Sonic wants to refranchise restaurants: Good luck with that!
Posted by: in Companies Competitive StrategyFiled under: Deals, Competitive strategy
Sonic Corp. (NYSE: SONC) is looking to refranchise hundreds of its company-owned restaurants, as franchised locations have been outperforming of late.
It’s a good idea. Franchisees are more motivated to produce strong results than paid-by-the-hour managers, and getting out of the operations business and living on franchise fees and royalties will reduce risk and could increase returns.
But the problem, according (subscription required) to The Wall Street Journal is that tight credit markets and a weak economy could make it difficult for prospective franchisees to make the investment to purchase or open Sonic locations.
The other problem is that refranchising stores is such a great idea that everyone else is doing it: Applebee’s, Steak n’ Shake (NYSE: SNS) and many others have announced similar plans to refranchise company-owned locations.
Adding to the problem, Sonic has not been reporting strong results of late and it seems doubtful that its brand is strong enough to make the company stick out from the glut of restaurants trying to dump company-owned stores in a tough market.
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