The economic impact of the industry is estimated to be at $ 1 trillion in 2002. It is considered as the largest employer employing almost 11. 6 million people. Despite the industry’s growth, it is still beset with problems. One common challenge the industry is facing is its high employee turn-over. The Firm Sonic drive-in was founded by Troy Smith in 1953 in Shawnee, Oklahoma. First known as Top Hat Drive-in, it changes its name after 4 Top Hats were opened. In 1973, Sonic is owned by franchisees and was publicly traded.
In 1984, it is already operating in 19 states with 1,000 franchises. In 1996, Cliff Hudson successfully buy-out the franchisees for $10 million and initiated a public stock offering to pay its debts. The organization was restructured and operations efficiency is increased. Standardization among all franchisees and reduced its operating cost. Brand awareness for Sonic also increased significantly. By 2002, Sonic has 2,432 stores in 30 states and 2 stores in Mexico. Although considered small compared with competition, Sonic enjoyed the largest real sales growth in the industry.
Its net income reached up to $48 million and return to equity reached 21 percent. It also enjoys high level of customer satisfaction and achieved the highest customer loyalty in the quick-service segment. The success of its operation was attributed to five factors: multi layered growth strategy, a differentiated concept, strong sales trends, fast expansion program, and a good financial performance. The parent company developed a good relationship between their franchisees and their employees.
Menu innovations were also introduced, and information systems were developed to better franchisee and employee support. Marketing efforts were also improved. What management approach should Sonic take to sustain growth and profitability? “ Sonic’s financial position is not designed to fund growth during a possible downturn in revenues” therefore one challenge management faces is how to financed the planned growth. Sustainability of its success is also another challenge since competition is stiff in the industry.
ALTERNATIVE 1: Use contingency approach1 to management in sustaining growth and profitability. Basically, the contingency approach will assert that Hudson should take into consideration all the aspects that is faced by Sonic at hand. The financial situation of Sonic is not so susceptible for expansion. Other areas also needs to be address like employee retention and product differentiation to be more competitive. Advantages: It will address immediate issues Sonic faces at hand;
Its a more flexible management approach since decisions are relative and based on situations at hand Disadvantages: Solutions might only be short-term as competition in the industry is so stiff; There is a tendency that decisions will be more reactive. ALTERNATIVE 2: Use strategic approach to management in sustaining growth and profitability will let Hudson take an integrative view of the whole organization in facing challenges and will make him assess the how all the functional areas and activities fit together to achieve Sonic’s goal and objectives2.
Advantages: Decisions will be more proactive and long term; Sustainability issues on facing competition in the industry will be given emphasis on the process; Inclusion of stakeholders on the decision making. Disadvantages: It requires more time to go with the strategic process; The management might not be able to solicit cooperation in the implementation of its strategies.