Boston Market Corporation
Boston Market Corporation
Wholly Owned Subsidiary of McDonald’s Corporation
Sales: $700 million (2001 est.)
NAIC: 722211 Limited-Service Restaurants; 722320 Caterers
Boston Market Corporation—formerly Boston Chicken Inc.—grew rapidly after its start in 1985. The quick expansion, however, proved to be the demise of the firm, and in 1998 Boston Market was forced to declare bankruptcy. McDonald’s Corporation purchased the struggling chain of restaurants in 2000 and implemented a turnaround strategy designed to rebuild the Boston Market brand. In 2002, the company operated 650 company-owned restaurants in 28 states that offered home-style entrees, fresh vegetables, sandwiches, salads, soups, side dishes, and desserts. Boston Market also offers catering services along with frozen meals available in supermarkets through a partnership with HJ Heinz Company.
Boston Chicken was started in 1985 by two young friends eager to launch their own enterprise. Arthur Cores was a 33-year-old graduate of Northeastern University. With a degree in business, he had worked for several years as the manager of a gourmet grocery store and as a manager for top-notch catering companies. Cores’ friend, Steven (Kip) Kolow, was 29 years old and had experience working in real estate. One day in 1985, they decided to come up with a simple business plan.
Cores’ experience in the gourmet food industry led him to believe that a market existed for fast, high-quality, home-style food. “I saw the trend in gourmet shops that people wanted to buy plain, simple, everyday foods,” Cores recalled in the August 6, 1990 issue of Boston Business Journal. Building from that insight, the two devised a plan for a restaurant called Boston Chicken. Their concept was simple: provide consumers with an alternative to both the existing fast food offerings and the hassle of having to go home and prepare a fresh meal.
Boston Chicken Opens its Doors: 1985
Cores and Kolow borrowed recipes for chicken soup and oatmeal cookies from their grandmothers, and Cores also concocted some of his own dishes based on traditional side dishes such as mashed potatoes and squash. To their array of vegetable and salad sides they added sweet corn bread. Their various side dishes would complement the centerpiece of every meal—marinated chicken roasted in brick-fired rotisseries. The two men rented a small, vacated store in Newton, Massachusetts, and opened their doors to business in December 1985.
Not long after it opened, Boston Chicken was a smash. Customers began flocking to the take-out chicken store and telling their friends about their discovery. Soon, people were lined up at the small store waiting for their orders. During the late 1980s, articles appearing in the Boston Globe raved about Boston Chicken, attracting customers from all over the Boston area. Growing sales kept Cores and Kolow busy between 1986 and 1989. In fact, they had several offers from individuals in the business community interested either in buying the store or partnering with the two entrepreneurs to expand the concept.
Then, the founders of Boston Chicken were approached by George Naddaff, a local businessman with a knack for growing start-up businesses. Naddaff had opened the first Kentucky Fried Chicken stores in the Boston area and had increased his holdings of that franchise to 19 stores within three years. He had also started his own chain of child care centers, which he eventually took public, and had founded a chain of business brokerage offices. Naddaff headed a venture capital company, Business Expansion Capital Corp., that found resources for start-up companies that could be replicated—companies like Boston Chicken.
One evening early in 1989, Naddaff’s wife sent him to the Boston Chicken take-out store in Newtonville to pick up dinner. When he saw the long line stretching outside the restaurant, he became fascinated. Naddaff bought dinner and left, but he kept coming back for weeks to watch Kolow and Cores feed the nonstop dinner crowds. Finally, he approached the owners one night and asked them if they would be interested in selling their concept, recipes, and methods of operation. “I’d been watching them for several weeks and they were right on the money,” Naddaff declared in the Boston Business Journal article.
Cores and Kolow Partner with Naddaff: 1989
Cores and Kolow had turned down previous suitors because they were concerned about losing control of their creation to someone who might inadvertently destroy it. However, they trusted Naddaff and believed that he could help Boston Chicken successfully flower into a chain. They eventually cut a deal with Naddaff, and New Boston Chicken Inc. was established in March 1989. Cores and Kolow effectively sold their rights to Boston Chicken but retained ownership of the original restaurant. Kolow continued to manage the restaurant, while Cores joined the newly formed corporation as head of product development.
