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Think the QSR segment is in trouble? Consider Sonic

Sonic has dedicated a lot of resources to make sure it's ready for any launch, beginning a promotion before it goes to TV.

October 24, 2014 by Alicia Kelso — Editor, QSRWeb.com

Much ado was made about Chipotle Founder Steve Ells' comments earlier this week, calling traditional fast food brands a "joke" with "short-sighted" strategies.

"The gimmicks that have driven the fast food sector for years -- dollar menus, limited-time offers, and merchandising partnerships are not producing results like they used to, as consumers simply want better-tasting, nutritious food and a more compelling experience, not gimmicks. In some cases, these other companies are looking to revamp their branding efforts to change their customers' perception but not the food. Fundamentally, these are shortsighted reactions that seem out of touch with what customers want: better food and more compelling dining experience," he said during the company's Q3 earnings call.

McDonald's CEO Don Thompson responded with a gentle jab – reminding investors on his company's earnings call that McDonald's helped Chipotle "move forward" when they entered an initial partnership and shared the supply chain system.

"I would not say Steve is wrong or right, I think each individual organization has to look at it through the eyes of the customers and what customers are asking them to deliver," he said.

Sure, McDonald's is struggling. It's hard to sustain sales like that year after year when you've been around for as long as Mickey D's. Does there need to be improvement in the chain's basic operations? Yes, speed of service is no longer an advantage for the chain, which is a big deal to today's time-pressed marketplace.

Is the food quality criticism justified? Consumers seem to be indicating that with a drop in traffic.

Have those Golden Arches lost a little bit of their luster? Sure, millennials are instead gravitating toward fast casuals at a staggering pace.  

But to write the entire QSR segment off is silly. Audacious, even.

Consider Sonic. Although the drive-in format offers the chain a point of differentiation from traditional drive-thru concepts, with convenience and speed at the forefront of consumers' preferences, you'd think such a model would be a disadvantage. Quite the opposite is true, however. The company just posted a same-store sales increase of 3.5 percent in Q3.

System same-store sales increased 4.6 percent over a 5.9 percent increase in the fourth quarter of fiscal 2013, consisting of a 4.5 percent same-store sales increase at franchise drive-ins and an increase of 4.9 percent at company drive-ins.   

Much of QSR's stumbles – including and especially McDonald's – have been blamed on menu complexity. But have you seen Sonic's menu? In the summer, it added a 25-shake promotion! Twenty-five offerings as part of one dessert platform. This is in addition to a diverse burger, hot dog, chicken, sides, beverage and breakfast roster.

During the company's earnings call this week, CEO Cliff Hudson said the pipeline is deeper than ever, which is boosting traffic both loyal and new.

"Our product pipeline is as strong as ever and we believe we're really in a good position to continue to grow with these dayparts and product lines," he said.

Gary Wilkerson, president of Kergan Bros. Inc., a Sonic franchise group in Louisiana, said the company is able to manage a vast, diverse menu because of the company's fine-tuned training process.

"LTOs are important to keep the business fresh. Sometimes you hit it and sometimes you miss and there is an operational challenge when we're expanding a menu line – such as 25 shakes. Things like that always pressure the staff," Wilkerson said. "But Sonic has developed a process to prepare for new lines and LTOs and there is a specific training schedule and operational procedures that is tried and true."

When an LTO is ready for rollout, for example, the staff is presented with materials, videos and a timeline to prepare.

"Sonic has dedicated a lot of resources to make sure we're ready for any launch. We begin a promotion before it goes to TV to make sure we're ready," Wilkerson said. "The goal is to be ready operationally before advertising begins."

The brand is currently promoting its boneless chicken wing LTO, which has shown "phenomenal numbers," Wilkerson said.

He said there is also a difference between Sonic and McDonald's loyalists.

"Our business is so diverse and our delivery system is so unique, which makes our customers especially passionate. A QSR customer doesn't typically share or get excited about what they order when they go to McDonald's. It's just a stop to them. But a Sonic customer is always excited to tell you what they ordered because it is usually something unique," he said. "Our customers are passionate. It's a destination for them."

Even though it has a unique delivery system, Sonic isn't the only QSR benefiting from a deep product bench and sustained positive sales as of late – Dunkin' Brands, Popeyes and Chick-fil-A are also QSR segment standard-bearers. Even Wendy's and Burger King have shown some solid footing recently, and Taco Bell continues to be a bright spot in Yum! Brands' portfolio.

So while some, such as Ells, have written off QSRs all together, don't count the segment out just yet. Many old-school brands have what it takes to put up a reasonable fight for coveted market share.

As for McDonald's, maybe it could get a boost putting some marketing weight behind this recent prank showing culinary experts praising its "fine," "rich" and "pure" (undercover) food. Perhaps this is what the company needs to prove it's not such a "joke," after all.

About Alicia Kelso

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