FDD Talk 2017: What You Need to Know About the Zaxby’s Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

In this FDD Talk 2017 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 2017 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Zaxby’s franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of Zaxby’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2016 average gross revenue, cost of goods sold, labor, other operating expenses, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) from operations by quartile for the 595 licensee-owned Zaxby’s restaurants that were open and operating during the entire 52-week period ending on December 25, 2016

• 2016 average, median, high, and low gross revenue by quartile for the 595 licensee-owned Zaxby’s restaurants that were open and operating during the entire 52-week period ending on December 25, 2016

• 2011 to 2016 average and median gross revenue for the licensee-owned Zaxby’s restaurants that were open and operating during the entire applicable fiscal year

Section I – Background Information

14 Things You Need to Know About the Zaxby’s Franchise

Launches “Fan-First” Initiatives for 2017

1.  Toward the end of summer 2017, Zaxby’s unveiled its strategic agenda of “fan-first” initiatives for the remainder of 2017. These new initiatives included five first-time meal deals for $5.99 paired with the brand’s new Poolside Punch, a Summer Road Trip campaign, a college football tailgate tour, and the launch of the new Zaxby’s food truck.

2.  Zach McLeroy, CEO and co-founder of Zaxby’s, said, “We made it our mission to bring fresh campaigns and promotions to our guests in the second half of 2017. Our team at Zaxby’s is very aware that our fans drive our business and are the reason for our success. Because of that, and the loyalty they continue to show, we listen to them. That’s what the rest of 2017 is about for us.”

3.  Zaxby’s “5 Meals for $5.99 Each” promotion was available from July 24 through September 24 at all of its locations. The “wallet-friendly” deals featured Zaxby’s traditional menu favorites, including the Big Zax Snak Meal, Boneless Wings Meal, Kickin’ Chicken Sandwich Meal, Grilled Chicken Sandwich Meal, and Chicken Finger Sandwich Meal. In addition to the value meals, Zaxby’s launched its new Poolside Punch on July 31.

4.  Although Zaxby’s did a college tailgating tour last year, the brand launched a new Zaxby’s Summer Road Trip campaign this year. Zaxby’s got the idea for the road trip campaign from its loyal fan base, who have been chronicling their journeys and making stops at Zaxby’s a key part of their trip. As part of the Summer Road Trip, Zaxby’s featured some of the trips on its social media channels and also sent out a “Road Trip Care Package” to select fans and social media influencers and encouraged them to document their trips using the hashtag #RoadtoFlavor.

Debuts New Food Truck

5.  In mid-September, Zaxby’s unveiled its new food truck as part of an ongoing partnership with International Management Group’s college division. This is the second year in a row that the chicken chain ran its “Zaxby’s Fanz of Flavor” tailgate tour across the country.

6.  According to Erin Todd, Zaxby’s Senior Brand Manager, a majority of Zaxby’s customers are college football fans and the company looked forward to being a part of the game-day experience. The company hosted large-scale tailgate gatherings in six college communities over the fall during highly anticipated rival-school football matches.

7.  The food truck was new for this year’s tailgate tour and served as the centerpiece of an area that included grandstand-style seating, customer games, giveaways, and televisions with satellite feeds to air other college football games, said Todd. She added that with the truck, Zaxby’s was able to offer fresh-cooked chicken fingers.

8.  Another new feature of this year’s tour was the inclusion of one to two social media influencers at each location. Zaxby’s invited these influencers to spend the day with the truck and share their game-day experience across their social media channels including Facebook, Instagram, and Twitter using the hashtag #FanzofFlavor.

Signs Five-Year Deal with Atlanta Falcons

9.  In August, Zaxby’s announced that it had signed a five-year deal with the NFL’s Atlanta Falcons to become the team’s Official Chicken. As part of the deal, Zaxby’s was the title sponsor of the Falcons’ Salute to Service Week from October 30 through November 4. The brand will also be the presenting sponsor at the Falcons’ training camp, the Atlanta Falcons/MADD 5K, and Fishing with the Falcons, the annual spring fishing tournament that benefits wounded veterans.

