Alaska's First Sonic Drive-In Scores Fast Windfall
by: Mark Heschmeyer | CoStar News
Snow and ice have been a logistics challenge for Larry Clark, the franchisee for the only Sonic Drive-In restaurant in Alaska. But he knew it would be. The Wasilla eatery opened last August with enough time to prepare for the city to start getting hit with its average of 55 inches of snow every winter.
What Clark wasn't ready for was the success of the restaurant. By year-end, Clark's Sonic had racked up $1.2 million in gross sales, he said in an interview, almost the same average annualized sales volume of about $1.3 million per Sonic across the lower 48 states.
To put it in context, even though it’s in a market Clark says is by no means saturated, his eatery was already generating almost seven times more in revenue than the Alaska average for similar businesses, based on figures from retail data provider Womply.
And now Clark is on track to post $3.7 million in annualized sales, a figure disclosed in a new whole-business securities offering from Sonic Capital, a subsidiary of the restaurant chain. The Wasilla Sonic is one of 3,583 restaurant locations supporting the $875 million senior-notes offering that's expected to help repay parent company debt. In September, Sonic restaurants reported annual sales of about $4.6 billion.
The Wasilla restaurant results show that preconceived notions in retail real estate can be proven false, and offers a glimpse in how to have a successful property in a sparse area. In Wasilla, "no one could have anticipated the volume," Clark said. "It has astounded everyone." Of course, "we don't have a saturated market," he added.
Clark has become the largest purchaser of food among nearly 3,600 drive-ins. Items have to be ordered in larger quantities than other locations and stored where he can easily get to them regardless of the weather. Supplies are trucked in from Oregon and from Sonic headquarters in Oklahoma City.
Sonic differentiates itself from its fast-food competitors by featuring 1950s-style decor and a drive-in format where customers’ orders are delivered by a carhop, often on roller skates. Clark utilizes that system in the spring and summer, weather permitting. But he has also included a sit-down dining area for use on cold weather days.
Clark's restaurant contains about 2,600 square feet, about twice the average size of a typical Sonic. It was the first business to open at a mixed-use center under development by his franchise partner, Cameron Johnson.
Johnson is developing The Shoppes at Sun Mountain, a mixed-used project that will eventually include more restaurants, shops, housing and a soon-to-be-open Planet Fitness gym.
Clark and Johnson are also prepping to begin renovation of a restaurant in Fairbanks that they expect to become the second Sonic operating in Alaska. Clark has the rights to the state and hopes to open a total of five eateries.
Inspire Brands acquired Sonic in December 2018 for $2.3 billion including the assumption of Sonic’s net debt. This is the first notes offering since that acquisition.
"Sonic should benefit from operating within the Inspire platform," according to Kroll Bond Rating Agency, which completed a presale analysis of the notes offering. "Inspire should provide Sonic with various operational enhancements, including best practices and capabilities, economies of scale, shared services platform, streamlined process and procedures currently available across its existing restaurant brands."
Inspire is a multibrand restaurant company whose portfolio includes more than 4,700 Arby’s, Buffalo Wild Wings and Rusty Taco locations worldwide.
Sonic's business strategy is focused on same-store sales growth and by adding new locations. The company said there's potential for 1,400 additional restaurants, according to KBRA.
The rating firm noted that Sonic has shown the ability to drive its initiatives, posting positive same-store sales growth in 27 of the past 31 years and systemwide sales that have increased 5% annually since 2000.