What is the Cost to Buy a Sonic Franchise?
February 27, 2023 | Last Updated on: March 13, 2023
February 27, 2023 | Last Updated on: March 13, 2023
Sonic, also known as Sonic Drive-In, is an iconic American fast food chain. You may be familiar with Sonic, having visited franchises for great and quick fast food with a variety of fun and inventive drinks. The ability to go through a drive-thru or pull up and order makes Sonic an easy spot to get great-tasting food quickly. The use of carhops adds to the novelty of the service and makes going to Sonic a fun experience.
As an entrepreneur, you may have been saving up your money and looking to invest it in your very own business. As you look across potential business opportunities, you might get concerned about the risk of losing your investment if the business does not go well. This might be especially true if this is your first business venture or first venture in the industry. As a result, you might look for less risky options in a franchising model.
Indeed, this logic makes sense, as the theory behind franchising essentially allows for the replication of proven business models. As you browse potential franchising opportunities, you might be interested in a Sonic Drive-In franchise. Whether you love to eat at Sonic or have heard of the success of other Sonic locations, you might be interested in the Sonic franchise cost.
You have come to the right place! In this post, we will review the history of Sonic, the advantages and disadvantages of owning a Sonic restaurant, the requirements for becoming a franchisee, the costs involved in starting one, the profitability of a location, training for the franchisees, the term of agreement and renewal, and the process involved in opening up a location. In other words, you will know whether a Sonic franchise is right for you! We’ll cover the following topics in-depth in this article:
Sonic traces its roots back to Shawnee, Oklahoma. Sonic was founded in its original form in 1953 by Troy Smith, originally named Top Hat. It began as a root beer stand serving hotdogs and hamburgers. The model of ordering and bringing food out to the car began the idea of the Sonic Drive-In restaurant. The first franchise of Sonic opened in 1956 and more quickly followed. Today, the corporate headquarters are located in Oklahoma City, Oklahoma, and Sonic has grown to a massive success with over 3,500 locations in the United States.
While Sonic still serves the same kinds of food as the traditional Sonic Drive-In location, today they serve a lot more items than a typical American quick service restaurant (QSR). This includes burgers, hot dogs, fries, onion rings, ice cream, and various drinks like sodas, slushies, limeades, and shakes.
Today, Sonic is owned by Inspire Brands, which is a company based out of Atlanta, Georgia. Inspire Brands also manages the franchises of Buffalo Wild Wings and Arby’s.
Sonic Drive-In may derive its success from its flexible serving model. Some can walk up and sit down, ordering their Sonic outside. Others can drive up, eat in their car, and drive away. Whereas, if you are in a hurry, you also have the opportunity to go through a Sonic drive-thru. In all, owning a Sonic means that you can be pretty sure of the brand’s success through its unique business model and tasty menu.
As you are considering the potential costs of owning a Sonic franchise, you are likely interested in the benefits that a Sonic would have as a franchise over other franchises. Some of the unique selling points of Sonic are that the brand has a unique business model and menu, its food is affordable, and the company has a large following.
First, Sonic has a great business model as a fast food location. Its value proposition of being able to serve fast food in different forms allows for a lot of flexibility with customers. Some customers might be looking for a drive-thru, or a place to eat their food without having to get out of their cars, or others might want a place to meet up and sit down. Although many Sonic locations do not have indoor seating, the food franchise serves the rest of these needs very well. This has formed a key part of the brand and is one of the reasons behind the successes of each of its franchises.
Another advantage to Sonic’s business model is its menu. As a franchisee of Sonic, you will get access to the Sonic menu, the methods of cooking and making Sonic products, and tap into the popularity of the Sonic brand with its following of customers. Aside from traditional burgers and hot dogs, Sonic has many drink and ice cream options that allow for a lot of customization. The unique combinations that Sonic’s menu offers attracts a large population of people to frequently eat at the business.
