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Sonic Drive-In is the middle of an extensive technology rollout that includes a new POS system, provided by MICROS, as well as what it’s calling a new “Point of Personalized” service feature. The POP system is expected to be rolled out throughout the next three years and should be completed at company-owned restaurants in Q4, according to Claudia San Pedro, VP of Investor Relations.
San Pedro and CFO Steve Vaughan provided an update on Sonic’s initiatives during Oppenheimer’s 14th annual Consumer Conference Wednesday. Notable takeaways from their presentation include:
New POP service
The POP service is located in customers’ drive-in stalls and includes a digital drive-in menu board with a screen that plays dynamic content. During the initial tests, Sonic realized the functionality is two-fold: It offers suggestive selling opportunities to customers watching the content and, once their orders are confirmed, it can suggest add-ons.
“As customers look at products, we’ve seen an increase in average check as opposed to a static board. We can change daypart (displays). And once the franchisee makes the initial investment, over time, we can target that message on a more personal basis and increase functionality,” San Pedro said.
The system includes a touchscreen and can connect to a mobile app to help create tailored messages, which she expects will happen in three to five years. Vaughan said the investment in the new systems is about $135,000 in total, but the company is receiving an underwriting of a portion of the cost from its vendor.
“Coming back will be about a $40,000 contribution from our vendors toward the POP system, so it will be a little under a $100,000 investment for our franchisees,” he said. “It has created a lot of excitement about this initiative.”
The new POS technology – replacing a 20-year-old system – will be a key enabler to the POP feature. Vaughan said it includes robust back office tools that, he expects, will lead to labor and food cost savings.
“On the old system, we had the ability to only do inventories once a week. We had a problem with theft, it was more difficult to isolate the source. With the new system, we can do inventories on a shift/daily basis. The second area is labor – it offers a much more robust scheduling tool,” he said.
This helps managers because they can now project sales in 15-minute increments and schedule accordingly. Also, the POS system can help with cash management by identifying irregularities, such as cancels and voids, which carhop isn’t delivering as much as others, etc.
“We have great momentum in the brand right now, and in two, three, five years, we’ll really see the benefits from this technology investment,” Vaughan said
San Pedro said the Sonic team believes it is the most differentiated QSR in the country, both from a physical perspective and a menu perspective.
“We have a drive-in format, so there is no pressure of having someone in line behind you and the classic carhop service provides that extra piece of personalized service,” she said. “And we have a differentiated menu. We’re considered a hamburger QSR, but we have over 1 million drink combinations and real ice cream shakes and they are great for profit margins.”
Sonic’s strategy is to focus on specific product categories and grow them. For example, chicken made up about 5 to 6 percent of sales three years ago, and now makes up 9 percent. Breakfast now generates 12 percent of sales, and drinks are popular in the afternoon and evening.
“For us, it’s about leveraging that real estate and selling throughout the day,” San Pedro said. “We always want to promote products that appeal to each daypart.”
The “Two Guys” creative continues to help with this effort. Sonic brought back Two Guys in late 2012 after a brief Recession-induced hiatus. San Pedro said the campaign gives Sonic a flexible way to promote multiple products in a 60 to 90-day timeframe that the company wouldn’t otherwise have.
“As soon as people see them, they know it’s a Sonic commercial and we can immediately move to focus on the product,” she said.
Sonic also moved to a national marketing platform last year, which has boosted its share of voice in the QSR category to the top five.
Building sustainable customers
Product innovation is a top strategy for Sonic because its LTO pipeline tends to turn occasional customers into sustainable customers, San Pedro said. For example, the brand moved to real ice cream in 2010 and has promoted its “Summer of Shakes” line for the past three summers.
“This has done not only a nice job of driving sales, but also of getting customers here to try new products. Our focus on fountain, chicken and shakes has led to same-store sales growth and has helped us build sustainable customers who try something and then want to come back,” she said. “As we go forward, we can say approximately half (of sales) come from LTOs, but the other half is an increase of our base business in those product categories.”
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