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The Origins of Cult-Favorite Fast Food Restaurants: Sonic

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A former milkman heard a voice -- and it changed the drive-in business forever.

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If you didn't know better you might think Sonic Drive-In (SONC) was brand-new, a classic retro-hip joint complete with vintage space-age logo, cool name, and modernist look. In fact Sonic is a kind of fast-food coelacanth, a surviving relic of a bygone era. Sonic may not be any older than McDonald's (MCD). But while that mega-chain has evolved from its original post-war style, Sonic still looks like a snapshot of American Graffiti -- an impression reinforced by Sonic's idiosyncratic menu with its Coney Island foot longs, corn dogs, and blue "Ocean Water" drinks. As a franchise operation too, Sonic once exemplified a more innocent retailing age. But finally that all changed -- which explains why Sonic is still making waves.

Troy Smith, a former milkman in Shawnee, Oklahoma, opened up Troy's Pan Full of Chicken restaurant after the war. In 1953 he set up a little spin-off operation, the Top Hat Drive-In, peddling burgers, hot dogs, and root beer. Pretty soon Smith figured out the tail was wagging the corn dog -- the Top Hat was moving a lot of product. After seeing a speaker-style operation in Louisiana, Smith set up a parking lot with speakers where customers could order from their cars and be served by car hops. For the parking stalls he got friends to bring in their cars, and then painted the lines around them. Thus the stalls, like the cars, came in different sizes. That non-standardized approach would eventually extend to the franchising.

Charles Pappe was a Top Hat customer who liked the look of the place so much he approached Smith and became a partner. In 1959 Smith and Pappe renamed the restaurant Sonic, a word they pulled out of the dictionary to fit the service-by-radio theme.

Franchises spread around Oklahoma, and also Texas, Kansas, New Mexico, Missouri and Arkansas. But Sonic was no modern marketing monolith in the early days. Initially Smith and Pappe took a penny royalty on branded paper bags, but there was no standardized menu or operational guidelines. Franchisers were free to create their own version of the Sonic experience. By the end of the 70s there were more than 1,000 Sonic Drive-Ins, and perhaps almost as many variations on the menu, prices, and service. Charming, but not a recipe for successful brand-building.

By 1983 the company faced declining revenues and shuttered franchises. Smith decided a change was needed (Pappe died in 1967). He hired a president, Stephen Lynn, who in turn hired attorney Clifford Hudson. The new management team began encouraging franchise cooperation in areas of marketing and menu. Ad campaigns featured nostalgic figures like Tom Bosley of Happy Days, and later Frankie Avalon. In the early 90s the standardization process was accelerated by a contentious new franchise agreement, that, among other provisions, increased franchiser contributions to the advertising budget. Not every franchise signed on. But the new strategy paid dividends. Revenues rose 24% in 1995 alone.

A late-90's store redesign emphasized the retro-futuristic look.

Hudson took over as president and CEO in 1995. The company soon became a regular on the Forbes list of "200 Best Small Companies in America," and by the end of the decade had over 2,000 locations and over $1 billion in annual revenue.

One dish that was able to survive Sonic's franchise free-for-all era was ice cream. It was introduced to the menu by Oklahoma franchisee Don Rogers, and would eventually become a Sonic fixture and a major point of differentiation from other burger joints.

Despite taking a significant revenue hit during the recent economic decline, Sonic has continued to expand, opening 41 new franchise operations in the fourth quarter of 2009 even while experiencing a 4.5 percent drop in comparable sales for the quarter.

Trouble with sales continued in 2010, with same-store figures declining 13.2% in the second quarter.

Founder Smith died in 2009 at age 87. By that time Sonic Corporation was unrecognizable from its humble beginnings. But Sonic Drive-Ins themselves retain some Fifties flavor -- surely contributing to their continued survival in the viciously competitive fast-food market.
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