Sonic also prides itself on being affordable and claimed that they have survived many recessions as a result of doing so. This is good for a franchisee because you can be confident that your great-tasting food and drinks can be served at low prices. This means accessing a larger customer base. As a result, you can assume that you will have access to the large market of people who love to eat at Sonic.
That plays into another advantage of owning a Sonic, which is the sheer amount of people who go to Sonic to eat. Every day, three million people eat at a Sonic Drive-In. The volume of business that Sonic does speaks to its success. By having your own franchise of Sonic and becoming a franchise owner, you are likely to benefit from the great success of already established franchises and the Sonic brand.
While there may be many advantages of a Sonic, you might also be interested in the downsides you may be exposing yourself to in pursuing this franchise opportunity.
One of the first disadvantages of owning a Sonic is the amount of competition that you face. While Sonic’s menu might be distinguished in the options and customizability that it offers, it still faces competition in the American fast food space. This competition comes from chains like McDonald’s, Burger King, Wendy’s, Chick-Fil-A, and more. You should be prepared to face this competition and understand that it might diminish your revenue. The best way to get around this is to pick a great location for your restaurant. A location with less franchise competition can help your Sonic get a lot of business.
Another disadvantage of owning a Sonic is the high total investment cost. When you think about older or newer, non-traditional Sonic Drive-In locations, they sit on a large plot of land, have a lot of interactive screens, and have the capacity to host a lot of cars. As a result, you might understand that there are a lot of costs associated with setting up a Sonic. The opportunity of cost of that capital could be high. For example, for the startup costs of one Sonic, you might be able to build several Jersey Mike’s franchises. Now, this may be worth it if the relative profitability of a Sonic is higher, but nevertheless, the startup costs might be a disadvantage.
It should be noted, however, that the startup costs of a Sonic are fairly in line with that of other American cuisine QSR restaurants. It might even be cheaper.
As you sort through the advantages and disadvantages of opening up a Sonic, you might be interested in whether you are likely to qualify as an applicant to open a Sonic franchise. There are usually two categories of requirements for opening a franchise: financial requirements and qualities that Sonic looks for in franchisees.
There are two main financial requirements for opening up a Sonic. This includes a net worth and liquid capital requirement. The net worth requirement for 1-2 units at Sonic is $1,000,000. While this may seem high, keep in mind that this requirement is for up to 2 units. In addition, compared to industry standards, this net worth requirement is very reasonable.
If you are wondering if your net worth meets this figure, start by adding up the value of your assets. This includes your homes, cars, valuable possessions, cash, stocks, and anything that you could sell for value. Next, add the value of all of your liabilities, such as debt like mortgages, car loans, student loans, or anything else you might have. Subtract your liabilities from your assets to arrive at your net worth. If your net worth is at or over $1,000,000, you are eligible for this net worth requirement.
The next requirement is the liquid capital requirement. Liquid capital, or liquid assets, for a prospective franchisee, is required to be $500,000 or greater for 1-2 units. This requirement, especially for up to 2 units, is very reasonable when compared with industry standards.
Liquid capital is essentially the number of assets that you have available on short notice. This includes things like cash, savings, short-term stocks, and other goods that you can exchange for money quickly. If the total of all of these items is $500,000 or more, you have met the liquid capital requirement.
While these two requirements form the main financial requirements for franchising with Sonic, there is also an underlying strong intention that influences the success of your application which also affects your finances. This intention that they are looking for is for franchisees to pursue multi-unit opportunities, which means that they may not accept you if you are only able to qualify or pay for one unit. They will likely give preference to franchisees who can open up multiple units at the start. This can put a lot of financial strain on you, depending on your financial situation, so it is important to consider this before going ahead with the Sonic franchise.
There are also more informal requirements related to the type of franchisee Sonic hopes to enter into an agreement with. Meeting these requirements or displaying these personality traits is a good basis on which your application can be reviewed.
One of the first qualities that Sonic wants to see in its franchisees is that they are sales-oriented, and they are interested in seeing this quality in their past experience. While franchise experience would be ideal, prior business experience is also good. You should be ready to demonstrate in your application that you are good at sales and have a record of doing so in like environments.
