Boston Market Essay

252 WordsOct 8, 20132 Pages
1. Describe Boston Chicken's business model. What are the risks and benefits of this business model? Developed new segment of fast food - home cooked food restaurant business. Sought to grow rapidly by signing franchise agreements w/ large area developer. Company provided loans to help developers finance new restaurants. These loans were financed through public stock and convertible debt issues made by Boston Chicken.; Incomes come from royalties on system wide franchise sales and from its own store operations. Risks - lose control of business operations as focus on rapid growth - rapid gwoth puts heavy strain on cash management--needs a lot of debt The fact is, Boston Chicken was always more of a finance company than a restaurant operator. Many chains grow by way of individual franchisees who like the business concept and put up a substantial amount of their own money to open new stores. They pay the franchisor certain one-time development fees plus regular royalties on sales. However, it takes time to grow a chain using this strategy because it's often tough for potential franchisees to arrange financing, even with assistance from the franchisor. Since a business built on home-style chicken dinners doesn't offer any obvious moat to protect against competition, the Chicken hoped to create an artificial moat through simple ubiquity. To ensure rapid expansion, the company signed up a small number of financed area developers (FADs) who had to put up just 20% of development costs with the rest provided via loans from the Chicken

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