Boston Chicken Inc. Case Study
(All amounts listed in thousands)
Boston Chicken implemented a franchising strategy that differed from most other franchising companies at the time. Boston Chicken focused its expansion through franchising the company through large regional developers rather than selling store franchises to a large number of small franchisees. In that, an established network of 22 regional franchises that targeted their operations in the 60 largest U.S. metropolitan markets and in order to do so, the franchisee would have been an independent experienced businessman with vast financial resources and would be responsible for opening 50 – 100 stored in the region. Boston Chicken focused on widespread continuous expansion of its operations to become to developed across the board food chain.
Scouting for real estate assured the highest standards for developing properties and was critical to the company’s future success. To assist in future growth of the franchises, Boston Chicken implemented a communications infrastructure, which provided a supporting link for communication between its networks of stores. In addition in efforts to improve operating efficiency, the company locked in low rates from its suppliers and developed flagship stores, which did most of the initial food preparation which inadvertently reduced employee training costs.
Many of these regional developers were given a revolving credit line to help support expansion. This type of financing came with credit risk while the franchises average revenue from operations were not sufficient enough to cover the expenses which raises doubt for the repayment of such loans.
The accounting policy of reporting the franchise fees from Boston Chicken’s area developers as revenue seemed most controversial. These franchise fees, which accounted for more than 50% of total revenue, did not represent revenues from operations. Also, the source of most of the franchise fees came...
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