The VIth Sense - Sonic Reaction Is True to Its Brand
A few weeks ago, Sonic Drive-ins introduced a value menu. I follow what Sonic does to a certain extent because they're headquartered in my hometown. So, I sometimes note analyst's opinions on the company as well. Wall Street doesn't appear to like the new value menu very much. They are worried that when the economy improves, customers will not migrate back to the regular menu. Add to that lower average ticket amounts and higher food costs normally associated with value pricing and the forecast by most of the financial pundits is grey. As a result, Sonic's stock price took a hit, despite projections of flat profits.
Our take is different. What the financial analysts failed to realize is that Sonic is already somewhat of a value brand, even though they're not always pushing value. The value menu is a natural extension and won't erode the brand at all. Although research is mixed on the subject, some studies show that the additional traffic that value menus bring in, more than makes up for potential dollars lost. Further, per-person sales averages aren't always hit too badly as consumers tend to buy two $1 items instead of one $2 item. We're pretty sure that Sonic intends to make a profit on every sale, so food costs are probably acceptable.
We would never recommend radical tactics to shore up short-term profits at the expense of the brand long-term. However, timely adjustments that are still in line with brand attributes are always a good idea (Hyundai will let you return your car if you lose your job!). You must continue to align your brand with the mindset of the consumer. Sonic understands their brand well and continues to make one smart marketing move after another. We admire them.
