 111
Franchise Drive-Ins 3,200 1,633 1,540 379-4,717 44 1,402
Total of Company Drive-Ins and Franchise Drive-Ins 3,467 1,611 1,514 379-4,717 43 1,504

12 Months Ending December 31, 2019

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
Company Drive–Ins 169 1,272 1,257 641-2,387 47 80
Franchise Drive-Ins 3,154 1,345 1,259 398-4,028 43 1,345
Total of Company Drive-Ins and Franchise Drive-Ins 3,323 1,341 1,259 398-4,028 43 1,424

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

2019 Average 2019 Margin 2020 Average 2020 Margin
Gross Sales 1,239,475 1,361,175
Food 294,236 23.7 324,587 23.8
Paper 39,331 3.2 41,230 3.0
Delivery 51 0.0 12 0.0
Total Cost of Sales 333,618 26.9 365,830 26.9
Crew Salaries 293,930 23.7 301,233 22.1
Management Salaries 52,182 4.2 48,716 3.6
Total Wages 346,111 27.9 349,949 25.7
Bonus 24,036 1.9 7,634 0.6
Vacation, Holiday, Sick and Severance 3,796 0.3 6,583 0.5
Fringe Benefits 7,123 0.6 5,390 0.4
Workers Compensation 5,293 0.4 4,104 0.3
Payroll Taxes 33,708 2.7 33,200 2.4
Total Payroll 73,956 6.0 56,911 4.2
Utilities 33,583 2.7 32,230 2.4
Supplies & Office Supplies 7,212 0.6 9,277 0.7
Contract Services 7,195 0.6 10,477 0.8
BOS/POS Related 6,099 0.5 5,402 0.4
Card Fees 24,902 2.0 34,903 2.6
R&M 20,487 1.7 23,908 1.8
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
Local Advertising 58,205 4.7 62,525 4.6
National Marketing 16,424 1.3 14,331 1.1
Total Advertising 74,360 6.0 76,856 5.6
Property Taxes 17,165 1.4 16,352 1.2
Insurance 5,573 0.4 7,634 0.6
Royalties 51,777 4.2 56,544 4.2
Other 0.0
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
Drive-In EBITDAR 233,905 18.9 312,230 22.9

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 lost when just considering the business and it is important to review the real estate costs/ eventual sell as well. 

sonic franchise

Sonic Franchisor Income Statement:

Sonic Industries Services Inc. Consolidated Statements of Income

Jan 3,2021  29/12 ,2019 31/12 ,2018 07/12 ,2018 Aug 31,2018
Revenues
Franchise royalties and fees (includes $15,043, $10,323, $557, $2339 and $10,127 from Affiliates, respectively) $245,801 $194,729 $10,714 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
Other 6,892 713 32 103 418
Total Revenues 268,783 218,265 11,502 52,328 193,948
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 amortization 50,090 55,444 4,023 6,290 18,484
Impairment of long-lived assets 50 55
Other operating expense (income), 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)
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 type Year Restaurants at the Beginning of the Year Restaurants at the End of the Year Gross Change
Franchised 2018 3,360 3,424 64
2019 3,424 3,329 (95)
2020 3,329 3,251 (78)
Company-Owned 2018 228 176 (52)
2019 176 197 21
2020 197 271 74
Total Drive-Ins 2018 3,588 3,600 12
2019 3,600 3,526 (74)
2020 3,526 3522 (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 Sonic franchise and their commitment to keep 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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