To make sure that the Boston Chicken concept could be successfully replicated, Naddaff got a group of private investors to contribute $1.1 million for two new stores. Both were immediate hits, and Naddaff quickly began gathering more capital. By the middle of 1990, he had expanded the New Boston Chicken chain to a total of 13 restaurants, ten of which had been opened after the start of the year. Furthermore, an additional 15 or more stores were expected to open by the beginning of 1991 in Massachusetts, Connecticut, and New York. Naddaff expected the combined sales to top $7 million annually in 1990. But sales topped projections, jumping past $8.2 million and then rising to nearly $21 million in 1991.
By 1991, individual stores were bringing in $800,000 annually, on average, about 80 percent of which was attributable to take-out business. A major appeal was price. For $5 to $7, a person could buy a relatively healthy, freshly cooked, home-style meal. The same plate would cost $10 to $15 in a nice sit-down restaurant and would take more than one hour to prepare at home. Although growth capital was scarce, New Boston Chicken planned to expand the popular concept internationally to more than 400 stores within four years. Naddaff was even working to have a chicken bred specifically for his chain.
However, in 1991, Boston Chicken caught the eye of another chain-store capitalist—Saad J. Nadhir. Nadhir was an executive with Blockbuster Video at the time. He was driving around Newton, Massachusetts, when he, just like Naddaff a few years earlier, noticed a long line of customers waiting outside of a Boston Chicken outlet. Nadhir brought his colleague, Scott Beck, over to take a look at the restaurant and both were intrigued. They checked out Naddaff and the chain and determined that it had potential. They also believed that they had a better chance than Naddaff to exploit that potential.
Beck, in particular, was in a better position to grow the Boston Chicken chain. Although he was in his early thirties at the time, he had already established himself as a savvy corporate contender. While in his twenties, Beck had talked his father and a family friend into buying several Blockbuster Video stores, and he had spent the next several years whipping the outlets into shape and opening a string of new stores. By the late 1980s, Beck, with the help of his partner Nadhir, had increased his 106-store, Midwest operation into the largest Blockbuster chain in the United States. He cashed out in 1989, at the age of 31, selling his stake to Blockbuster for $120 million.
Beck and Nadhir: Early to Mid-1990s
Beck and Nadhir bought a controlling interest in Boston Chicken from Naddaff in March 1992. They shortened the chain’s name to Boston Chicken, Inc., moved the headquarters to Beck’s native suburban Chicago, and immediately began assembling a staff comprised largely of young executives formerly of Blockbuster. Importantly, they hired 43-year-old Jeff Shearer as a key strategist. Shearer had served as a partner in their Blockbuster franchise and had been a general manager with the Bennigan’s restaurant organization in the early 1980s. They also recruited restaurant veterans Alan Palmieri, Warren Ellish, and Eddie Palms.
Six months after taking control of Boston Chicken, Beck and company were overseeing a chain of 53 restaurants in ten states. They were planning to open at least 30 in the Chicago area over the next 12 months. Planning to retain Boston Chicken’s basic strategy of providing fast, fresh, high-quality food, they also made several operational and organizational changes. As they had done at Blockbuster, they would target key markets and try to take advantage of name recognition rather than spreading their resources too thinly over large regions. Beginning by establishing a national buying and distribution network designed to complement their ambitious expansion plans, Beck and his team meticulously tweaked in-store operational elements, such as food display techniques.
Boston Market Corporation recognizes that in an increasingly fast-paced world, more and more people are pressed for time and looking for ways to make their lives easier. Many consumers want an alternative to cooking that allows them to slow down and spend more time with their family and loved ones. Boston Market restaurants offer fresh, delicious, home-style meals just like you would prepare and serve at home if you had the time—without the hassle of preparation and clean-up.
