By Lynn Koller
Reprinted from: Florida Real Estate Journal - January 1, 2004
Florida may throb from an incoming Sonic boom, as the drive-in food chain rolls into the state in a big way. Oklahoma City-based Sonic Corp., publicly owned, is the largest drive-in, fast food chain in the nation and has targeted Florida as its development hot spot.
"We have done a complete study, and the Florida market is the number one market for our development program," says Vernon G. Davis, real estate manager for Sonic.
At Sonic, carhops deliver food to the customer's automobile or customers use the drive-thru window. The carhop service makes climate an important factor in site selection. Davis says that California rates higher than Florida for climate and conditions, but property values in California make Florida a more viable market.
Davis says that the nostalgic food chain -- many baby boomers may recollect sipping covertly spiked Strawberry Limeades in the Sonic parking lots -- is currently focusing on northern Florida, including the Tampa area. It has been growing in the Orlando and Jacksonville areas for about the past four years. Jacksonville has 12 operating stores, four under construction, and 24 planned. Orlando has 11 operating stores, five under construction, and 17 planned.
"South Florida is the next market," says Davis.
Greg Roth, senior director of retail and investment services at The Staubach Companies in Boca Raton, says that Sonic can join the crowd.
"Who doesn't want to be in the South Florida market?" Roth says. "It's a very strong market from virtually every retail perspective. There is a demand that far exceeds the supply. It's ultra-competitive for sites. It's difficult to enter the market with any great impact without an acquisition."
Davis agrees, and says the entire state of Florida is very demanding and expensive.
Sonic currently has 2,647 locations in 30 states (By compairson, McDonald's has over 30,000 restaurants worldwide.), with 2,157 of them operated by franchise owners. Its annual sales for the 2003 fiscal year were $2.4 billion, with average unit sales of $907,000. Revenues rose 12% to $447 million in fiscal 2003. Over the past five years, revenues have increased at a compound annual rate of 15%. Sonic has 54 operating stores in Florida and is expanding rapidly.
Gary Montour, vice president at Colliers Dickenson, closed nine deals for Sonic locations in Jacksonville last year.
"Sonic is attacking Florida," Montour says. He works with Sonic to select sites for development. The stores can be as close together as two miles, depending on the market, and require approximately three-quarters of an acre.
"Sonic makes a lot of money on their drinks, so they like to be at a place where people can get to them easily," says Montour. "They want to be near movie theaters. Ice cream after dinner is for the six-to-nine p.m. crowd. Sonics are outside, so that they can still fool around."
Ice cream and sodas are big sellers at Sonic, a company that loses a cherry 78 million times a year.
Steve Ekovich is regional manager of Florida for Marcus Millichap Real Estate Investment Brokerage Company. He says that investors interested in Sonic will look at whether it "has a solid, viable concept for the future" and whether there is value in the operating company.
"The operating company, Sonic, has very good financials," Ekovich says. "People feel very comfortable if it's Sonic signing the lease. If it's a franchisee with three or four stores, it becomes a much more difficult sale."
Ekovich says that the unique characteristics of Sonic appeal to some investors and not others.
"When you're buying Sonic, you're pretty much buying land with a little, tiny box on it. That's a problem for some investors because you're buying a very non-fungible asset. You're mostly buying asphalt," Ekovich says. "On the other hand, because you're not buying a lot of building, you're buying a lower-priced asset compared to other fast-food franchises. Most of your value is in the ground."
Ekovich finds Sonic to be a solid company. It should be noted that no other fast-food franchise serves a mint to each and every customer who purchases a drink or food.
"The concept is good. The product is good. The burgers are good," Ekovich says.