The rise and fall of Boston Market

Boston Market went from a single chicken shop in Massachusetts to the hottest IPO just 8 years later in 1993, generating hundreds of millions of dollars in profits for his investors. But fast forward just a few years later, the brand was mired in tragedy, and today there's only a handful of restaurants remaining. This video, one of my most requested by commenters, is the rise and fall of Boston Market.

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In 1985, a small shop called Boston Chicken opened in Newton, Massachusetts. The idea was to sell rotisserie-style chickens with hearty sides. It basically spoke to people's desire to get homestyle meals, but in a convenient way. In other words, the very first of many fast casual style restaurants. The concept took off like wildfire and they kept growing store after store, eventually hitting 33 stores. This caught the eye of a guy who was the vice chairman of Blockbuster at the time. A man named Scott Beck, and he and a partner, well, they swooped in and bought it. Their vision for Boston Market was to do what Blockbuster did for video and scale it across the United States. And they were right that America was ready for it. People were basically scrambling to get this hearty style, felt like home-cooked food with all the fixings, cheaper, faster, and healthier feeling than fast food was at the time. And in fact, the Boston Market food was so aligned with people's idea of homestyle cooking that they would take it home from the restaurant and put it on their own plates and silverware and act like they they cooked it. In 1995, they rebranded the restaurant from Boston Chicken to Boston Market when they added other things like turkey, meatloaf, and stuff like that. But this would prove to be one of their first mistakes. As I've talked about in other videos on this channel, the chicken is kind of a magical beast in terms of dollars per calorie of protein you can get. Nothing beats the chicken. And they started to add other stuff like turkey, ham, meatloaf, and that sort of thing, which did two things. One, it rose up costs, but the second thing it did was increase complexity in the restaurants. That would come back to bite them in the future. But for now, Beck and his partners, well, they rolled out the Blockbuster rapid expansion playbook and kept rolling out Boston markets as quickly as possible. Beck deployed a pretty unique franchise model that, well, hasn't really been done before or since, and for good reason. Beck created a scheme where he would raise money from investors, whether private or public, and then he would loan that to people that were called area developers. And these area developers were tasked with finding franchisees and helping them open up stores. And the growth story that this created was one of the most impactful ones of the '90s. In 1993, their IPO was the most successful one-day IPO of the decade when the stock went from $20 to over $50 on the day of listing. New Boston Markets were popping up everywhere. Franchisees were getting signed up by these area developers and the headquarters corporation, Boston Market, was booking all the interest on those loans, royalty fees, and all that kind of stuff as profit. In a normal franchise model, the franchisees have to bring their own capital. So there's a level of checks and balances there where lenders or the franchisees themselves are going to say, hey, like, I should make sure this is a good investment before I put my money in. But in this case, the franchisees were basically allowed to invest the company's own money to open up their franchises. Without checks and balances, everybody was motivated to open stores as quickly as possible, from the headquarters to the area developers to the franchisees on down. Boston Market was in effect loaning money to people and then booking it as revenue. And because they had raised money from Investors? Well, it was the shareholders who were taking all the risk. On paper, things looked amazing for the first 3 years. By 1996, revenue that year was $854 million. The stock price shot up to $41 a share, making Boston Market a Wall Street darling. Scott Beck had wanted critical mass quickly and, uh, well, he got it. Scott and his team definitely had growth fever. They even started to chase shiny objects. One of those was in 1995, they rolled up a bunch of small bagel chains to create the Einstein Bagels chain that we all know and love today, I guess. Einstein Brothers Bagels. Happiness made fresh daily. But it would prove to be a distraction from, well, the core problem, which was Boston Market's foundation was built on something not solid. All these loans. But before I tell you how everything went wrong, let me give you a pitch.

