As McDonald's Struggles, Retro Burger Chain Sonic Soars

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Sonic fast food outlet Padre Island Texas TX USA
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McDonald's (MCD) has been struggling to heat up its sales for more than a year, but let's not assume that all fast food chains are in the same boat.

In fact, as McDonald's tries to upgrade its menu with premium-priced items and update its eateries with fancy decor, free Wi-Fi, and barista-brewed coffee beverages, a much smaller rival is doing just fine with a throwback business model and menu.

At a time when many of its more modern peers are struggling to ring up sales, Sonic (SONC) -- the chain of drive-in restaurants where some orders are still delivered to parked cars by carhops on roller skates -- is doing just fine.

Retro Chic

Sonic reported another solid quarter on Monday. Same-restaurant sales rose 2.2 percent for its fiscal quarter ending in November. Margins improved to the point where adjusted earnings per share climbed 18 percent with the help of an aggressive share buyback plan.

McDonald's doesn't operate on the same fiscal calendar, but we know that same-restaurant sales in the U.S. declined 0.8 percent in November and were up a mere 0.2 percent in October. McDonald's is the world's largest burger chain, but it's had several months since Oct. 2012 where it failed to drum up more sales than it did a year earlier.

Meanwhile, Sonic is on a roll.

This isn't a fluke. Sonic posted a 5.9 percent surge in same-restaurant sales during its summer quarter.

Zigging When McDonald's Zags

Sonic and McDonald's both serve cheap burgers, but what's more interesting to consider is where the two companies are going in different directions.

McDonald's has been on a health kick lately. It's been promoting its grilled chicken salads and recently added breakfast sandwiches made with egg whites. Sonic, on the other hand, is crediting no small part of the success of its most recent quarter to its milkshakes and new Cheesecake Bites.

Consumers may talk about eating healthier, but they do something else when they're eating out. We're seeing this in the chains that continue to do well. Chipotle Mexican Grill's (CMG) chunky burritos aren't healthy. Cheesecake Factory (CAKE) throws portion control to the wind with entrees that could feed entire families.

Sonic, by the same token, is merrily rolling along, blending up peanut-butter-and-bacon shakes. (Yes, that's a thing.)

Shifting Into Park

McDonald's isn't the only fast food chain smarting these days. Many burger flippers are struggling as patrons upgrade to Chipotle and other fast casual concepts offering fresher quality food at slightly higher price points.

Sonic has thrived because it stands out. There aren't too many chains that would dream of installing intercoms at more than a dozen parking spots for hungry drivers to place their orders. It's an original, and that's good enough to lure 3 million customers a day to its 3,500 locations.

Sonic's throwback charm may be a sentimental tug to decades long gone by, but it's also popular among younger customers who never experienced the original golden age of malts and melts wheeled out by skating carhops.

Naturally, McDonald's can't go back in time to when the Golden Arches were shinier, but it can probably learn a few things about the allure of consistency. Its shift toward iced mochas and granola-topped yogurt parfaits may have looked great on paper, but aren't crispy fries and juicy burgers what put McDonald's on the map?

Sonic isn't afraid to push the envelope. It'll stuff bacon and tater tots into a breakfast burrito. It'll serve a hot dog on a poppy seed bun and pile it high with tomatoes, pickles, and peppers. However, it has never really strayed form its marketing message. The same can't be said for McDonald's, and one can only imagine how many confused patrons have taken their appetites elsewhere.

McDonald's may want to get back in touch with its roots -- and shout it from the rooftops -- just the way Sonic has for the past 60 years.

Motley Fool contributor Rick Munarriz owns shares of The Cheesecake Factory. The Motley Fool recommends Chipotle Mexican Grill and McDonald's. The Motley Fool owns shares of Chipotle Mexican Grill and McDonald's.

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