By the end of 1992, Boston Chicken had 83 stores operating in its chain and several new outlets under construction. Total restaurant sales rose to nearly $43 million that year as Boston Chicken, Inc.’s revenue from its franchised and owned outlets increased to about $8.3 million. The company’s basic strategy for growth in 1992 and into 1993 was to find well-heeled, experienced restaurateurs in key regional markets who were willing to expand the chain in their area. The degree of financing provided by Boston Chicken varied among the developers. The overall expansion effort would be directed from a centralized, streamlined headquarters office where Beck and his team were based.
Representative of the “area developers” that Boston Chicken recruited to expand its chain was New York’s Donald Cepiel. Cepiel started his fast-food industry career at the age of 16 peeling potatoes at a McDonald’s restaurant. By 1993, the 43-year-old entrepreneur owned 21 Burger King outlets, among other holdings. He purchased the rights to Boston Chicken in 1991 and had three outlets built by mid-1993. Interestingly, in October 1993, Cepiel purchased the same site on which the McDonald’s that first employed him had once stood. He began building a new Boston Chicken there and planned to open two more in the area during 1994.
Although Boston Chicken experienced surprisingly strong growth during 1991 and 1992, that expansion was a mere prelude to the explosive gains that Beck and team would achieve in 1993 and 1994. During 1993, in fact, the chain nearly tripled in size to 217 stores. Aggregate restaurant sales rose to $154 million, and Boston Chicken, Inc.’s revenues jumped five-fold to $43 million. To accumulate capital for even more growth, Boston Chicken went public in November 1993. Enthusiastic investors bought heavily as Boston Chicken’s stock price soared.
While Boston Chicken’s rampant growth was largely the result of the ingenious concept devised in 1985 by Cores and Kolow, it was also the result of the savvy operational strategy created by Beck and his experienced management team. Indeed, they had carefully engineered systems for all aspects of the company’s activities, from selecting real estate and constructing stores to tracking customer preferences and preparing food. For example, the company had developed a system by which a store could be completely built and operational within less than 75 days after the start of construction.
One of the chain’s most impressive elements was its advanced computer systems. During the early 1990s, the company developed its own software at a cost of about $10 million. The software was used to drive a company-wide system that integrated all of Boston Chicken’s operations, gathering and processing reams of data. For example, the system would alert store managers to put out more of a certain side dish based on how many had been rung up at the register—the system would even alter its advice according to the seasons and the established preferences of that store’s customer base. Boston Chicken’s store computers could also make up worker schedules, automatically reorder food and supplies from vendors, and update the store’s financial results on an hourly basis. “I’ve never seen systems as impressive and sophisticated as Boston Chicken has,” said stock analyst Michael Moe in the October 9, 1994 Denver Post.
Boston Chicken continued to use its advanced processes and systems to grow during 1994. By mid-1994, in fact, the company was employing 16,500 workers and operating a total of 330 stores, and the chain was expanding at a rate of one new store every business day. As its operations expanded, the company began looking for a new facility to house its burgeoning headquarters. Not surprisingly, Boston Chicken moved its offices to Golden, Colorado, in August 1994, where Beck had moved his family a few years earlier in an effort to improve their quality of life. There, the company opened a 42,000-square-foot, $10 million “support center” designed to accommodate future growth. The center housed about 140 employees when it opened.
Boston Chicken posted huge gains during the remainder of 1994, ending the year with 534 stores in its chain and continuing to add about one store each day and to hire 100 new workers every week. As annual restaurant sales rose past the $100 million mark in 1994, and the company posted strong earnings, Boston Chicken continued to seek new funds for expansion into the mid-1990s. In fact, management announced its intent to grow the chain at a rate of more than 325 stores annually at least through the end of the decade; the organization already had about 1,000 non-refundable commitments from potential outlet operators who wanted a piece of the action. “They have the most aggressive expansion program ever undertaken in the restaurant industry,” surmised analyst Mike Mueller in the April 10, 1994 issue of Restaurant Business.
