Zach McLeroy

Zach McLeroy

Throughout high school and college, Zach McLeroy was a stereotypical restaurant employee who used the job just to pay the bills. He never wanted a foodservice career; he wanted to play drums for a living.

“I guess I was naïve thinking I could do that, but it sounded cool at the time,” says McLeroy, the 45-year-old chief executive and chairman of 400-unit Zaxby’s, a fast-casual fried-chicken chain based in Athens, Ga.

But after college, while shooting baskets with longtime friend Tony Townley nearly two decades ago, McLeroy pitched the idea of opening a boneless-chicken restaurant. He viewed the bone-in landscape as dominated by bland, low-quality options, and he saw an opportunity for more flavorful chicken fingers and wings made fresh.

The pair got serious and calculated that they’d need $16,000 in cash to open such a restaurant. Half would come from Townley’s savings, the other from the sale of McLeroy’s prized drum set.

“A friend of mine told me if I ever wanted to sell it to call him,” McLeroy recalls. “I guess you could say I traded one set of drum sticks for another.”

Their first unit opened in 1990 across the street from Georgia Southern University in Statesboro, Ga., in an 800-square-foot space that lacked interior walls. Seating included wooden benches and picnic tables, although the restaurant’s covered outdoor deck was a draw for college students hunting for a hangout. The $300 monthly lease even included equipment. Humble as it was, the chicken joint was an instant hit.

“It was a mix of being in the right place at the right time,” McLeroy says. “We were only 50 yards away from campus.”

From the start, the pair agreed McLeroy would manage operations and Townley, who kept his job working in the mortgage business, would handle finance. McLeroy earned $10 an hour and often logged 100 hours a week. All profits were reinvested in new stores.

“My car was paid off, so I drove it our first eight years in business,” McLeroy says.

Also after eight years, Townley left the mortgage business to work at Zaxby’s full time.

“We were building the business, and we knew in the long run it would catch up with us, so we kept reinvesting.”

Stewart Manning, president of Manning Bros. Food Service Equipment in Athens, remembers the pair’s exhausting pace in the beginning.

“They worked 24-7, and when they closed at night, they’d go and get things ready for the next day,” Manning says. “They fought tooth and nail to make it succeed.”

Sales grew and new units opened, and McLeroy set his sights on licensing. But as he looked for sites, landlords hesitated to sell them space because of Zaxby’s mom-and-pop look. Licensee Britt Poston laughs about opening his first unit.

“All you needed was a coat of paint, equipment in the kitchen and a sign out front, and you were open,” says Poston, now an 11-unit Zaxby’s licensee in Florence, S.C. “It’s been an amazing metamorphosis to get to what the stores look like now, and Zach has led that change.”

Zaxby’s rags-to-riches story doesn’t rest solely on its founders’ workaholic tendencies, McLeroy’s colleagues say. They view all their associates, even vendors, as partners, and the result is low turnover.

For example, Zaxby’s chief operating officer, Robert Baxley, is a former store manager. Six cooks have earned leadership roles in the corporation, and a woman who began as a cashier is the chain’s director of research and development.

“Zach started the organization to create an environment to provide his people a chance to grow,” says Dan St. John, chairman and chief executive of St. John and Partners, a public relations and marketing firm that represents Zaxby’s. “When they started, a lot of their operators had little or no experience in the restaurant business, but he nurtured and supported them over the years. Zach believes in the licensees, and the licensees believe in Zach.”

True to McLeroy’s commitment to good food, Zaxby’s chicken is marinated 24 hours, battered and fried to order. All produce for salads and garnishes is prepared on site. Only Zaxby’s fries are frozen, and its sauces are custom manufactured.

Larry McGill, vice president of sales and worldwide marketing for Golden State Foods, says McLeroy’s refusal to cut corners on ingredients makes a statement in the marketplace.

“Their standards are uncompromised because they’re focused on quality,” says McGill, whose Irvine, Calif.-based company makes Zaxby’s dipping sauces.

That commitment to quality, he adds, draws great franchisees.

“People want to be part of a winner, and that chain exudes success,” he says.

In the beginning, McLeroy kept the menu simple and lean, but time has taught him that by broadening offerings carefully he can lure unexpected customers. Adding salads drew more women into the fold, he says, and a new sandwich line increased traffic from mature customers. The check average is about $9.

“I’ve also learned that this brand is attractive to professionals, not just college students,” he says. “Learning that opened our minds up to the possibilities of where we could go and what we could do in new markets.”

Time and again, McLeroy’s friends and colleagues call his honesty and integrity unassailable. Poston calls him “a handshake guy” whose word needn’t be backed by a contract.

“You can trust everything Zach and Tony say,” he says.

Being trustworthy, however, doesn’t ensure others follow the same standard.

“I’ve seen Zach lose money on a handshake deal because the other guy didn’t do what he promised,” Poston says. “Zach stuck to his word, though.”

McLeroy admits that he has been burned trusting others when he shouldn’t have, but he says part of his makeup is looking for the good in people.

“I’ve learned to trust but verify,” he says. “Often the people you trust the most are the people who will hurt you the most.”

McLeroy says unquestioned trust and respect he shares with Townley, who was not available for comment, is crucial to Zaxby’s enormous success and their uninterrupted friendship. When disagreements occur, the pair has learned to yield to the person directly responsible for the area of the business in discussion.

“Tony once had a real strong opinion about putting playgrounds in Zaxby’s, but I was totally opposed to it,” McLeroy recalls. “Since I felt so strongly against it, he let my decision override his because I’m involved in operations. When it comes to what to do on real estate or financial decisions, his choice overrides mine.”

Zach McLeroy

Title: chief executive and chairmanCompany: Zaxby’s, Athens, Ga.Annual sales: $500 millionNo. of units: 400 unitsCheck average: $9Hometown: Athens, Ga.Education: B.S., University of GeorgiaPersonal: married, three childrenHobbies: golf, skiing, spending time with family

In 2007, Zaxby’s expects to post $500 million in sales. As of the third quarter, same-store sales are up nearly 8 percent—on top of an 8-percent increase in same-store sales for 2006.

For a chicken chain idea hatched on a basketball court, those are pretty impressive numbers, but such accomplishments don’t surprise Manning, who says he has admired McLeroy from the beginning.

“I’ve never met a more determined individual in all my life than Zach,” Manning says. “I once asked why he thought Zaxby’s wasn’t like the 10,000 other companies that start strong but go broke. He didn’t even think about the answer, he just looked at me and said, ‘Stewart, I knew it was going to work.’ There was no question in his mind about it, he just knew it.”