SONC
#Thank you, Joe.
I would say it's about 1.5% to 2%.
Not necessarily from what it's been.
What we're seeing, if you peel away the layers, <UNK>, is that we're getting leverage from our crew labor with the investments.
So we invested ---+ our first big investment was last year, if you'll recall during this time of year, when we saw a noticeable increase in our monthly unit volumes for the second fiscal quarter.
And at that time, we made some significant investments in retaining more people at the crew level so we could sustain a quality workforce as we headed into the spring and summer months.
As we headed into this fiscal year, we enhanced their compensation with the employee meal program but then are now focused on the assistant manager piece.
So as you look at, we've gotten leverage from crew and that's really offset by the employee meal program and then the compensation program from our multiunit partners and managers and then assistant manager.
Go ahead.
And I think you're getting some of them confused, because the big change that we made back during 2009 and 2010 is when we reverted our partnership program for our managers to a regular compensation program and, in essence, they became our employees as opposed to operating equity partners.
What we did back at that time was shift their guaranteed base to a materially higher amount and lowered the incentive piece, though the incentive portion of their compensation was still very meaningful to them in their individual compensation.
Over time, the references <UNK> is making today have to do with assistant managers rather than the key manager, the number one person, and they also have to do with multiunit supervisors rather than a single unit manager.
So it's different people and different objectives at different times.
Exactly.
The one additional note I would add, <UNK>, is that for our multiunit partners, our compensation package effective March 1, continues to be, bar none, above the industry average, so incredibly competitive as we look at it across our peers.
Sure.
Great question.
Of that piece, we've tapped into our variable funding note to the tune of about $70 million to $72 million to take care of the share repurchases.
So that $425 million, $268 million will be to refinance the 2011 notes and then we'll use $72 million of the remaining proceeds to pay down that variable funding note.
So then we'll have the excess cash will be available ---+ after we pay any associated fees, will be available to deploy.
I don't have the breakdown for you by market as we sit here today.
We do have that data and we have shared that data internally.
I can tell you that earlier as we came out of the recession, the greater portion of the new store development and the commitments for new store development was core markets.
And as we particularly in 2013 and 2014, as we shifted dollars toward national media and now have probably 85% of our marketing dollars spent on national media, with the growth in sales and profitability and the fact that we're on 12 months out of the year multiple promotional rotations every quarter, we began getting a lot more inquiries and then we've also put more human resource behind franchise sales across the country, not just core markets.
So as time has passed and that pipeline has stepped up, as you've seen, it is a good combination of core markets, new markets, and in the more recent past also what we would refer to as developing markets, those with light or moderate market penetration historically and lower AUVs.
But the AUVs in the developing markets have come up very nicely in the last three years and so we're seeing new store commitments in core, developing, and new markets, all three.
The promotion of the mobile app, more active national promotion will begin next month.
So utilization immediately; functionality growing over time.
But your question was likely impact on what.
Second fiscal quarter.
It did not have any material impact on the second fiscal quarter since we haven't rolled it out nationally.
The POPS system really doesn't require the franchisee to do anything.
It is a customer interface.
As it has gotten rolled out within a marketplace, there are some consequences that we see that may have to do with types of transactions or dayparts that are a nice surprise, you might say, but we have not previously published anything about here's what you will get from that, we've not published that to the marketplace.
And what we will get from it, in our view, is it is kind of the gift that keeps on giving as we integrate it with these other ICE elements, the app and mobile otherwise.
So not much more of an answer to your question than that, except that our view is that our vendors that are helping us pay for it, it is helping drive their business too and by the end of next year we'll have the whole system.
The answer is as it gets rolled out across the marketplace, we do get benefits from it we would not get if it's an isolated single store.
Yes.
Okay.
Couple of things.
One is, the way we look at what drives our business ---+ we don't look to single thing cause and effect, which is one of the reasons why we put in our presentation the series of initiatives that from our standpoint help drive the business.
