CASE ANALYSIS

I. CASE PROFILE

Nature of Business

Sonic Drive-In, a popular drive-in restaurant chain now headquartered

in Oklahama City, Sonic was founded in Shawnee, Oklahoma, in 1953.
Continue to offer unique menu, high quality, made to order food and specialty
items. Embody the meaning of their slogan “Service with the Speed of
Sound.”

Now Sonic is a leader in the hamburger segment of the fast food

industry. Both Wall Street and Main Street value the firms’ current
performance and future potential. With the soaring success Sonic is now
positioned as the fifth largest hamburger chain in the U.S.

Problem Statement

How to strengthen the brand name and increase sales?

How to compete against the increasingly sophisticated menu offerings of

industry leaders?

What should the company do to obtain the organizational skills to be able to

manage the fast-growing number of company-owned restaurants (rate: 12
company-owned restaurants per quarter)?

II. SITUATIONAL ANALYSIS

A. General External Environment

Political/Legal

The case made no specific mention about the political

environment of the time.

Socio-Cultural

The case did not discuss about the socio-cultural aspect.

Technological

Sonic’s corporate management has successfully its own point-

of-sale (POS) system, which takes advantage of information that is
generated from the moment a customer pushes the button on a
“squawk box” and places his or her food order. The POS system tracks
 operation and financial information that is provided to store-level and
corporate management.

Demographic

As the population grows the potential for additional growth

within its industry increases as well. The target consumers within the
hamburger segment of the fast food restaurant industry are males aged
18 to 40 and families with young children. According to the 1990 U.S.
Census, the number of families in the US has doubles since 1960. The
predictions for 1996 to 2050 are that over 50% of the population will
be less than 44 years of age.

Economic

The case did not discuss the external economic condition.

Global

The case did not discuss the global condition at the time.

B. Industry Analysis

Threat of new entrants

Threat of new entrants is low and barriers to entry are high. The
industry is mature; the product life cycle of the fast food industry is at
it’s and peak and strives to maintain it.

Intensity of Rivalry of Competitors

The intensity of competition in the fast food industry is so high

and/or tight.
It would be difficult for any new fast food restaurant to
effectively compete with the industry market leaders, which are
established and already have defined territories. Market leaders have
established brand name loyalty, maximized demographically based
locations, vertically integrated their supply functions, learned how to
engage in competitive pricing, and learned how to gain efficiencies and
economies of scale due to volume of business and number of operating
units.
 Product Substitute

More than 300,000 fast food restaurants in the United States

serve menu items ranging from sandwiches, chicken, pizza, seafood,
and Mexican food to baked goods and various specialty coffees.

Suppliers (Bargaining Power)

Suppliers have no bargaining power because of the industry’s

trend of vertical integration of the supply function to control costs.

Buyers Bargaining Power

Same with the suppliers, buyers also don’t have bargaining

power.

C. Competitive Environment Analysis

Although Sonic is now regarded as one of the major players in

the fast food industry still it is important to note and understand the
threats from the competitive environment. The restaurant industry in
general and the fast food segment in particular are highly fragmented.
The 10 largest fast food chains account for only about 15 percent of all
units and 23 percent of sales. The fast food restaurants compete on the
basis of price and service and by offering quality food products.
Four major competitors of Sonic: McDonald’s, industry leader,
runners-up are Burger King, Wendy’s and Hardee’s. .

D. Environmental Trends

Pricing in the fast food industry is extremely competitive. The

most successful fast food restaurants in the hamburger segment all
operate at high volumes of sales with low mark-up. The trend within
this industry is vertical integration of the supply function to control
costs. The market leaders own a combination of large numbers of
company-owned restaurants and franchise restaurants.

Attractiveness of External Environment

The attractiveness of the environment brought about by the

growing market is offset by the barriers to entry attributable to (1)
economies of scale; (2) high capital requirement; (3) established
competitors.
E. Strategy Analysis

Key Success Factors

 Unique menu offerings

 High quality and customer service.
 Service with the Speed of Sound

Strategies

Business Level