In this FDD Talk 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 2021 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 2021 FDD

• Section IV – Number of franchised and company-owned Zaxby’s outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD

• Section V – Presentation and analysis of Zaxby’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:

• 2020 average gross revenues, cost of sales (cost of goods sold, labor), gross profit, other operating expenses (telephone and utilities, professional fees, advertising expenses, other operating expenses, royalties, rent and occupancy), and EBITDA from operations for the 741 franchised Zaxby’s restaurants that were open and operating for at least 51 weeks of the 52-week fiscal year ending on December 27, 2020, by quartile

• 2020 average and median EBITDA from operations for the 741 franchised Zaxby’s restaurants that were open and operating for at least 51 weeks of the 52-week fiscal year ending on December 27, 2020, by quartile

• 2020 average, median, lowest, and highest gross revenues for the 741 franchised Zaxby’s restaurants that were open and operating for at least 51 weeks of the 52-week fiscal year ending on December 27, 2020, by quartile

• 2018, 2019, and 2020 average, median, lowest, and highest gross revenues for the franchised Zaxby’s restaurants that were open and operating for all 52 weeks of the applicable fiscal year (the 2020 data includes the financial performance of franchised Zaxby’s restaurants that were open and operating for at least 51 of the 52 weeks of fiscal year 2020)

Section I – Background Information

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

Appoints New CEO as Co-Founder Zach McLeroy Transitions to Chairman

1.  In late October 2021, Zaxby’s announced that co-founder and CEO Zach McLeroy would transition to chairman of the company effective January 2022, after more than 30 years leading the brand. Bernard Acoca has been appointed as the company’s new chief executive officer. Acoca’s experience leading some of the nation’s top restaurant concepts will be instrumental in driving the company’s growth, while McLeroy’s continued involvement will ensure the culture and founder-led history of Zaxby’s continue as a guiding principle.

2.  Zach McLeroy, co-founder and then-CEO of Zaxby’s, said, “I am humbled by the success Zaxby’s has experienced since my co-founder and I launched the company three decades ago. Earlier this year, I decided that the best way to capitalize on the enormous opportunities available to Zaxby’s was to bring in the brand’s first external Chief Executive Officer. We have been engaged in a CEO search to find someone with the strategic, operational, and marketing expertise to accelerate Zaxby’s growth and lead our national expansion. We’re thrilled to have identified Bernard Acoca, a respected industry leader, to guide our future success. I wholeheartedly believe Bernard is committed to growing our business while preserving the best of our heritage and culture.”

3.  McLeroy continued, “Leading Zaxby’s has been an incredible, life-changing journey. I am truly fortunate to have worked alongside a unique group of talented team members and brand partners who all share the same dedication to our mission – consistently creating encore experiences that enrich lives, one person at a time.”

4.  With more than 20 years of experience as a marketer and executive within the restaurant industry, Acoca is a proven leader. He was appointed president and CEO of El Pollo Loco in March 2018. Over his three and a half years as CEO, Acoca led the brand through a transformation in which digital e-commerce rapidly accelerated, drive-thru and back of the house were streamlined, and the chain doubled-down on its L.A.-Mex brand positioning with a new contemporary restaurant design in preparation for aggressive franchise expansion domestically.

5.  Previously, Acoca spent seven years at Starbucks as a member of the Leadership Team including as senior vice president, marketing and category for the Americas, where he was responsible for managing categories totaling $9B in sales, and as president of Teavana. Prior to that, Acoca served as chief marketing officer for the Americas for L’Oréal and spent 10 years at Yum! Brands.

6.  Acoca said, “It is an honor to step into the shoes of Zach McLeroy as the first external CEO. Zach has built the Zaxby’s brand into more than just a quick-service chicken chain. He has found the secret to success is serving our communities quality food, providing team members with opportunity, creating a definable culture of service, and collaborating with strategic partners to grow the brand to new heights. I am thrilled to be joining Zaxby’s at this exciting milestone, and I look forward to working with the talented people in the Zaxby’s family to build upon the brand’s success.”

7.  Nicole Agnew, partner in the private equity business of Goldman Sachs and member of Zaxby’s board of directors, added, “Bernard is a seasoned executive with a proven track record of driving sales and profits. I am confident he has the experience and humility to lead Zaxby’s, its franchisees, and its employees to achieve new levels of success in the future. I am also deeply thankful that we will continue to have Zach’s stewardship of the brand as Chairman and know that we will continue to be guided by his vision for Zaxby’s in the future.”

Announces Strategic Investments from Affiliates of Goldman Sachs

8.  In mid-November 2020, Zaxby’s Operating Company L.P. and its subsidiaries announced that investment funds managed by the Goldman Sachs Merchant Banking Division would acquire a significant stake in the company. The partnership will support accelerated growth for Zaxby’s as well as expansion into new sales channels with a guest-focused strategy. The deal was expected to be finalized by year end 2020.

9.  Zaxby’s, the fast-casual chain known for its chicken fingers, wings, and signature sauces, operates primarily in the Southeastern United States, with more than 900 restaurants in 17 states (at the time of the announcement). Zaxby’s has delivered industry-leading comparable sales performance for three consecutive years, and there is unprecedented demand from franchisees to grow. Zaxby’s will leverage Goldman Sachs’ vast resources to accelerate profitable growth for the brand and franchisees while keeping guests in the forefront.

10.  Zach McLeroy, co-founder and CEO (at the time) of Zaxby’s, said, “I look forward to working with the team at Goldman Sachs to continue building the brand I founded 30 years ago in Statesboro, GA. This partnership symbolizes the strength of our Company and their involvement will accelerate our growth and expansion into a national brand.”

11.  Nicole Agnew, managing director in the Goldman Sachs Merchant Banking Division, added, “Zaxby’s is a fantastic company with a founder-led culture, loyal customers, and talented employees. We are excited to partner with the management team to provide long-term capital for their next phase of expansion. We are confident we can grow the brand while remaining authentic to what people love about the restaurants.”

12.  Tony Townley, co-founder of Zaxby’s, said, “I am excited to have a firm like Goldman Sachs joining the Zaxby’s family. This new partnership is a testament to what our employees and franchisees have helped us create thus far. Goldman Sachs’ knowledge and resources will help continue to build upon the strong foundation we have laid out.”

Company History

13.  Zaxby’s was founded in 1990 by Zach McLeroy and Tony Townley in Statesboro, Georgia. McLeroy and Townley were childhood friends and both felt unsatisfied with the chicken options available in Statesboro at the time.

14.  The chicken and sauce recipe that McLeroy and Townley developed for Zaxby’s is based on recipes from a small chicken chain called Guthrie’s that McLeroy frequented while attending the University of Georgia.

15.  After a few years, McLeroy and Townley started franchising Zaxby’s and it grew into a regional chain primarily in the Southern United States. Today, there are Zaxby’s locations across 17 states.

Entrepreneur’s Franchise 500

16.  Zaxby’s ranked No. 169 on Entrepreneur’s 2022 Franchise 500 list.

Section II – Estimated Costs

• Detailed estimates of Zaxby’s franchise costs, based on Item 7 of the company’s 2021 FDD.

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

• 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 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

• Outlets at the Start of the Year:  736
• Outlets at the End of the Year:  757
• Net Change:  +21

2019

• Outlets at the Start of the Year:  757
• Outlets at the End of the Year:  756
• Net Change:  -1

2020

• Outlets at the Start of the Year:  756
• Outlets at the End of the Year:  762
• Net Change:  +6

Company-Owned

2018

• Outlets at the Start of the Year:  141
• Outlets at the End of the Year:  141
• Net Change:  0

2019

• Outlets at the Start of the Year:  141
• Outlets at the End of the Year:  149
• Net Change:  +8

2020

• Outlets at the Start of the Year:  149
• Outlets at the End of the Year:  146
• Net Change:  -3

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

• As of December 27, 2020, Zaxby’s had 908 open and operating Restaurants. Of these 908 Restaurants, 762 were owned and operated by third-party franchisees that are not owned or controlled by Zaxby’s affiliates (the “Franchised Restaurants”).

• The data utilized in Parts 1 and 2 are based solely on the operating results of the 746 Franchised Restaurants that were open and operating for at least 51 weeks of the 52-week fiscal year ending on December 27, 2020 (the “Measured Restaurants”). (Note: The tables in Parts 1 and 2 below include 741 Franchised Restaurants, not 746).

• Zaxby’s did not include in the analysis (a) 146 Restaurants that were owned or controlled by its affiliate, ZAX; (b) 6 Restaurants that temporarily closed for more than one week during the period, and (c) 10 Restaurants that opened during the period. No Restaurant permanently 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 Franchised Restaurants.

• For purposes of this Item 19, the term “Gross Revenues” 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 revenues taxes collected and transmitted to appropriate taxing authorities.

• Except as otherwise noted in Part 3, this Item 19 utilizes data for the 52-week period beginning on December 30, 2019 and ending on December 27, 2020 (“Fiscal Year 2020”).

• The financial performance representation is an historical representation about the franchise system’s Restaurants.

Part 1 – Analysis of Gross Revenues and Operating Costs for Measured Restaurants in Fiscal Year 2020

• Parts 1 and 2 contain an analysis of Gross Revenues and certain operating costs and expenses (cost of goods sold, labor costs, and other operating expenses) of all the Measured Restaurants for Fiscal Year 2020.

• In Parts 1 and 2, the Restaurants were divided into four categories based on the amount of Gross Revenues for each Restaurant, which are classified as: Top Quartile, Second Quartile, Third Quartile, and Bottom Quartile.

• In Part 1, the average Gross Revenues and average operating costs and expenses for each of the categories was calculated by adding the Gross Revenues or certain operating costs and expenses, as applicable, of all Measured Restaurants within each quartile and dividing by the total number of Measured Restaurants within such quartile.

• The average Gross Revenues and costs and expenses in each quartile were then compared to the average Gross Revenues in such quartile and expressed as a percentage.

Top 25%

Gross Revenues:  $3,061,088 (100.0%)

Cost of Sales

• Chicken:  $422,941 (13.8%)
• Produce:  $47,280 (1.5%)
• Other Food:  $315,722 (10.3%)
• Paper and Plastic Supplies:  $67,400 (2.2%)
• Beverages General:  $83,550 (2.7%)
• Bread Products:  $35,364 (1.2%)
• Net Inventory:  $(3,207) (-0.1%)
• Sub-Total Food:  $969,049 (31.7%)
• Customer Controlled – Food:  $5,544 (0.2%)
• Customer Controlled – Paper:  $27,966 (0.9%)
• Oil and Shortening:  $23,803 (0.8%)
• Transportation-In:  $214 (0.0%)
• Total Cost of Goods Sold:  $1,048,446 (34.3%)

• Labor:  $720,443 (23.5%)

Gross Profit:  $1,292,199 (42.2%)

Other Operating Expenses

• Telephone and Utilities:  $48,969 (1.6%)
• Professional Fees:  $43,553 (1.4%)
• Advertising Expenses:  $106,687 (3.5%)
• Other Operating Expenses:  $190,798 (6.2%)
• Royalties:  $182,021 (5.9%)
• Rent and Occupancy:  $183,671 (6.0%)
• Total Other Operating Expenses:  $755,699 (24.7%)

Total Expenses:  $2,524,588 (82.5%)

EBITDA from Operations:  $536,500 (17.5%)

Second 25%

Gross Revenues:  $2,411,898 (100.0%)

Cost of Sales

• Chicken:  $327,647 (13.6%)
• Produce:  $38,694 (1.6%)
• Other Food:  $249,995 (10.4%)
• Paper and Plastic Supplies:  $54,447 (2.3%)
• Beverages General:  $68,326 (2.8%)
• Bread Products:  $28,064 (1.2%)
• Net Inventory:  $(2,389) (-0.1%)
• Sub-Total Food:  $764,784 (31.7%)
• Customer Controlled – Food:  $4,278 (0.2%)
• Customer Controlled – Paper:  $20,820 (0.9%)
• Oil and Shortening:  $19,594 (0.8%)
• Transportation-In:  $238 (0.0%)
• Total Cost of Goods Sold:  $825,092 (34.2%)

• Labor:  $595,235 (24.7%)

Gross Profit:  $991,570 (41.1%)

Other Operating Expenses

• Telephone and Utilities:  $45,011 (1.9%)
• Professional Fees:  $30,660 (1.3%)
• Advertising Expenses:  $84,565 (3.5%)
• Other Operating Expenses:  $147,007 (6.1%)
• Royalties:  $140,271 (5.8%)
• Rent and Occupancy:  $168,584 (7.0%)
• Total Other Operating Expenses:  $616,099 (25.5%)

Total Expenses:  $2,036,426 (84.4%)

EBITDA from Operations:  $375,472 (15.6%)

Third 25%

Gross Revenues:  $2,013,397 (100.0%)

Cost of Sales

• Chicken:  $271,884 (13.5%)
• Produce:  $33,896 (1.7%)
• Other Food:  $208,373 (10.3%)
• Paper and Plastic Supplies:  $44,604 (2.2%)
• Beverages General:  $56,998 (2.8%)
• Bread Products:  $23,336 (1.2%)
• Net Inventory:  $(1,849) (-0.1%)
• Sub-Total Food:  $637,242 (31.7%)
• Customer Controlled – Food:  $3,750 (0.2%)
• Customer Controlled – Paper:  $17,847 (0.9%)
• Oil and Shortening:  $17,623 (0.9%)
• Transportation-In:  $306 (0.0%)
• Total Cost of Goods Sold:  $689,660 (34.3%)

• Labor:  $500,233 (24.8%)

Gross Profit:  $823,504 (40.9%)

Other Operating Expenses

• Telephone and Utilities:  $43,047 (2.1%)
• Professional Fees:  $33,907 (1.7%)
• Advertising Expenses:  $69,990 (3.5%)
• Other Operating Expenses:  $129,391 (6.4%)
• Royalties:  $114,941 (5.7%)
• Rent and Occupancy:  $162,085 (8.1%)
• Total Other Operating Expenses:  $553,361 (27.5%)

Total Expenses:  $1,743,254 (86.6%)

EBITDA from Operations:  $270,143 (13.4%)

Bottom 25%

Gross Revenues:  $1,488,395 (100.0%)

Cost of Sales

• Chicken:  $200,016 (13.4%)
• Produce:  $25,719 (1.7%)
• Other Food:  $157,842 (10.6%)
• Paper and Plastic Supplies:  $34,298 (2.3%)
• Beverages General:  $45,384 (3.0%)
• Bread Products:  $17,510 (1.2%)
• Net Inventory:  $(1,622) (-0.1%)
• Sub-Total Food:  $479,146 (32.2%)
• Customer Controlled – Food:  $2,636 (0.2%)
• Customer Controlled – Paper:  $13,923 (0.9%)
• Oil and Shortening:  $14,779 (1.0%)
• Transportation-In:  $421 (0.0%)
• Total Cost of Goods Sold:  $519,924 (34.9%)

• Labor:  $400,293 (26.9%)

Gross Profit:  $568,178 (38.2%)

Other Operating Expenses

• Telephone and Utilities:  $38,969 (2.6%)
• Professional Fees:  $18,203 (1.2%)
• Advertising Expenses:  $50,306 (3.4%)
• Other Operating Expenses:  $110,523 (7.4%)
• Royalties:  $72,092 (4.8%)
• Rent and Occupancy:  $151,127 (10.2%)
• Total Other Operating Expenses:  $441,220 (29.6%)

Total Expenses:  $1,361,437 (91.5%)

EBITDA from Operations:  $126,958 (8.53%)

All Measured Restaurants

Gross Revenues:  $2,243,694 (100.0%)

Cost of Sales

• Cost of Goods Sold:  $770,780 (34.3%)
• Labor:  $554,051 (24.7%)

Gross Profit:  $918,863 (41.0%)

Other Operating Expenses

• Telephone and Utilities:  $43,999 (2.0%)
• Professional Fees:  $31,581 (1.4%)
• Advertising Expenses:  $77,887 (3.5%)
• Other Operating Expenses:  $144,430 (6.4%)
• Royalties:  $127,331 (5.7%)
• Rent and Occupancy:  $166,367 (7.4%)
• Total Other Operating Expenses:  $591,595 (26.4%)

Total Expenses:  $1,916,426 (85.4%)

EBITDA from Operations:  $327,268 (14.6%)

• Part 1 is not a profit and loss statement. 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.

• You may experience capitalized or other balance sheet expenditures that are not included in this cost and expense information, such as the cost of additional or replacement equipment, debt payments, and interest expenses.

• Costs and expenses in the operation of a Restaurant will vary from franchisee to franchisee and from location to location and will depend on seasonal, local, and other factors, like the franchisee’s efficiency in the utilization of products, the cost of transportation, and the fluctuation in market prices for food and other products.

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

• Labor costs in Part 1 do not include officers’ salaries and benefits for any Measured Restaurant that captures or recognizes that expense. Labor costs will vary from location to location and will depend on local factors, including (without limitation) local minimum wage laws and local labor market conditions.

• Because you will need a certain number of employees to open and operate a Restaurant regardless of its Gross Revenues, Restaurants that have lower than average Gross Revenues typically experience higher than average labor costs as a percentage of Gross Revenues.

Top Quartile

• Restaurant Count:  186
• Average EBITDA from Operations:  $536,500
• Number and Percent of Restaurants in Quartile Above Average EBITDA for Quartile:  91 (48.9%)
• Median EBITDA from Operations:  $531,430

Second Quartile

• Restaurant Count:  185
• Average EBITDA from Operations:  $375,472
• Number and Percent of Restaurants in Quartile Above Average EBITDA for Quartile:  85 (45.9%)
• Median EBITDA from Operations:  $357,627

Third Quartile

• Restaurant Count:  185
• Average EBITDA from Operations:  $270,143
• Number and Percent of Restaurants in Quartile Above Average EBITDA for Quartile:  102 (55.1%)
• Median EBITDA from Operations:  $294,719

Bottom Quartile

• Restaurant Count:  185
• Average EBITDA from Operations:  $126,958
• Number and Percent of Restaurants in Quartile Above Average EBITDA for Quartile:  95 (51.4%)
• Median EBITDA from Operations:  $127,741

Part 2 – Summary of Gross Revenues of Measured Restaurants in Fiscal Year 2020

Top Quartile

• Restaurant Count:  186
• Average Gross Revenues:  $3,060,212
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  76 (41%)
• Median Gross Revenues:  $2,968,423
• Lowest Gross Revenues:  $2,646,626
• Highest Gross Revenues:  $4,284,533

Second Quartile

• Restaurant Count:  185
• Average Gross Revenues:  $2,424,776
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  91 (49%)
• Median Gross Revenues:  $2,421,368
• Lowest Gross Revenues:  $2,231,364
• Highest Gross Revenues:  $2,642,159

Third Quartile

• Restaurant Count:  185
• Average Gross Revenues:  $2,020,771
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  92 (50%)
• Median Gross Revenues:  $2,017,524
• Lowest Gross Revenues:  $1,822,557
• Highest Gross Revenues:  $2,227,009

Bottom Quartile

• Restaurant Count:  185
• Average Gross Revenues:  $1,485,305
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  109 (59%)
• Median Gross Revenues:  $1,557,081
• Lowest Gross Revenues:  $630,400
• Highest Gross Revenues:  $1,822,088

All Measured Restaurants

• Restaurant Count:  741
• Average Gross Revenues:  $2,248,862
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  362 (49%)
• Median Gross Revenues:  $2,229,187
• Lowest Gross Revenues:  $630,400
• Highest Gross Revenues:  $4,284,533

Part 3 – Average Annual Gross Revenues of Franchised Restaurants in Fiscal Years 2018, 2019, and 2020

• Part 3 below shows the average annual Gross Revenues of Franchised Restaurants for Zaxby’s 2018, 2019, and 2020 fiscal years.

2018

• Restaurant Count:  722
• Average Gross Revenues:  $2,029,576
• % Change Over Previous Year:  N/A
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  348 (48%)
• Median Gross Revenues:  $1,999,100
• Lowest Gross Revenues:  $474,975
• Highest Gross Revenues:  $4,420,812

2019

• Restaurant Count:  734
• Average Gross Revenues:  $2,163,485
• % Change Over Previous Year:  6.2%
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  339 (46%)
• Median Gross Revenues:  $2,106,633
• Lowest Gross Revenues:  $497,882
• Highest Gross Revenues:  $4,324,891

2020

• Restaurant Count:  741
• Average Gross Revenues:  $2,248,862
• % Change Over Previous Year:  3.8%
• Number and Percent of Restaurants in Quartile Above Average Gross Revenues:  362 (39%)
• Median Gross Revenues:  $2,229,187
• Lowest Gross Revenues:  $630,400
• Highest Gross Revenues:  $4,284,533

• Zaxby’s 2018 fiscal year began on January 1, 2018 and ended on December 30, 2018. Zaxby’s 2019 fiscal year began on December 31, 2018 and ended on December 29, 2019. Zaxby’s 2020 fiscal year began on December 30, 2019 and ended on December 27, 2020.

• The 2018 and 2019 data includes the financial performance of Franchised Restaurants that were open and operating for all 52 weeks of the applicable fiscal year. The 2020 data includes the financial performance of Franchised Restaurants that were open and operating for at least 51 of the 52 weeks of Fiscal Year 2020.

• Some Restaurants have sold or earned this amount. Your individual results may differ. There is no assurance that you’ll sell or earn as much.

• This Item 19 was prepared utilizing data Zaxby’s received in the periodic sales reports provided to it by its franchisees 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 franchisees pay their franchising fees based on such reports. Additionally, Zaxby’s cannot verify that the information it receives from its franchisees is prepared uniformly or that its franchisees properly allocate costs to a particular category.

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