Boston Chicken Case

Boston Chicken Case Analysis

Team 4F

EF 663 – Accounting for Decision Making

In theory Boston Chicken is a solid company with a strong short-term strategy. They have positioned themselves in a unique market which offers a meal replacement to consumers aside from the generic fast food restaurant. They have invested in their supply chain network and their operational activities. Overall customer satisfaction and product consistency improved through the use of flagship stores, as well as technology that enabled immediate customer feedback. They implemented drive in windows for added customer convience, which increased their sales volume. However their strategy is not without flaw. Their rapid growth will lead to over saturation, and a growth rate which they cannot sustain. A large influx of cash for financing activities is required for Boston Chicken to continue to grow in the short term.

Boston Chickens financial accounting policies leave major gaps and issues with their overall organization and financial reporting structure. The rate at which Boston Chicken grew in three years (1992-1994)was not sustainable and we believe that corporate management chose to issue an IPO as a solution to their financial issues. The IPO provided a strong financing arm, which could be utilized to maintain the expectation of growth by cash strapped franchise developers. Exhibit 1-1 below depicts the growing trend between 1992 and 1994 towards financed franchise stores. It lends thought that growth might be driven by one time franchise fee’s and interest income, and not actual revenue generated from their core line of business.

Exhibit 1 - 1

What becomes apparent when you look deeper at the income statement and yearly revenue is that franchise fees are a major source of reported revenue. Franchise Fee’s depicted in Exhibit 1 - 2 of $18.36M, which are “one-time” fee’s when compared to total revenue account for 12% of the total revenue generated between 1992 and...