Boston Market Declares Bankruptcy: 1998
That aggressive expansion program however would prove to be the root cause of the company’s financial demise. Boston Market—the firm’s name was changed in 1995 to better reflect its growing menu—had indeed seen stellar growth through early 1997, when the firm had over 1,100 restaurants in operation and over $1 billion in sales. In February of that year, the company formed Boston Market International and Progressive Food Concepts to oversee expansion in international markets as well as in new areas such as offering Boston Market food in supermarkets.
- Boston Chicken is established by Arthur Cores and Steven Kolow.
- Cores and Kolow partner with George Naddaff to create New Boston Chicken Inc.
- Sales rise to nearly $21 million.
- Saad J. Nadhir and Scott Beck buy a controlling interest in the company and shorten the firm’s name to Boston Chicken Inc.
- Boston Chicken goes public; the chain nearly triples in size to 217 stores.
- The restaurant’s name is changed to Boston Market.
- The company begins a restructuring effort as sales and stock price begin to falter.
- The firm files for Chapter 11 Bankruptcy.
- McDonald’s Corporation purchases the Boston Market chain.
Meanwhile, problems surfaced during the summer of 1997. Poor employee training, high operating expenses, and its lending policy to developer-franchisees had started to take their toll on company finances. Slowing sales, brought on by changing consumer demand, forced Boston Market’s stock to plummet from $41.50 per share in December 1996 to approximately $17 per share by May 1997. The restaurants also began to lose customers due to slow service. A 1997 Nation’s Restaurant News article wrote that Beck claimed that the sluggish sales were a result of consumers avoiding “the more profitable dinner purchases in favor of heavily promoted and heavily couponed lunchtime sandwiches.” During the first three months of 1998, Boston Market posted losses of $312.6 million and company auditors made public the fact that the company was close to financial ruin.
During 1998, J. Michael Jenkins was named chairman and CEO of the firm as both Nadhir and Beck resigned. The company looked to his restaurant experience—Jenkins was the former CEO of Vicorp Restaurants Inc.—as crucial to getting Boston Market back on its feet. Nevertheless, stores sales continued to falter, and by July losses had reached $437.1 million. On October 5, 1998, the firm declared Chapter 11 bankruptcy. Boston Market closed nearly 400 restaurants as part of its reorganization plan. In December 1999, McDonald’s Corporation announced that it intended to purchase the Boston Market chain.
The McDonald’s Purchase: 2000
A Boston Market executive commented in a 2000 Business Journal article that “when McDonald’s agreed to purchase our assets it was a really big win for the company. Basically it enables us to emerge from Chapter 11 in the fastest way possible.” For McDonald’s, the $173 million deal—completed in May 2000—was a fairly inexpensive method of diversification, a strategy that the world’s largest food service company had been focusing on.
Under new ownership, Boston Market began retooling its business operations. Jeffrey Kindler replaced Jenkins as chairman of the new McDonald’s subsidiary, and in 2001 Michael Andres took over the CEO post. During 2000, the company launched its line of frozen meals in supermarkets through a partnership with HJ Heinz Company. While McDonald’s had originally planned to convert most of the Boston Market restaurants into a McDonald’s location or one of its other brands, including Chipotle Mexican Grill or Donatos Pizza, the parent company instead decided to slowly rebuild the Boston Market brand and planned for expansion during 2002. In fact, during that year the firm planned to open a Boston Market restaurant in Australia.
McDonald’s reported that Boston Market sales had improved by eight percent from 2000 to 2001, and a 2002 Food Institute reported that Boston Market topped its list of leading quick casual chains based on sales and store count. While Boston Market had barely escaped financial disaster, operations under its new parent appeared to be heading in the right direction. Whether or not the brand would be able to regain the momentum of the early 1990s however, remained to be seen.
Buffets Inc.; Luby’s Inc.; KFC Corporation.
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—update: Christina M. Stansell