Sonic Franchise Cost is Way Too High! (2022)



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.

You can learn more here: https://www.vettedbiz.com/buying-a-sonic-drive-in-franchise/

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00:00 Introduction
00:19 Drive-In Model
00:51 Locations
01:14 Investment Cost
01:31 Royalty
01:38 Average Sales
02:11 Recoup Initial Investment
03:20 Another Option
04:01 Net Income
04:11 Unit Openings/Closings
04:18 Conclusion

#SonicFranchise #SonicDriveIn #VettedBiz

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.

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.

The initial Sonic Franchise Fee is $45,000. You have to pay this upfront fee when opening a Sonic franchise.

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.

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.

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.

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 larger franchise industry as well as selling price multiples for larger systems like Anytime Fitness where more transaction data is available.

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.

You can learn more here: https://www.vettedbiz.com/buying-a-sonic-drive-in-franchise/

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