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Sonic looks to marketing to improve traffic

Chain hopes innovation, targeted half-price offers can overcome intense competition

Sonic Corp. is turning to a series of marketing efforts in its bid to recover traffic lost in recent quarters to the chain’s competitors.

The Oklahoma City-based drive-in chain on Thursday reported a 1.2 percent decline in same-store sales in the quarter ended May 31 — all on a decline in traffic that Cowen Analyst Andrew Charles estimated to be down 3.7 percent.

That’s an improvement from the previous quarter, when same-store sales fell an unexpectedly large 7.8 percent. Yet executives suggested same-store sales will be weak in the current quarter, too.

“Comparisons we’re now going up against have eased in the fourth quarter, though the competitive environment remains really intense,” CEO Cliff Hudson said on the company’s earnings call Thursday. “We anticipate same-store sales in the fourth fiscal quarter will be down modestly during the quarter.”

Sonic has instead started shifting its marketing, hoping to recapture that traffic, by using a combination of innovation, higher-end products and more targeted promotions.

The company has overhauled its marketing leadership, recently hiring Lori Abou Habib as its chief marketing officer, Darin Dugan as the vice president of national marketing, and Kim Lewis as vice president of digital. Sonic is also searching for a chief brand officer.

“We’re reaching the point of evolution of the business where we can more aggressively evolve our means of customer engagement,” Hudson said.

Hudson said that a year ago, as traffic began falling, Sonic joined other quick-service restaurants by offering a bundled discount deal — what it called a “Boom Box.” That box sold, Hudson said, but it didn’t generate the traffic the chain had hoped.

So now the company is “reemphasizing pairing product innovation with relevant value.” The company is promoting Pretzel Dogs, for instance, along with Custard Concretes and its Ultimate Chicken Sandwich.

The brand is also the first quick-service chain to test a blended mushroom burger.

But it also has targeted discounts. The chain has started offering half-price shakes after 8 pm, and is readying a national rollout of Family Night Tuesday Nights in which the chain offers half-price burgers.

“We have a long history of competing effectively on differentiated products rather than on price,” Hudson said. “We continue to believe a marketing strategy that more effectively speaks to differentiation is the key to sales growth.”

One competitor that is not taking business is McDonald’s, at least according to Hudson.

Hudson said that McDonald’s “ubiquitous nature” means its improvement has an impact on everybody in the quick-service business, simply because of its size.

Yet he said the chain’s efforts to bolster its beverage business, including $1 drinks, $2 McCafe drinks and its slushies, have not taken away Sonic customers.

“To the extent we have specific lines, like drinks, and we’re seeing that impact, believe it or not it’s not attributed to one of the three majors,” Hudson said. “We see it more of a broad challenge, with a lot of new folks coming into the business.

“There are some specific activities we can track customer behavior, and it’s not coming from McDonald’s.”

Sonic also believes that more personalized service will help improve sales, while providing more information on customer behavior.

The company expects to have its new Point of Personalized Service, or POPS system, in place in 90 percent of the company’s 3,571 locations by August.

Sonic rolled out a newly designed smartphone app last month. The app will enable order confirmation and will increase the number of rewards customers receive. It will also integrate with the company’s order screens.

App users will be able to check in to their stall on their mobile device, which by next year will enable customers to bypass the red call button altogether. They can instead place orders via mobile device.

“The linking of our parking stalls and POPS on the one hand with our app on the other lays the foundation for more individualized service,” Hudson said. He called the integration a “milestone” on the chain’s aim at improving customer engagement.

Hudson said he believes Sonic could provide “the most personalized customer experience in the QSR industry.”

Contact Jonathan Maze at [email protected]

Follow him on Twitter at @jonathanmaze

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