Value bundling may work for some brands, but it hasn’t created loyal customers for Sonic.
The company saw a same-store sales decline of 3.3 percent during its Q4 2017, and a net income drop of 18 percent compared to the same period last year. Absent the impact that Hurricane Harvey and other unfavorable weather had on sales, Sonic reported that sales were basically flat, and that it’s on a better track going forward.
Sonic CEO Clifford Hudson said during a conference call that a softer promotional lineup in over the summer did not match the promotional bundles in 2016 that drove traffic. Hudson said that while the $5 Sonic Boom Box did drive more traffic, it was highly transactional and undifferentiated when compared to the competition.
“It probably drove a customer that was simply a value customer and not one, which over time, would result in any loyalty,” he said. “As we headed into the summer of 2017, our primary thought was to focus on products that would be more unique to us or not just a deep discounting approach to the product.”
Sonic decided to tie in with the Transformers movie in a slushie offering, along with offering a premium chicken sandwich LTO and concrete custards, but Hudson said these lacked sufficient value messages or aggressive pricing to drive traffic. Now, Sonic is back to focusing on promotional activity that it believes highlights its differentiated products, including buy one, get one free boneless wing promotions and the Carhop Classic offer that includes a full-size cheeseburger and medium onion ring order for $2.99.
“Unlike just large bundled offers, our view was that these types of promotions highlight our higher-quality differentiated products,” Hudson said. “And as a result, as customers use them, they are more likely to drive loyalty, more likely to ensure that our drive-ins are able to offer guests better service because of the nature of those products, the core menu items that operators have been delivering for decades.”
Hudson said that Sonic will be more aggressive in developing healthier products as consumer taste shifts towards these options. The brand has also reduced its menu by 17 items and will continue to reduce operational complexity.
“Although our customers look to us for indulgent treats, we also recognize that our core consumers are paying more attention to food quality and health perception,” he said. “We do see some real opportunity to take ownership of fountain drinks, which we've had in the past, as the shift away from the regular and diet carbonated soft drinks continues. We think we can also capitalize on that shift, and we will be focusing on that and promoting those alternatives.”