Analyzing Boston Chicken Inc Term Paper

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Boston Chicken, Inc.

Scott Beck founded Boston Chicken in the year 1989 with the business idea of operating and franchising food service stores with the company's conception to combine fresh, palatable, and alluring meals concomitant with customary home cooking with a high level of expediency and value. In essence, the company was attempting to generate the setting for a consumer of obtaining and accessing a home cooked meal at a price that is reasonable and economical and all in very minimal time (Grant, 1993). The case will be analyzed on the following aspects: the comprehensive assessment of the success factors and risk factors of the strategy employed by Boston Chicken and assessing the accounting policies used by Boston Chicken. The case analysis will also undertake a comprehensive financial evaluation to determine the performance of the company. There will also be an outline that will delineate the assumptions being made by the market regarding the future performances and risks of the company. Lastly, the analysis will point out the subsequent events of Boston Chicken that goes further than the financial years presented in the case study.

Boston Chicken's Business Strategy: Critical Success Factors

The business strategy employed by Boston Chicken during the time period displayed in the case study is that of home meal replacement. In particular, the home meal replacements were made up of an assortment of food, which included fresh vegetables, rotisserie-cooked chicken and salads. These are meals that are linked with traditional home cooking and come at a great value for the consumers. From a marketing business strategy perspective, this aspect was brilliant for the reason that people wanted to eat meals that were traditionally prepared or cooked in the home without the hassle of having to do it themselves. Strategies that resulted in the growth of Boston Chicken encompassed the opening of franchises of Boston Market. Towards the end of the 1994, five years after its establishment, the company had 1,100 stores open across the nation and had hired about 16,500 employees. In turn, the opened franchises expanded their menus by including new sides, entrees, and desserts in order to have a greater consumer base reach (Davis, 1994).

One of the company's success factors was the location and growth level in large metropolitan markets. In essence, Boston Chicken engaged in three distinct businesses that included the opening of restaurants or stores, selling of franchises and financing area developers. As a result, this enabled the company to have substantial diversification in its business. In particular, Boston Chicken leveraged the notion of franchising for its growth and development. In addition, Boston Chicken also had the strategy of retailing franchises to large regional developers rather than retailing them to a huge number of small franchises. The main purpose of this strategy was to utilize the financing, management as well as local information of the developers in order to grow and develop additional stores in that particular region (Healy, 1997).

One other key success factor of Boston Chicken's growth was developing the computer software that enables the company to link all of its business operations. In particular, this strategy was a great boost to Boston Chicken as it enhanced operating performance for all the company's store. This is for the reason that, for instance, there was less probability of overstocking on inventory and reordering for more items on the inventory list became much easier. More so, this new system was also able to help the employees of the company with their work schedules. The preceding success business strategies aforementioned ensured that the consumers were satisfied with the quality products retailed by the company. In turn, this made things much easier not only for the company, but for the employees as well and enabled Boston Chicken to expand its business operations with less risk levels. This computer software provided Boston Chicken with support for its business network and assisted in the management of its supply chains, study of the market, the collection of feedback from consumers and financial reporting. One other key success factor for the company was the execution of long-term agreements with key suppliers of the business to lock-in food prices, the growth and development of flagship stores and the construction of drive-through lanes to enhance sales in the off-peak hour periods (Healy, 1997).

Boston Chicken's Business Strategy: Critical Risk Factors

Boston Chicken's growth was one that was rapid. In three years' time between 1991 and 1994, the number of stores increased from 34 to 534. The company had an annual growth rate that surpassed the 500% mark with a new Boston Chicken store being opened in every two days. The revenue generated by the company in this time period increased from $5.

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2 million to $96.2 million. In turn, the resulting net income also increased from a loss of $2.6 million to $16.2 million (Healy, 1997). Nevertheless, it is imperative to note that this rapid growth rate does come at a cost. There are a number of risk factors that the company faces. For starters, Boston Chicken runs the risk of losing control of its business operations due to its concentration on fast and rapid growth. In particular, excessive focus and emphasis on rapid growth could result in reduced quality of operations, a rise in wastage of food and eventually, lower levels of profitability of the franchise operations. It is also imperative to note that with such immense growth, the additional costs of wages, cost of goods, administrative expenses and other costs increase manifold. Despite the fact that Boston Chicken has been able to continue generating profits, there is no assurance that if it goes on to grow at this rapid rate, it will have the capacity to generate profits in the long run. In addition, the company's fast growth will imply a shortage of experienced personnel and does not have an organizational culture either (Healy, 1997).

Another risk is that the growth strategy of Boston Chicken places a heavy pressure on the management of cash, taking into consideration that funds are necessitated for growth. The revenue generated by Boston Chicken emanates from franchising fees, royalties as well as through interest from the line of credit opened by the company for all of its franchises. In accordance to Lipton Financial Services, for Boston Chicken to be at a break even point, the company has to earn at least $23,000 every single week (Healy, 1997). However, the downside is that the actual average sales attained every week were less than this necessitated amount. Boston Chicken might not have been able to produce an adequate amount of cash flows to sustain and keep up its day-to-day operating activities, even though its revenues from new franchising may have been high.

Another risk factor that Boston Chicken faced was competition. One good example of a serious competitor is KFC. At the point when KFC expanded its menu and introduced the new rotisserie chicken line up, the profits of the company rocketed. In particular, its sales increased to about $160 million. In addition, there is still a great deal of opportunity and prospects for rival companies to take advantage of. One other risk factor arises from the notion that Boston Chicken is seeking to grow and advance into the bagel market and set itself up a retailer of breakfast meals. Boston Chicken placed an investment of $20 million in Progressive Bagels. This can be deemed as a major risk for the reason that the company is attempting to enter into a new market with a different and varied consumer base. More so, it is a risk as not every single consumer will be able to perceive Boston Chicken as a breakfast retailer. In addition, by late 1995, the investment was amplified to $80 million. However, no data was obtainable to assess the yield from this investment (Healy, 1997).

Company's Report on Performance and Risks

Boston Chicken is reporting its financial data within the financial statements centered on the performance and risk of the stores operated by the company and fees and royalties that are related to the franchise. The main assumption made in undertaking this reporting is the incessant success of the stores operated by the franchisees. In particular, these stores operated by the franchisees have to make available a profit or yield for the investors. Lack of doing so implies that investors will not be keen on purchasing an area in order to develop a franchise. This policy being used of not providing any financial data and information on the separate individual stores operated by the franchisee runs the risk of a deterioration of royalties as a result of net income losses at a franchisee-operated level (Healy, 1997).

In reporting its financial statements, the revenues of Boston Chicken are recognized for franchise fees and development fees once the store opens and is in operation. Secondly, revenues from royalties are recognized when the Boston Chicken store generates sales. The costs incurred prior to the opening of the store are amortized over a one year period.….....

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