Another quality that Sonic looks for in franchisees is that they have strong business acumen and the capability to do well in business. If you have past franchise or business experience to draw on, Sonic would likely be very interested in seeing or hearing about that. If you can demonstrate this on your application, or otherwise work it into your interviews, it would likely be a positive aspect of your application to become a franchisee and increase the odds of your franchise application being accepted.
The last aspect that Sonic is specifically looking for in a franchisee is that they have connections to their communities. For a franchise, it is important that the owner can establish good connections with those that live around it. This is because the better relationships they can build with their local community, the more likely the franchise is to succeed.
If you are looking to start a Sonic location or locations where you live, you can mention your involvement in the local community and how that might help your franchise succeed. However, if you are planning on starting your Sonic locations in a different area from the one you currently live, it may be beneficial to describe in your application how you become quickly familiar with your community and how you work to establish relationships with those you live around.
In all, the financial requirements and the multi-unit requirement makes owning a Sonic franchise for the average person somewhat difficult. The general recommendations for qualities that Sonic looks for in franchisees may be easier to achieve.
If you meet the requirements for becoming a Sonic franchisee, you may be rightly interested in the cost of starting a Sonic franchise. There are generally two categories of costs involved in starting a Sonic: corporate costs and other investment costs.
The first cost that you will need to pay to corporate is the franchise fee. The franchise fee is an upfront sum of money that you pay to corporate at the signing of the franchise agreement. This is part of your initial investment into a Sonic. This fee is used as revenue by corporate, but it is also used to fund the partnership which is initiated by the agreement, which usually includes training and basic logistical support.
The franchise fee for Sonic differs based on the type of location. When franchising with Sonic, you are given choices to start a traditional or non-traditional location. The traditional location has a franchise fee of $45,000, which is pretty standard for the industry. The non-traditional location has a franchise fee of $22,500, which is cheap for the industry. However, when put in context, the non-traditional location franchise fee is probably fair for the volume of sales it will do.
Franchises are also usually obligated to pay two ongoing costs to corporate known as the royalty fee and advertising fee. Both are usually charged monthly as a percent of your gross sales. While these costs are not necessarily charged upfront, you will have to pay them in the early months of your franchise’s operation. As a result, you should be sure that you can afford them in your calculations.
The royalty fee for Sonic is 5%. This is fairly standard with peer businesses in the franchising industry, so you can be confident that you are getting a fair deal on the royalty fee. Currently, Sonic is running specials of reduced royalty fees in the early months of the operation of your franchise. You should contact them directly to see what you might qualify for.
In any case, the royalty fee is used by corporate for revenue purposes, but it also provides the logistical support involved in maintaining the brand and the continued success of the brand.
Another fee that you will be obligated to pay is the advertising fee, otherwise known as a marketing fee. The advertising fee ranges from 3.25% to 5%. The advertising fee is paid to the franchisor to support national and local advertising efforts via the advertising funds they are collecting. Theoretically, you are helping to pay for the marketing of your business in the national and local community. This may, in turn, benefit your franchises. The advertising fee for Sonic ranges from low to normal when compared with industry standards, so this is also a good deal for franchisees.
The other set of costs related to the total initial investment are related to the land and setup costs of a Sonic franchise.
Land is an important cost in the calculation of a Sonic franchise. You may buy or lease the land that your Sonic will be located on. Each will change the financial obligations of your business and your overall startup costs. Moreover, land prices will vary based on where you are intending on opening up the location of your Sonic.
Since a lot depends on the franchise information related to a location to determine the costs of land that you are likely to experience, Sonic offers investment range information excluding land costs. For non-traditional locations, Sonic estimates that it could cost franchisees somewhere between $361,900 and $978,700 with all costs except land included. This is different for traditional Sonic restaurants, where all costs except land range from $1,242,200 to $3,537,700.
