Boston Chicken Case

1. There may be following reasons why Boston Chicken inc chooses to develop and operate through non-owned area developers and franchisees instead of outright ownership:

1. Opening stores is connected with huge costs, which are saved when opening not own, but   franchisee owned stores;

2)    The Company receives revenue from a franchisee stores;

3)    Not only Company, but also it’s executive director and their family members receive interest on

        borrowing money to franchisees;

1. National and Local Advertising Funds are accounted for separately and not included in the financial statements of the company. National Advertising Fund is administered by the Company. Structuring its marketing activities using these funds are convenient for Boston Chicken Inc. for the following reasons:

1. Franchisees make contributions in National Advertising Fund in amount of  2 percent of store revenue and 4 percent of store revenue in Local Advertising Fund. If there is a difference between expenditures on national and local advertising and the amounts collected form franchisees, then the exceeded amount is covered by the company, which is included in other current assets on company’s balance sheet;
2. Company at the cost of franchisee’s contributions in National Advertising Fund receives developing marketing and advertising materials for use system wide, also Local Advertising Fund provides comprehensive advertising and sales promotion support for the Boston Market stores in particular markets, which in all increases Boston Chicken sales. If the company was doing all these activities alone, it would cost very expensive, and thus it has no expenditure or it’s expenditures consist of covering the exceed amount.

1. We can see from the Exhibit 4 that together with rising numbers of stores the company has increasing wide revenues of all Boston market stores between year 13 and year 15. It’s also clearly seen, that profit margins for ROA has increasing tendency – 4,9%, 20,8% and 27,3%, but rates of ROA increases from 3,1% to 7.4% in years 13 and 14, but decreases to 5,8% in year 15.