FDD Talk 2016: The Zaxby’s Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

In this FDD Talk 2016 post, you’ll learn the following:

• Section I – Background information on the Zaxby’s franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Zaxby’s franchise, based on Item 7 of the company’s 2016 FDD

• Section III – Presentation and analysis of Zaxby’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:

• 2015 average EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) from operations by quartile for the 542 licensee-owned Zaxby’s restaurants that were open and operating during the entire 52-week period ending on December 27, 2015

• 2015 average gross revenues by quartile for the 542 licensee-owned Zaxby’s restaurants that were open and operating during the entire 52-week period ending on December 27, 2015

• 2011 to 2015 average gross revenues for the licensee-owned Zaxby’s restaurants that were open and operating during the entire applicable fiscal year

Section I – Background Information

Childhood friends Tony Townley and Zach McLeroy started Zaxby’s back in 1990 with an initial location in Statesboro, Georgia. Four years later they started franchising the concept – a fast-casual restaurant focused on chicken wings, chicken fingers, sandwiches, and salads. Without any previous restaurant experience, Townley and McLeroy were after two things they found lacking in local chicken joints – flavor and fun.

The chain has grown in recent years and had 726 locations at the end of 2015, a 10.3% increase from the previous year. Rumor has it the company may be going public soon.

Here’s how Zaxby’s serves up flavorful fun in the competitive chicken segment:

The Menu

Zaxby’s is smart in terms of not trying to be everything for everyone. The focus is on the chicken. In the Wings and Fingerz category, you can get Traditional Wings, Boneless Wings, Chicken Fingerz, and Buffalo Chicken Fingerz. All the chicken plates come with Texas Toast, crinkle fries, coleslaw, and dipping sauce.

In the Zalads category, you can get the House, the Cobb, the Caesar, or the Blue. Every Zalad comes with Texas Toast and can be had with either grilled chicken or fried chicken.

Zappetizers include Fried White Cheddar Bites, Onion Rings, Spicy Fried Mushrooms, Tater Chips, and Fried Pickles.

Simple Approach

Even its mission and values are simple. Mission: “Consistently create encore experiences that enrich lives, one person at a time.” Values: Guest-Focused; Develop Talent; Operational Excellence; Continuous Improvement.

Long-Time Leadership

Zach McLeroy co-founded Zaxby’s back in 1990, and he’s been the company’s one and only CEO and President ever since. Clearly, he’s fully committed to this concept and is passionate about seeing it grow further. His personal favorite menu item is the Kickin’ Chicken Sandwich because “…anything messy is usually good.”

Meanwhile, his childhood friend and co-founder, Tony Townley, also still serves the company as Executive Vice President. And the Kickin’ Chicken Sandwich just happens to be his favorite Zaxby’s menu item as well.

College Sports Connection

Zaxby’s has enjoyed exclusive contracts with nearly 30 Division I colleges to sell its food at football and basketball games. The deal was brokered by leading college marketing company IMG College and included seven different divisions across the South, Mid-Atlantic, and Midwest.

That college connection – quick, inexpensive food for students — has been a big driver of growth at Zaxby’s, which is in a tough segment (chicken) dominated by the big three – KFC, Chick-fil-A, and Popeye’s Louisiana Kitchen.

The college connection even carries over into décor. The locations nearest to colleges and universities incorporate sports memorabilia from the local institution of higher education.

Giving Back

Zaxby’s has an emphasis on giving back to the communities in which it operates. For example, a 400-foot retaining wall at a location in Asheville, NC, which could have been emblazoned with company content, instead became an opportunity to have local artists paint a giant mural paying tribute to various aspects of the community.

Zaxby’s is also a big supporter of the Make-a-Wish Foundation.

Section II – Estimated Costs

• Please click here for detailed estimates of Zaxby’s franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis