Drumming up mega-business
Even KFC is paying attention to the fast-casual powerhouses in the chicken business, for good reason. Zaxby’s sales grew more than 16 percent last year. Not bad for a chain that started with an $8,000 cash stash.
Zach McLeroy, a drummer in the late 1980s, always thought he’d be a professional drummer. But worked in restaurants for years, because it paid more bills than the drums did, and that’s where he got the idea that would turn into Zaxby’s.
McLeroy sold his drum set for $8,000. His best friend and business partner, Tony Townley, matched the investment, and they opened the first Zaxby’s in 1990, in an 800-square-foot building near Georgia Southern University in Statesboro, Georgia.
“I gave up one set of drumsticks for another,” McLeroy said. “For years, I gave up the drums. I was so focused on the business.”
That first location, a building “ built like a deck and a parking lot on stilts,” boasted a simple menu of chicken fingers, chicken wings and a couple of sandwiches, and was hugely popular among the college set.
It has gone on to become one of the fastest-growing chains in the country, a $1 billion, fast-casual concept that, along with its Atlanta-based neighbor Chick-fil-A, has completely altered the chicken restaurant business.
Zaxby’s system sales grew 16.6 percent last year, according to the Franchise Times Top 200 ranking of the largest franchise systems. This year, the company said, it crossed the $1 billion threshold. It, along with Popeyes (13.3 percent system sales growth), Chick-fil-A (12.2 percent) and Charlotte, North Carolina-based Bojangles (12.6 percent) have made the Southeast the nation’s chicken capital.
They’ve also forced Louisville, Kentucky-based market giant KFC to rethink its business. The company is now testing a fast-casual version of its concept, called “KFC Eleven” to take back some of that fast-casual market.
McLeroy says part of his success is due to timing. “We were in the right place at the right time with the right investment,” he said.
McDonald’s found success in the 1980s, after its 1983 introduction of Chicken McNuggets, and many other quick-service chains followed suit with chicken finger-type products. But it certainly wasn’t the main dish, centering an entire chain of limited-service restaurants.
Zaxby’s initially focused on opening in college towns, like its first location, but then it opened in a business area, to the same success. “It opened our eyes,” McLeroy said.
The company opened its first franchise in 1993, after many of the chain’s early customers suggested the business model. The company’s initial franchisees were part of what McLeroy calls its good-old-boy network—friends of friends. One of the chain’s first operators, in fact, had also been its first insurance guy.
Gary Avants had sold McLeroy and Townley their auto and homeowners insurance policies. So when the two decided to open a restaurant, they approached Avants.
A premium salad line, introduced in 2004, became a turning point for Zaxby’s and brought in female customers.
After insuring about seven Zaxby’s, “I said to myself, ‘This is a pretty good opportunity,’” Avants said. This was 1997, and at the time the company had a dozen units. And though the restaurant business is different than the insurance business, Avants said Zaxby’s training systems helped him avoid problems transitioning to the new brand.
“The challenging part was trying to convince the finance community that I could do it,” Avants said. “I’d never been in the restaurant business before. It was tough trying to get a loan.” Once he did, Avants proved those doubters wrong. Today, he has a dozen locations in four states and five more on the way, four in Austin, Texas, and one in Tennessee.
One key element in Zaxby’s history came in 2004, when it introduced a premium salad line.
In the early years, the company had been a male-focused brand, and salads represented just 2 percent of Zaxby’s business. The new salads were designed to have a casual-dining presentation at a low price, and according to the chain’s CFO, Blake Bailey, they brought in a new type of guest.
Now, he said, the company’s guests skew female. “That definitely was a game-changer,” Bailey said. “We have a much wider appeal across all demographic groups. I know I’m a company man, but I think they’re incredible.” Today, 20 percent of the company’s sales come from salads.
That helped propel the chain’s growth, which has focused for the most part on the Southeast, where Zaxby’s locations are ubiquitous. The company has grown in contiguous markets, and in recent years has expanded into Texas, and it just signed a 20-unit deal to expand into Utah, its furthest move west yet.
Its franchisees, meanwhile, are growing larger and more sophisticated, and the company no longer worries about selling to friends or insurance guys. “Now we get calls from all over the country and from all different types of markets, and from all over the world,” Bailey said. “It’s different. The key is finding the right fit for our culture. We’re very selective about who can be a franchisee.”
Another key element in the chain’s success was its early decision to put together an infrastructure to support the chain’s growth. The company’s executives worked to put in new accounting and financial systems more than a decade ago to support the chain as it moved west.
Zaxby’s will finish the year with about 600 locations, and is rapidly on its way toward meeting the goal of becoming a coast-to-coast concept.
“We were a young team,” said Bailey, who came aboard in 2000. “There were a lot of seven-day, 80-hour weeks. I spent a lot of nights, sleeping on the floor of my office. There was a lot of infrastructure building. And we invested millions of dollars in training.”
Yet, he said, that infrastructure and training has helped the chain maintain its culture across many states.
McLeroy expects Zaxby’s will finish the year with about 600 locations. The chain is rapidly on its way toward meeting his goal of becoming a coast-to-coast concept. And McLeroy feels confident enough in the chain’s success now that he went out and bought a new drum set. “That’s the way I unwind,” he said.
Alas, he is not in a band. Not yet, anyway. “I aspire to,” he said. “Before my life is over, I’m going to get to join a band and get that experience again.”