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Boston Chicken Case

In: Business and Management

Submitted By kgior
Words 3043
Pages 13
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TOPIC: Revenue Recognition

CHAPTER LINK: Chapter 6

Boston Chicken, Inc.:
No Chicken About Aggressive Franchising

Boston Chicken, Inc. franchises and operates retail food service stores under the name “Boston Market” These stores specialize in fresh, convenient meals featuring home style entrees of chicken, turkey, ham, and meat loaf, as well as a variety of freshly prepared vegetables, salads, and other side dishes. It product line also includes sandwiches, soups, and holiday home replacement meals. The total number of stores in the Boston Market system increased from 83 on December 27, Year 12 to 829 on December 31, Year 15. Gross system-wide store revenues increased from $42.7 million during the Year 12 fiscal year to $792.9 million during the Year 15 fiscal year. Franchisees owned and operated all but three of the Boston Market stores open at the end of Year 15. The company retains ownership of three stores to test market new entrees, assess new operating procedures, and train employees.

Area Developers
The company relies on area developers to achieve rapid penetration of targeted markets. Area developers are independently owned companies to which Boston Market grants an exclusive franchise in a particular geographical area to develop and operate Boston Market stores. An experienced retail food-service veteran with substantial invested equity capital heads each firm that is an area developer. The company currently has 22 area developers. There are 829 stores open at the end of Year 15. The area developers have committed to opening an additional 934 stores within the next several years. These area developers have incurred substantial net losses during the recent rapid expansion of stores ($51.3 million in Year 14 and $148.3 million in Year 15), and most have negative net worth. The company believes that the area developers will…...

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