Not only is Sonic outperforming its traditional rivals in the burger business such as McDonald's (MCD) - Get Report and Restaurant Brands' (QSR) - Get Report Burger King, but it's dusting up-and-comer Shake Shack, which staged an extremely successful IPO in January.
On Tuesday, Sonic reported a stellar 11.5% increase in system same-store sales on the back of strong sales during all major parts of the day. By contrast, Shake Shack's same-restaurant sales rose 7.2% in the fourth quarter, its first as a public company, and 4.1% for all of 2014.
Shares of Sonic have gained an impressive 57% in the past year, while Shake Shack's stock is largely unchanged after debuting at $47 a share, more than twice its IPO price. Shares of McDonald's, meanwhile, have gained only 3.6% during the same period, while Wendy's (WEN) - Get Report shares have gained 25%.
Of Sonic's 11.5% quarterly sales gain, approximately two-thirds was attributed to more customers driving up and parking in Sonic stalls, as consumers with anywhere from $100 to $200 in monthly savings from the gas pump bought more burgers, fried pickles and ice cream shakes. Company execs pointed out that demand was so strong that it was continuing well after the limited-time special offers on products ended.
Meanwhile, McDonald's U.S. saw its first quarter same-restaurant sales fall 1.7%. In February, U.S. sales at the Golden Arches plunged 4%. At Burger King, same-restaurant sales in the U.S. and Canada increased 4.2% in the fourth quarter. And at Wendy's, fourth-quarter same-restaurant sales in North America rose 1.6%.
The roller-skating carhops at drive-in burger and shake joint Sonic aren't exactly delivering "better burgers" in the same vein as Shake Shack.
Rather, Sonic is focusing on serving up authentic, made-to-order fast food with a never-ending stream of new and interesting items.
"Sonic seems to do really well with millennials and moms with kids," said Sonic CFO Stephen Vaughan, citing a new Morgan Stanley report.
Executives at McDonald's, who continue to focus on reinvigorating sales by rolling out touchscreens at restaurants that allow diners to custom order their food, as well as promoting the quality of ingredients in TV commercials, may be facing an uphill battle in regaining share from the hard-charging Sonic.
"Millennials like to be able to customize their food," Vaughan said in explaining why the brand remains on fire. He added, "the other thing is that millennials are looking for is 'real' (food) -- if you think real ice cream, it may not necessarily be healthy, but because of the fact it's real ice cream, that lends tends to resonate with that group."
Calorie counts for one of Sonic's "Blasts" ice cream drinks, which are infused with items such as Oreo cookie bits and Reese's peanut butter candy, can reach more than 1,700 depending on the size. The lowest-calorie traditional shake on Sonic's menu is the strawberry mini at 470 calories.
In 2012, Sonic hired a new head chef from Sweden, a former 10-year restaurant entrepreneur with experience working at Campbell Soup (CPB) - Get Report. Prior to his arrival, Sonic had sold soft-serve ice cream in the same fashion as rivals McDonald's and Dairy Queen. The product was essentially ice milk, not real ice cream. The company has since launched, and marketed, its real ice cream shakes and frozen blasts in an array of flavor combinations. Ice cream sales have risen 50% dating back to 2011.
At the same time, Sonic hasn't ignored those seeking healthier choices. Similar to others in the quick-serve industry, Sonic has sought to introduce more chicken items to its menu. The new products have arguably been more interesting to the consumer's eye just based on Sonic's sales of chicken products.
Led by the new chef and his team, Sonic has introduced a 10-grain ciabatta bun and a lighter mayonnaise for its chicken offerings. There is now also an asiago fried chicken club sandwich on the menu, as well as new spicy chicken strips being promoted on TV. Today, chicken comprises about 10% of Sonic's sales, up from 6% in 2011. Total sales of chicken products have surged 60%.
Meanwhile, instead of innovating with something new in the chicken category, McDonald's and Burger King have leaned on old favorites. McDonald's recently relaunched premium chicken strips, while Burger King chicken fries are back on the scene.
In spite of its success, Vaughan says Sonic is far from done innovating, especially some six months into a $1 million investment into a culinary test center based at its Oklahoma City headquarters.
Sonic is currently using the center to test new products that not only work on the existing equipment found in 3,500 plus mostly franchised restaurants, but also new equipment it has brought in. The goal of the tests is to develop products that customers may want three to five years down the line. Vaughan declined to share specifics on what Sonic could be introducing this year, but did hint at more drink promotions in the spirit of its 99-cent soda program launched in 2014 to gain share from convenience stores, as well as with breakfast sandwiches.
Earlier in the year, Sonic unveiled the French Toaster breakfast sandwich for a limited time. It consisted of eggs, cheese, sausages or bacon between two slices of French toast, and was available all day. Breakfast at McDonald's that is usually finished around 11:00 a.m.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.