Monday, April 11, 2005

We Were There When It Was Just Zax

Back at Georgia Southern University in the early 1990s, we spent untold dollars on chicken fingers at a restaurant on campus known as "Zax". The chicken was awesome, and the sauce was incredible. Fifteen years later, there are 250 of these restaurants, now known as Zaxby's. Here's a fantastic article about the founders, and where the company is going...

Zaxby's Grows Up, Breaks Out
By Mary Jane Credeur
Atlanta Business Chronicle

What started as a lark to make a better fried chicken tender has blossomed into a 250-unit chain of chicken restaurants across the Southeast.

Zaxby's Franchising Inc. was founded 15 years ago by childhood pals from Athens, and it now ranks among the fastest-growing quick-service restaurant chains in the country.

"We hated boring chicken fingers, and we knew we could make them taste better and we thought that other people would like them, too," said Zach McLeroy, CEO and co-founder of Zaxby's.

With average gross sales of $1.25 million per store, Zaxby's 250 locations would make it a $310 million-a-year company, placing it among the 50-largest chains in the country based on sales, according to data compiled by QSR magazine. (Zaxby's has not yet been formally ranked by the magazine.)

Zaxby's will add another 85 stores this year, and the company already has commitments for 70 stores next year.

So far, all of Zaxby's stores are in eight Southeastern states, but company officials plan to expand soon to other nearby states such as Arkansas, which will get a dozen restaurants in the next few years.

"We feel like we're at a good size to be able to compete with and sustain against competition," McLeroy said. "We've got a good stronghold in the Southeast market, and now we're going back and getting density buildup and more brand recognition in our core areas. Then we'll start expanding outward in ripples."

The first Zaxby's store was opened in 1990 in the Georgia town of Statesboro.

McLeroy and his longtime friend, Tony Townley, scraped together $8,000 apiece and took out a mortgage for the store.

"We just hoped it would do well enough for us to make a good living and create a few jobs that also gave other people a good living," said Townley, who is the chief financial officer of the chain.

Zaxby's started franchising stores in 1994, and the chain quietly added dozens of restaurants in Georgia, Alabama, Florida, the Carolinas, Tennessee, Mississippi and Kentucky.

Initially, most stores were near college towns because McLeroy thought campuses were more isolated from economic downturns. Zaxby's headquarters in Athens is just a few miles from the University of Georgia campus.

"Students are still going to attend college and they'll always have a little money to spend, and the wings and chicken fingers really appeal to them," McLeroy said. "But we also found that the food appeals to blue-collar and white-collar workers, and also families."

Sticking to secondary and tertiary markets also kept Zaxby's more under the radar of its top competitors, such as Atlanta-based Chick-fil-A Inc. and pizza chains that now sell Buffalo wings, such as Pizza Hut and Papa John's.

And chicken consumption has increased significantly in recent years.

Americans consumed an average of 85.6 pounds of chicken per capita in 2004, up from 68.8 pounds just a decade ago, according to the U.S. Poultry and Egg Association.

"Chicken is going to continue to be very strong, and we've seen no signs of any slowdown in the Buffalo wings and fried chicken trends," said Tom Miner, principal with Chicago-based food industry research firm Technomic Inc.

Miner said Zaxby's will face even more intense competition as it expands outside the Southeast. Florida-based Wing Zone now has stores in 24 states, many of them near college campuses, and Minneapolis-based Buffalo Wild Wings Grill & Bar has 310 locations.

However, Zaxby's greatest strength in competing against more mature chains is probably its recipes, Miner said.

The most popular item on Zaxby's menu still is the ubiquitous chicken tenders that earned the restaurant chain its reputation.

Zaxby's sells 15.6 million pounds of chicken tenders each year, and its second-most popular item is Buffalo wings, of which it sells 11.9 million pounds each year, said Robert Baxley, chief operating officer. These two items account for about 40 percent of sales.

Zaxby's also has about a dozen kinds of proprietary hot sauce with names like "Wimpy," "Tongue Torch" and "Nuclear" -- all the same recipes the chain has been using for 15 years.

"People have their favorite products, and if you're an aficionado of wings and it's something you crave, then you want that special seasoning and that special sauce that drew you in in the first place," Miner said.

Officials at Zaxby's aren't relying entirely on fried chicken for their future growth. The chain has developed dozens of new menu items over the years, including new entrée-sized salads (which it calls "Zalads") and sandwiches.

McLeroy and Townley eventually hope to grow Zaxby's into a 1,000-store chain, and they say they intend to keep it a privately held company. The two partners remain 50/50 owners of the company.

When making key decisions, McLeroy and Townley say they still play the same roles they did throughout high school and college at the University of Georgia.

"I'm certainly the more conservative one and I tend to be more cautious, and Zach is a little more optimistic and ready to make decisions," said Townley, who drives a copper-colored Ford truck and prefers casual clothes and early-morning office hours, whereas McLeroy favors crisp suits and later nights at the office and drives a sporty BMW with the Zaxby's logo on a vanity license plate.

McLeroy thinks this partnership has helped the company grow to its 250-store size, and he said he looks to chains like Chick-fil-A for inspiration on building more brand loyalty.

"People know we're the guys who sell these great chicken fingers and chicken wings, and they trust our brand," McLeroy said. "We want to take that trust with us to other states as we expand."
The original restaurant, with its blue wood siding and porch seating is long gone. The chicken fingers and wings are just as good as they were then. And I still want to know what's in that Zax sauce.