As you may be able to see, starting a Sonic can be somewhat expensive. Although Sonic’s total costs appear to be in line with or cheaper than peers in their industry, it is still a large cost for many to take on, especially with a multi-unit strategy.
However, the exact costs of starting a Sonic will depend on your unique situation. The next step for finding more information would be to apply to Sonic. If you pass the initial screening stages of the application process, you will be given access to an FDD, or franchise disclosure document, which details the average financial performance of a Sonic and the costs associated with starting a location, including corporate fees.
While Sonic does have some high costs, although normal for its industry, it should be contextualized with its average profitability. After all, if a Sonic is highly profitable, the costs may justify the expenses when it comes to starting a Sonic.
Recent estimates of Sonic franchises’ financial performance show revenues of approximately $1.37 million per location per year. On this revenue, a franchisee could expect to make somewhere from 18% to 22% in profit margin, which translates to roughly $320,000 per location per year. These estimates show Sonic to be a very profitable franchise, including when compared to other franchises in their industry.
The high profitability of Sonic means that you could recuperate your initial investment in a matter of years. This is a good sign when it comes to franchising. It could allow you to afford the costs related to the setup and operation of the business while being a highly profitable business for you. Overall, Sonic is a very profitable and impressive franchise to own.
While you might have seen the great profit potential of a Sonic, you are likely also interested in knowing how you might be able to perform well as a Sonic owner. With this interest, you probably want to know more about how Sonic trains its franchisees.
The good news is that Sonic has a robust and long training program compared to other franchises for its franchisees. This will allow you to become well-accustomed to the Sonic business model and how to successfully operate a multi-unit Sonic franchise strategy.
The training program at Sonic will consist of twelve weeks. The first eight weeks are spent related to restaurant training. After you complete this training, you will move to three weeks of training at new stores, helping them to open their restaurants and see what opening is like for yourself. You will then have a final week of classroom training. In doing so, the training program will give you both a general and specific view of the successful operation of a Sonic franchise.
Keep in mind that each franchise you start will need to have a general manager. This is especially important as you run your multi-unit strategy. You want to be sure that you have good general managers in place, ready to help your stores succeed. Sonic requires that these general managers are certified ahead of time at a Sonic-certified training store. This will be good for your franchises in helping them get off the ground with well-trained managers.
If you are interested in franchising with Sonic, it is important to understand the license agreement that you are entering when you go to the franchise. Your franchising agreement will be valid for a certain amount of time before it is necessary to renew. Usually, at the renewal of a licensing agreement, you will need to pay a renewal fee to corporate.
Sonic offers two different options for their term of agreement and renewal. They break these up into traditional and non-traditional licensing options. The traditional licensing option involves a 20-year initial license with a 10-year renewal option. The non-traditional licensing option involves a 10-year initial license with a 5-year renewal option. This gives franchisees added flexibility in the franchising process to control costs as best as it fits them.
If you are ready to start your own Sonic franchise, now is the time. Sonic is offering special reductions in the royalties that you are obligated to pay among other incentives to start your franchises quickly.
If you are interested in starting your Sonic, head over to their website. Then, continue to their information on franchising. As you go through their franchising information, you will find a form where you can request more information on starting a Sonic.
The form will ask for general information about you, your intentions for franchising with Sonic, and the areas in which you are interested in starting franchises.
There are a couple of things that you need to be sure of when filling out the form. You should be truthful with the finances that you are estimating, and you should also be sure that you meet the basic requirements for franchising. Additionally, you should research the prospective locations of your Sonic franchises and make sure that they are in areas that are not already filled with Sonics. You should try to select locations where Sonic wants to expand, if able.
Once you have filled out the form, you are ready to start your franchising journey with Sonic. Someone at the company will reach out to you if they are interested in you based on the responses on your form. At that point, you will go through an interview process where you will also have the Sonic FDD disclosed to you. Study up on the brand, your motivations for starting your franchises, financing options, and your business plan. That way, you are ready to go when it is time for the interview. Good luck!
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