So those can be media and different forms of media.
It's promotion.
It's the nature of the promotion.
It's who the targeted audience is.
It can be product line and why a product line makes more sense at one time of the year than another.
It could be daypart and why daypart in the year makes more sense at one point in time of the year versus another.
So there's a whole series of elements that go into this and it's a little ---+ it would be a little ---+ I'm not sure what the right word is.
It would be difficult and probably not even correct for us to look at it and say it was this product or it was just that commercial or it was the fact we're on that medium.
So the color I would give you is that in the recent past or in this quarter all dayparts are positive and we're pushing product across a variety of product lines.
So the business is healthy and it's very good for us to have this BLADE strategy, breakfast, lunch, afternoon, dinner and evening.
As we promote that in every three- or four-month period hitting on each of those dayparts and products aligned with them.
It really keeps our busy healthy and allows us to move around what some of the competition may be focusing on, differentiation from a product and usage standpoint.
Beyond that we don't ordinarily talk about sales by daypart nor by product line, but there's a variety of things that positively impact this so we keep developing products aligned with various dayparts and in various product lines for that kind of freshness to the business.
You bet.
One of the things, <UNK>, that this is ---+ I know we got into some specifics on this several years ago, but from our standpoint it remains true about the business.
The customer's perception of value, that's often translated as just meaning discount and yet our view of that, because it is a consumer's view, it is what you pay for what you get.
And so we've approached, over time ---+ though very early in the recession we did put in place a so-called value menu, we have found other ways to approach that over time to all the while measuring our customers, our actual customers' and potential customers' perception of our value.
So we get read from them on a regular basis on that issue.
And even as we have done things that have really increased the cost or expense of products, like going from ice milk to ice cream, even as we've taken steps like that, we have seen consumers' perception of value that we offer, in fact, improve over time.
And so, in a way, that general description I'm giving you is, in a way, a description of our strategy, which we may have periodic pricing activity or we may have laddered pricing now which we didn't have five or six years ago, but what we have worked not to do is just simply say here's a whole lot of food, cheap.
And this strategy has worked for us for a variety of reasons and we're still on it.
Well, so observations about where the investments are, our rule of technology applies.
Takes longer, costs more than you thought it would when you started out.
This is, in fact, what we have experienced.
But in terms of the plumbing, you might say, the plumbing and wiring, we are getting that rolled out nicely across the system now with our POPS and POS infrastructure.
A large part of the infrastructure that we're going to be leveraging is everyone else's investment, smartphones and otherwise.
So our expectation is that, particularly with the millennial population, that the utilization of the app should be very positive for our business.
Let me give almost a 20th Century parallel here.
When we rolled out our credit card readers at the stall, our PAYS program, the Pay At Your Stall, PAYS, before we rolled that out, 2001, 2002, we had $2 billion in sales, 5% credit cards.
We rolled that out across the system.
So if in 2001, we had $2 billion in sales, $100 million in credit card sales out of $2 billion.
Today we have about $4.5 billion in sales and almost $2.5 billion come from credit cards.
So what we offered to our customers was a different way to engage with us.
In that case it was how to engage from a payment standpoint and they liked it a lot better when they didn't have to turn loose of their credit card.
This has been a great way to engage the consumer on that from an ease standpoint.
The millennial consumer in particular is quite accustomed to utilization of tablets, smartphones and otherwise for review of consumer data and even placement of ordering and payment processes.
So our belief and expectation is just as the millennial population will become a larger and larger portion of our employee base and our customer base over the next 5, 10, and 15 years, that utilization of this technology for understanding where a Sonic drive-in is, keeping records about what you ordered last time you were at a Sonic drive-in, applying same orders, payment processes, sending gifts, meaning gift cards to relatives or otherwise, that just as the credit card piece was an explosive part of the business over the last 15 years, this integrated piece, however much a customer uses, chooses to use it off lot versus on lot, these integrated elements of app to POPS and points in between will be a significant grower from a convenience standpoint, significant contributor to growth over the next 5 and 10 years.
