Zaxby’s Franchises Make $2.3M Sales: 2022 Costs & Profits

Founded in 1990, Zaxby’s is one of the most popular chicken fast food franchise in the US. Indeed, even though it was founded recently, Zaxby’s already has 915 stores in the US. Yet there is a lot of untapped potential, not to mention internationalization.

But is the hype justified? Is this really a good business for franchisees?

With average annual sales of $2.2 million and a (mere) investment cost of $534,750, it does seem like it. In this article we’re looking at Zaxby’s from the angle of its Franchise Disclosure Document to find out whether it’s a profitable business, and whether you should invest in it. Let’s dive in!

Zaxby’s revenues, costs & fees

Franchise fee	$35,000
Royalty fee	6.0%
Marketing fee	3.9%
Investment (mid-point)	$534,750
Average annual sales	$2,229,187
Investment to sales ratio	4.2x
Investment payback*	2.4 years (excellent)
Minimum net worth	$1,000,000
Minimum liquid capital	$500,000

What is Zaxby’s?

Zaxby’s is a leading American casual fast-chain company that has over 915 stores in the US and is still growing.

Zaxby’s was founded in 1990 by Zach McLeroy and Tony Townley in Statesboro, Georgia.

Operating as a fast-casual dining restaurant, Zaxby’s offers made-to-order chicken fingers, chicken wings, sandwiches, salads, and appetizers. In addition, it offers teriyaki, BBQ, and hot honey mustard with its signature dipping sauces.

The franchising journey began in 1994, when it opened its first franchise in Bowling Green, Kentucky. It operates under Zaxby’s SPE Franchisor LLC, with its headquarters in Athens, Georgia.

Zaxby’s franchise pros and cons

Operating a Zaxby’s franchise presents the following advantages and disadvantages:

Pros

• Popular brand: Zaxby’s is well known for its signature crispy breaded chicken wings and other products. New franchisees are guaranteed huge traffic from customers who identify with their brand and attract new customers who want to be part of the famous chicken brand.
• Strong presence: For over 30 years, Zaxby’s has established a strong presence in more than 17 US states, mostly in the south. New franchisees can easily market in potential locations, leaning on this presence. 
• Franchise support: One of the benefits new franchisees enjoy from the franchisor is their extensive training and support. It organizes an annual conference for franchisees to meet leading franchises, broaden their networks, exchange management strategies, and discuss profitability ideas.
• Potential for global growth: New franchisees can operate Zaxby’s anticipating a lot of growth. This is because the parent company has a huge customer following for its crispy chicken. The chain also plans to expand its operations in the US and beyond.

Cons

• Not yet a global brand: Zaxby’s is well known in the US but has yet to open an international store. As a result, it may not be an appealing option for interested investors looking to open a restaurant outside the United States. This is because it is difficult and expensive to familiarize the brand with new markets, especially outside the US.
• Competition: The chicken fast food industry continues to be very competitive. With changing customer tastes and market trends, Zaxby’s competes with market leaders like Popeyes and Chick-fil-A. This makes Zaxby’s franchise less attractive as it may have low profitability.
• Long training period: Zaxby’s has very extensive training and induction programs. Principals and designated managers are required to undergo the franchisor’s initial management training program, which has three phases. They are also to receive on-the-job training and subsequent training to the satisfaction of the franchisor.

How much does a Zaxby’s franchise cost?

including the initial franchise fee of $35,000, you need a total of $534,750 as the initial investment to begin a Zaxby’s franchise.

The number mentioned above is an estimated average; it can change based on several factors, like your location, the current market price of equipment, etc. Generally, the investment for a Zaxby’s franchise ranges from $351,000 – $718,500.

The investment includes everything you need to start a restaurant business, along with the initial franchise fee. For example, the investment includes:

• Build costs: lease deposit and payment, furniture, fixtures, equipment, signage, permits and licenses, training expenses, etc. 
• Marketing costs: initial marketing contribution
• Operating costs: initial inventory, insurance, technology system, uniforms, etc. It also includes an additional fund for the first 3 months to cover the first losses

Type of cost	Investment amount
Initial franchise fee	$35,000
Build costs	$271,500 – $502,000
Marketing costs	$5,200 – $10,000
Operating expenses	$39,300 – $171,500
Total	$351,000 – $718,500

What is the turnover of a Zaxby’s franchise?

On average, a Zaxby’s franchise makes $2,229,187 in sales annually. This amount is the average median sales of 741 franchised restaurants operated in 2020 in the US. 

If you consider the growth of Zaxby’s franchised restaurants, you will see that revenue per restaurant is growing over the past years despite the impact of the COVID-19 pandemic.

Year	Restaurants	Sales (median)
2018	722	$1,999,100
2019	734	$2,106,633
2020	741	$2,229,187

How profitable is a Zaxby’s franchise?

When it comes to financial disclosure, Zaxby’s is incredibly helpful. Indeed, the level of detail provided in its Franchise Disclosure Document is by far one of the most detailed and helpful we’ve seen so far.

For example, Zaxby’s provides a detailed profit-and-loss of its restaurants by segmenting them in 4 categories: from the less successful 25% of restaurants to the most successful quartile (in terms of sales).

What’s interesting is that, unsurprisingly, gross margin is pretty flat for all restaurants (COGS represents ~32%). Labor costs is a bit less stable from 23.5% to 26.9% of sales.

Finally, EBITDA ranges from 8.5% for the less successful restaurants up to 17.5% for the most successful ones. Here’s the full breakdown below:

Quartile	25%	50%	75%	100%
Sales	1,488,395	2,013,397	2,412,000	3,061,000
COGS	519,924	689,660	825,000	1,048,446
% sales	34.9%	34.3%	34.2%	34.3%
Labor costs	400,293	500,233	595,235	720,443
% sales	26.9%	24.8%	24.7%	23.5%
Rent	151,127	162,085	168,584	183,671
% sales	10.2%	8.1%	7.0%	6.0%
Adjusted EBITDA	417,051	661,419	823,181	1,108,440
% sales	28.0%	32.9%	34.1%	36.2%
Other costs	290,093	391,276	447,709	571,940
EBITDA	126,958	270,143	375,472	536,500
% sales	8.5%	13.4%	15.6%	17.5%

Here’s the sales to net profit breakdown for an average Zaxby’s store (EBITDA margin stands at 14.5%, in line with comparable franchises):

Is a Zaxby’s franchise a good investment?

If we compare the investment cost ($534,750 on average) to net profits (which we assume are around 10%, we obtain an average payback period of 2.4 years.

In other words, it would take you on average 2.4 years to reimburse your original investment to open a Zaxby’s restaurant. No need to tell you this is a very good payback period hence Zaxby’s is a great investment from that perspective.

Indeed, for this type of franchise we consider that a good payback period is anywhere below 4 years, and anything above 5 years is mediocre.

Of course, this number is an average of a number of Zaxby’s restaurants. As such, your financial performance may vary (and the payback period too). Yet, as we just saw earlier, the financial performances of their franchises are similar, even when we compare the lowest and highest quartile (see above).

How does it compare vs. other franchises?