Zaxby’s co-founder sold his drums to start chicken chain

Zach McLeroy wanted to be a rock star. Instead, he sold his drum set to help start a chicken finger restaurant. Twenty four years later, the restaurant has become the Zaxby’s chain, with more than 600 stores and annual revenue of $1.07 billion.

McLeroy, who co-founded the business with childhood buddy Tony Townley, is the 52-year-old chief executive of Zaxby’s Franchising Inc., the franchiser of Zaxby’s and owner of 100 of the chain’s stores, with $75.7 million in revenue last year. The co-founders each own 50 percent of the company, which has no debt, according to McLeroy.

My partner and I knew each other since the fifth grade. Grew up in Oconee County. My parents sat me down right after I finished high school and said, “We would love for you to go to college. Nobody from our family has been. But we can’t afford to send you.”

McLeroy put himself through the University of Georgia. He bought carpet remnants in Dalton, then marketed them to students for dorm rooms. He picked up Christmas trees in North Carolina and sold them in Athens. And he worked at restaurants around campus, including a pizza place.

I was one of their top pizza cooks. I also got to work the front counter. When you had the same customer come in day after day after day, I realized this is really cool, this is a compliment to what we are doing here. I really enjoy serving people.

(Tony had already graduated from Georgia Southern) and got into the mortgage business. He was newly married. Baby on the way. Bought his first house. Had two cars. I guess you could say the mortgagor was mortgaged.

In Athens, McLeroy had seen the success of Guthrie’s, a chicken finger restaurant popular with students.

I said if that concept is doing so well, our concept can do just as well. (Tony) said, “You are going to need somebody to do the bookkeeping, payroll, balance sheets, sales tax reports. I’ll be your partner.” He knew of a location in Statesboro (near the Georgia Southern campus). Right place, right time, right opportunity and right investment.

Tony’s mother-in-law was best friends with the president of the Bullock County Bank. Because of that relationship he agreed to make us a loan to buy the building. If you can imagine a large deck with enclosed walls. All the plumbing was exposed under it. It had some equipment in it. I think our mortgage payment was $600 a month. Our land payment was $400 a month. We thought, “How are we going to come up with $1,000 a month?”

Every subcontractor that would come work at the store would ask, “What are you going to serve?” Just chicken. Everybody would tell us good luck, but you are not going to make it. I had some fear over whether this concept would really work.

But I was all in. We had an obligation to the bank. I had moved there. I had sold my drums. (I thought I was going to be a professional drummer, travel the world and be a rock star.) I had raised $8,000, and Tony had matched it with $8,000.

The restaurant opened IN 1990 as “Zax,” with a menu focused on chicken fingers and wings.

I considered us profitable from day one. As soon as we opened doors people were there. I’m working 80-90 hours a week. (Tony) would have to do payroll once a week. We agreed that we would pay each other $10 an hour. End of the first year I had made $50,000.Our first year sales were like $350,000.

We saw the ability to multiply what we were doing. Instead of taking out a dividend, we said let’s put this into another store. The next year our sales went up and we had managed to open store number two. I think it was Valdosta, Ga. The concept was built on college towns at the time.

In the early days we did door hangers, guerrilla marketing, a lot of specials. Buy one get one free. Cause you couldn’t afford a lot of media.

People would come in all the time to our Statesboro location saying, “Y’all should franchise this.” What’s franchising? So we met some franchise attorneys. They slid this manual across the table that was probably four or five inches thick and said you need to sit here and answer all these questions: Everything that you know, that you do, that you think, is how you create the manual to become a franchise corporation. We spent the next nine months, going through the manual.

Early on they required franchisees to directly operate stores and to pay all bills immediately, rather than waiting even 30 days.

At the end of 10 years we had 20 company stores and 80 franchise stores. We got to the point we were putting so much of our capital into opening new stores there was no money left at the end of the year, so (a banker) would make us a loan to pay our taxes. We were also borrowing against credit cards. We were buying old, worn out locations that you could get a deal on. We would go to equipment auctions where you could buy equipment for 20 cents on the dollar. We’ll Band-Aid it, and we’ll make it work.

Our philosophy has always been like a one-to-one ratio, investment to sales. If you invest a million dollar you need to do a million dollars in (annual) sales. If we invested more than that, the economic model wouldn’t work.

It was God’s blessing over my life and over Tony’s life. We weren’t reckless. Tony is a very big pessimist and a realist. I’m an optimistic idealist. We balance each other out very well. I’m all operations. Tony is all bookkeeping.

In the early days I was like a nomad. I would move into a town. I did a lot of the construction work myself. Hired everybody. Bought the equipment. Everything was on my shoulders every single time we opened a store. There was always a bit in the back of my mind saying, “It’s not going to work.” During those early years I gave up relationships. Because I was always working. I let nothing get in the way.

We were focused on college towns because we felt like it was insulated no matter what was going on in the economy.

But about four years after opening the first restaurant, McLeroy and Townley decided to open in Augusta, away from what they considered a college town. McLeroy had second thoughts about the shift.

I remember having a conversation with Tony saying, ‘I think we made a mistake. We need to sell this location.’ That would have stopped our growth.

Attempts to find a buyer fell through, so they pushed ahead with the restaurant.

Within weeks, sales were tracking as well as they were in college towns. It really opened my eyes to what the possibilities would be for us. During that time I began to tithe. That was another instrumental point in our business.

Our interaction with our guests has to be perfect every single time. Every day you have to re-win that customer, every single day they come into our stores.

Our (TV) commercials have always been sort of campy. Ever since we were doing cable spots back in the early 90s. we’ve kind of stayed with that.

To spend a day filming spots with a B-level celebrity and hold rights to use their likeness for three months in several markets can cost $70,000 to $150,000, he said.

The latest recession took a personal toll on McLeroy. He saw value plummet in his personal real estate investments. McLeroy said he was left with big debts when his co-investors filed for bankruptcy protection. The FDIC, which closed one of the banks that had lent him money, sued.

I’m working through it now.

As for Zaxby’s, McLeroy said he and Tony often get offers to buy the business.

We know the opportunity is there if we ever wanted it, but neither one of us want it. At least right now. I feel like I have another 20 good years with this business.

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McLeroy’s comments were edited for length and clarity.

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