One of the things that our payment process didn't have anything to add to it and this infrastructure will have to do more with the relationship management and the promotion to a customer really in a one-on-one fashion in a way that the payment process, oh, may have allowed you to do a little bit indirectly.
This will allow us to do a lot directly.
So I think the impact on our business is going to be very material and it's going to grow over time it will take on forms five years from now that I certainly can't even anticipate today.
But I think it's going to be enormously positive for our business.
Allow us a level of customization engagement with the customer that we could not approach otherwise.
Sure.
So with respect to traffic and check, I would tell you a little less than half of our same-store sales growth was comprised of traffic and then there's check.
I think what's exciting about that for us, is that, again going back to <UNK>'s point on our product and daypart strategy, is that we've reached a really nice balance over the past couple of years of being able to grow our business by selling more premium products, namely in the chicken and ice cream category.
But also continuing to drive traffic with targeted value and what we've seen with that is that they're not just buying the items that we're promoting but really trying out a broader base of our business, whether it's premium products or add-ons.
So we continue to see that dynamic, which is really healthy.
With respect to weather, we didn't see ---+ I would tell you weather did not play a significant impact, either positively or negatively, on the quarter.
It ended up being pretty neutral overall, maybe slightly positive but nothing anything worth noting.
Sure.
So with respect to vanilla, I would need to get back to you on that.
I can tell you the biggest piece we look at when we're looking at ice cream is butter fat.
That has been a slight source of pressure as we go into the year, but we've locked in a portion of that.
And certainly as we get into the summer months, we've locked in a portion of that and they're below market prices at this point, so we feel very good about that and we continue to evaluate the market.
Thank you.
At this point what we're looking at, Bob, is we're just looking ---+ this is <UNK>, obviously, not <UNK>.
Just to be clear.
So we are looking at those packages, but really all we're doing is we're just going to be shifting.
We're comfortable with the overall compensation package.
It's just a matter of shifting what component is fixed versus variable.
The guidance that we provided incorporates a little bit of that, but we don't anticipate seeing any adverse impact from that shift.
First of all, in terms of discussion along those lines internally or with franchisees, the answer is no.
Secondly, it's going to be incumbent upon us for them, as that development occurs, to help them develop a pricing models, et cetera, that work for them in such a way that it does not disrupt their business at an individual store or on a broader enterprise basis.
Now that will be our objective to assist our operators in that process.
We did the same thing with our operators as it related to the Affordable Care Act.
Now many of whom confronted that with fear and trepidation and we spent a long period of time showing them how to utilize it, what to think about from a pricing standpoint, how to engage their employees, and certainly not to start cutting back employees' time because we were concerned it would negatively impact service and then, in turn, their sales and profitability.
I can say that those who listened to us on that point and embraced the approach that we proposed ended up, in the ensuing summer in particular, with higher sales and profitability and it kind of moved right through it.
So I'm not suggesting that it's not a challenge to move into that kind of pricing, that kind of hourly wage pricing component, but these are being proposed on a multiyear staged basis and there's no doubt that it's going to be kind of inflationary as it relates to consumer product.
That is how we'll approach it and we've heard no feedback from operators about concerns regarding development.
I should also say our new markets, new stores, have sales volumes in excess and well in excess of our average store.
And so from that standpoint, present more of an opportunity for management of those costs anyway.
Thank you for the question.
I think that's our last question for the day and our operator might ordinarily say something, but since it was announced this is our last question, I'll pick it up.
We appreciate your participating in the call today and hope you have the sense of confidence that we do have in our business.
We're really hitting on all cylinders at this point and all aspects of our business are really going quite well.
We're very pleased with it and hope you are, to the extent ---+stockholders on the line, hope you're very pleased with the performance of the business as well.
We look forward to talking to you along the way.
Thank you very much.