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The first sign that things were going wrong was when you start to look at the balance sheet of the area developers that Boston Market had loaned money to. In 1996, those area developers, while the company was profitable, those area developers lost $156 million alone. That was because Boston Market had overshot. They had opened up locations in pricey markets. They'd thrown money around, they'd expanded their menu, and they had to offer discounts just to keep customers coming in. This makes sense. Structurally, the area developers were just incentivized to grow as quickly as possible. And same with the franchisees. It was somebody else else's money they were betting at the casino. Once the hype ran off, sales started dropping. One week it was 9% drop and then 20% the next week. Yet Scott and his team had created an accounting structure where they weren't reporting these losses. In fact, the Boston Market Company didn't even start reporting franchise and area developer losses until 1995, 2 years after going public. Even as late as 1997, the company claimed it was profitable. $41 million alone in the first 6 months of 1997. Investors started to figure out what was going on. In 1997, the stock plunged from $41 down to $14. By 1997, Boston Market reported that they had $754 million worth of loans that they, quote unquote, expected to recover very little of. Investors started to get pissed. In 1997, a series of class action lawsuits basically came after Boston Market, claiming fraud, misrepresentation, and a bunch of other yucky stuff. Almost as quickly as it had grown, the house of cards that Beck and his team had put together, well, it fell down. And in 1998, Boston Market filed for Chapter 11 bankruptcy. The crash was spectacular. The chain closed hundreds of locations seemingly overnight and was left just a shell of its former self with a few hundred surviving stores yet this wasn't quite the end. In 2000, McDonald's swooped in and bought Boston Market out of bankruptcy for a cool $173.5 million. McDonald's idea was to buy it for the real estate. They mainly wanted to use it for other brands that they own, like Chipotle, and they were going to repurpose it to some McDonald's as well. And they did some of that, but they also ended up keeping the chain running as a subsidiary. So Boston Market was still alive, just with new ownership. They stabilized things, streamlined operations, and even expanded the menu into a few new areas. They actually pioneered during this for the first time the idea of takeaway pre-prepared meals sold at supermarkets by releasing a series of Boston Market branded meals that you could buy at the grocery store and take home and warm up. It was actually a genius idea. And if you'd asked me at that time if that was a good idea, I would have told you it was terrible. Turns out, worked like crazy. But McDonald's at the time, they owned Chipotle also, and that was their fast casual offering. If you look back and watch my video on Chipotle and stuff, you'll see that was clearly the winning play over what Boston Market. So in 2007, McDonald's sold Boston Market to Sun Capital, a private equity firm. Sun ran the standard private equity playbook to cut costs, and the first thing they did was close about 2 out of every 5 restaurants, or 40% of the chain, to cut dead weight. But they didn't open new stores. They basically just kind of slowed down and tried to cash flow with what they had. It was basically a wait and hope strategy by Sun, if there ever was one. And the reality is, is that businesses are either in 2 phases. They're either growing or they're dying. And there's no in the middle. So in this case, Sun, by just sitting around and waiting and hoping something happened and cutting costs, well, they were just killing the thing, albeit slowly. The chain floated along under Sun ownership through the 2010s, introducing some new things like prime rib to try to spark interest. With the fast casual space led by folks like Chipotle getting really crowded, they made a fateful decision at that point, which was to cheapen the menu and go after fast food audiences and customers. The chickens became smaller and drier as they were, well, cheaper and rushed out and sides like famed creamed spinach were suddenly of lower quality, chasing off kind of the core customer who'd love Boston Market's homemade feel. Worse was that during this time, the world around Boston Market had changed while it had stood still. I talked about the rise of fast casual and how competitive that was getting by the early 2010s. The other thing is they were getting attacked from below. Grocery stores and Costco and places like that, they were bringing out their own versions of rotisserie chickens. Many were done at loss leaders, where those companies were basically selling them at or below cost in order to bring in business and sell more profitable things to customers. By 2019, Costco alone was selling 100 million rotisserie chickens a year at $4.99 apiece. And in the fast casual space, chains like Chipotle went from zero to 2,500 locations by the late 2010s. And it got worse. You and I changed as well. Our idea of what would be hearty and healthy, well, it went from macaroni and cheese and chicken in the 1990s to things like Cava and Chipotle, where we get fresh ingredients and lighter fare in the 2010s. Basically, Boston Market had been standing still as the world changed around them. And by this point, Boston Market was crushed in the middle. Grocery chains were coming from the bottom, attacking their chicken business with cheap giveaways, basically. From the top, the fast casual guys were crushing them. And you and I, well, we weren't interested as much in what they were offering anymore. To Sun Capital's credit, they saw they were in a death sentence. Basically, in 2017, they went out and tried to sell the chain for $400 million. They didn't get any takers. Leadership in chains like this will typically try their best and jumping on any fad to try to save the whole thing. In 2018, they did the prime rib experiment. In 2019, they jumped on the chicken sandwich trend. Neither one made a difference in saving the place. By 2019, Boston Market had to close another 45 stores due to declining sales. By early 2020, the whole chain was a shadow of its former self. It had gone from 1,200 stores to just a couple hundred. Then in April 2020, Sun Capital got a bit lucky. They found a buyer, a man who was running an investment firm called Engage Brands, Jay Pandya, who stepped in to buy it. This was perhaps the perfect timing for Sun and the worst possible timing for Engage and Jay, because right then was when the COVID pandemic started. This put enormous pressure on restaurants, and in fact, it should have been the perfect situation for Boston Market. When they were able to bring— give people take-home food at a takeout model. Right. But they did exactly the wrong things. Jay and his team weren't capitalized with operating capital to weather the storm of COVID By 2021 and 2022, lawsuits were piling up because they weren't paying their bills. Everybody from equipment providers to food suppliers. Leadership was struggling to meet even basic obligations. And by 2023, Boston Market entered a death spiral. This is when vendors, suppliers, partners, and employees don't trust you're going to pay your bill enough to even do the first amount of work for you. And if you can't do any of the core components of a restaurant, well, you're screwed. In New Jersey, the authorities shut down 27 Boston Market restaurants because they owed $630,000 in back wages to employees. They hadn't been paying their people. In Boston Market's headquarters state of Colorado, their headquarters was even seized by the government. For lack of paying their taxes. Some Boston Markets couldn't even get food deliveries, leading managers to go down to the grocery store to buy ingredients so they could prepare food and be open that day. By late 2023, the once national chain had only 79 restaurants open. And remember how McDonald's had once owned the chain just because they wanted its real estate? Well, it had kept some of those things. And in a weird full circle moment, they sued Boston Market for unpaid rent. For some of the locations. The bleeding continued, and by 2024, Boston Market was down to just 27 locations. Obviously, the brand had been dead for a long time, probably since the moment they decided to do that crazy franchise loan scheme with the area developers. But eventually, subsequent owners Sun, McDonald's, and then Engage, well, they put the nails in the coffin. And Boston Market, once a chain with 1,200 restaurants at its peak, is now essentially a nonentity. Oh, and interesting enough, in preparing for this, I was looking at Boston Market's website. Turns out they are still selling franchises. At least that's what they say on there. So you personally could bring a Boston Market to your town if you really want to have some of that chicken and macaroni and cheese from your youth. But frankly, I don't know why you'd sign up for something like that given this kind of track record. There's a lot of lessons from this story. The one that hits hardest with me is the one with Sun Capital, where they cut so much from so many things that eventually the value proposition for the customers got so bad that it wasn't sustainable. And you as a business, I think you have to love your customers. You have to want to make them happy within reason. And in this case, when you cut so much like a lot of private equity does with restaurants, you just ruin the thing and it's not survivable and it's definitely not sustainable. Let me know what you think in the comments below. I try to read them all. See you next time.