10.  The partnership will help Zaxby’s gain wider exposure through home game activations, signage, and broadcast and print media.

Company History

11.  Zaxby’s was founded in 1990 by Zach McLeroy and Tony Townley in Statesboro, Georgia. McLeroy and Townley felt that they could make better chicken than what was available in Statesboro at the time and wanted to offer a chicken restaurant that was fun and had personality. They opened the first location near the Georgia Southern University campus.

12.  Zaxby’s chicken and its Zax Sauce were inspired by a small chicken fingers chain called Guthrie’s that McLeroy frequented while he was a student at the University of Georgia in Athens.

13.  Over the next few years, McLeroy and Townley continued to open locations throughout Georgia. The first franchised location opened in 1994 in Bowling Green, Kentucky. Today, there are over 800 Zaxby’s restaurants across 17 states, primarily in the southern United States.

Entrepreneurs Franchise 500

14.  Zaxby’s has ranked on Entrepreneur’s annual Franchise 500 list a few times over the past 10 years. The company’s highest rank was No. 82 in 2016, while its lowest rank was No. 271 in 2014.

Section II – Estimated Costs

• Please click here for detailed estimates of Zaxby’s franchise costs, based on Item 7 of the company’s 2017 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Zaxby’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis

• As of December 25, 2016, Zaxby’s had 816 open and operating licensed Restaurants. Of these 816 Restaurants, 679 were owned and operated by third party licensees that are not owned or controlled by Zaxby’s principal shareholders or its affiliates (the “Licensee-Owned Restaurants”).

• The data utilized in Item 19 is based solely on the operating results of the 595 Licensee-Owned Restaurants that were open and operating during the entire 52-week period ending on December 25, 2016 (the “Measured Restaurants”).

• Zaxby’s did not include any Restaurant in the analysis that (i) was owned or controlled by its principal shareholders or its affiliates or (ii) was not open and operating for such entire 52-week period.

• During the 52-week period ending on December 25, 2016, two Restaurants closed (including one temporary closure for a rebuild) which were excluded from the Measured Restaurants, but no Restaurant closed during its first 12 months of operation.

• All of the Measured Restaurants are free-standing Restaurants that offer substantially the same products and services as are currently utilized in all of the licensed Restaurants.

• For purposes of this Item 19, the term “Gross Revenue” means all revenues received by a Restaurant as payment for all sales generated through the Restaurant, whether such payment is in cash, by exchange, or for credit (and, if for credit, regardless of collection), including revenues received from the operation of vending machines or other mechanical devices, less any taxes collected and transmitted to the appropriate taxing authorities.

• For purposes of this Item 19, the term “EBITDA” shall mean Gross Revenue less cost of goods sold, labor costs (excepting officer salaries), and all other operating expenses (excepting interest, taxes, depreciation, and amortization).

• This Item 19 was prepared utilizing data Zaxby’s received in the periodic sales reports provided to it by its licensees and through daily polling of Point of Sale (POS) data. Zaxby’s has not independently verified any of the data provided to it, but its licensees pay its licensing fees based on such reports.

• The cost and expense information in this Item 19 pertains only to the cost of goods sold, labor costs, and other operating expenses experienced by the Measured Restaurants for the period of December 28, 2015 to December 25, 2016. You may experience capitalized or other balance sheet expenditures that are not included in this cost and expense information.

Part 1 – Average Gross Revenues and Certain Operating Expenses by Quartile

• Part 1 below contains an analysis of gross revenues and certain operating costs and expenses (cost of goods sold, labor costs, and other operating expenses) of the Measured Restaurants for the 52-week period ending December 25, 2016. Part 1 is not a profit and loss statement.

• Labor costs in Part 1 do not include officer’s salaries and benefits for any Measured Restaurant that captures or recognizes that expense.

Top Quartile