Sonic is the largest chain of drive-in restaurants in the US. Having opened their first restaurant in 1953 in Shawnee, OK, today they have grown to over 3,500 locations across 45 states.
A typical Sonic location consists of a 1,500 sf building housing the kitchen, surrounded by parking spaces with individual payment terminals, intercoms, and menu boards. Many locations are also outfitted with a drive-thru lane and patio seating, providing additional ordering and dining options. Sonic is known to have a highly diverse menu, ranging from breakfast burritos and cheeseburgers to specialty drinks and ice cream.
Net Lease Overview
Sonic presents net lease investors with a unique set of draws. The low price point, $1.3 million on average, is attractive to individual investors and those new to the market. Sonic tends to sign triple net leases, freeing the investor of any landlord responsibilities. These leases also have rental increases built in during the primary term and include options to extend the lease. 94% of the Sonic system is franchised, making it critical for investors to understand the financial strength of the guarantor of any location they may be considering. The structure and land can present an unusual opportunity for investors when trying to retenant the property. The structure is small and can be difficult to retenant but it is situated on a parcel of land that is flat and ideal for redevelopment.
Sonic’s strategy is to deliver a differentiated and high quality customer service experience. The key elements of its strategy are:
• A distinctive drive-in concept focusing on a unique menu of quality, made-to-order food products including several signature items and innovative technology
• An allegiance to customer service featuring the quick delivery of food by friendly carhops
• Integrated national marketing programs across media channels, including broadcast, digital and mobile
• A commitment to strong franchisee relationships
Highly prized tenants such as McDonald’s or Chick-fil-A sell at a high premium to the rest of the sector while other QSR tenants such as Sonic and Checkers can be acquired at cap rates above the sector average.
Sonic has traded at higher cap rates than the QSR average, but has hovered near the single tenant net lease (STNL) average over the previous few years.