This is the second in a three-part series exploring the owner of Boston Market and his long, complex track record of legal filings and unpaid bills.
Monday: Inside the chaotic world of the owner of Boston Market.
Today: Corner Bakery employees thought they had a savior. They got something else.
Wednesday: For Boston Market, another ugly chapter in a long and infamous history.
Corner Bakery employees were hopeful in October 2020, when then-CEO Frank Paci announced that the company had been sold.
The past few months had been brutal. The fast-casual chain was hit particularly hard by the pandemic. It had a lot of urban locations. It had few drive-thrus and no curbside service like its rival Panera Bread.
The company had slashed its corporate staff to the bone through furloughs and cut the pay of those who remained. And those workers put in long hours. Maybe, employees thought, Pandya Restaurant Group, which had earlier bought Boston Market, would make things different.
But those employees soon learned that they would not get the savior they hoped for. Over the subsequent 25 months, the company stopped paying its bills and demanded discounts of up to 70% to pay them. The group was routinely locked out of its restaurants and was also locked out of its corporate headquarters. Staff left the company and were rarely replaced.
Bookkeeping, meanwhile, was left to a single person who used QuickBooks to manage the finances of Corner Bakery and Boston Market.
The company appeared willing to ignore bills for almost anything, including services as rudimentary as trash pickup and dishwasher rental. The chain has been sued 84 times since Pandya took it over, mostly over unpaid bills.
All of this, meanwhile, as Pandya transferred millions of dollars to his other companies and, according to legal filings, paid himself millions in management fees. That included more than $7 million in management fees in the two months before the company filed for bankruptcy.
Pandya himself blamed the lingering effects from the pandemic for the brand’s downfall. “We spent a lot of time, energy and efforts to get it to where it was viable,” he said. “But there were still a lot of restaurants and cafes in downtown areas that had very high rent. The sales were just not there. There was no customer base.”
This series is based on conversations with numerous current and former company employees, lenders, attorneys and others, along with a review of hundreds of legal documents and filings, along with four hours of interviews with Pandya.
We believed the brand was very good. It just got hit with COVID. The restaurants had been closed for four months.” —Jay Pandya, on Corner Bakery
The pandemic provides an opening
There are several ways an investor can make money buying a restaurant chain. The best, of course, is to acquire a brand at a reasonable price, invest in the company, then profit off its growth, either through a sale down the line or through dividends taken out from cash flow.
But buyers can also look for value, buying struggling chains at low prices. A few of these buyers are legitimately hopeful they can turn it around through strategy and investment. But many take the opposite approach, cutting costs to a minimum, then using cash generated by the chain to pay themselves.
Restaurants can survive a long time without earning a profit. They generate cash daily but pay it back monthly.
“You can sell your inventory perhaps four or five times before you have to pay for it,” Michael Eagen, senior director in the restaurant finance group with Synovus, a banking firm. “You collect credit card receipts in a couple of days, but don’t have to pay your suppliers for 28 days.”
“Stretching the trade to 90 days can triple that impact of cash flow generation, keeping zombie restaurants alive longer than you’d think, or at least until suppliers demand COD, or cash on delivery,” he added. “Then it breaks.” Zombie restaurants are chains that operate with no growth and are bled for cash by their owners.
The pandemic offered a unique opportunity for investors interested in picking up chains on the cheap. Private equity firms were unloading struggling holdings at bargain basement prices to anyone willing to pay for them. As such, in 2020 there were several deals involving first-time chain buyers acquiring concepts at low prices.
One of them was Jay Pandya. In April, he acquired Boston Market from Sun Capital, the private equity group that decided to abandon the restaurant business that year. Sun sold the chain at a “fire sale price,” according to multiple sources familiar with the deal, as Sun sought to pay off its debts.
In October, Pandya acquired Corner Bakery. In that case, Pandya outbid SSCP, the Dallas-based company that owns Roy’s Restaurants and is a partner in Cicis, as well as the operator of some Applebee’s restaurants. Pandya assumed debt on the company, $42.3 million. He also invested an undisclosed amount, though in an interview said between his debt payments and the down payment, he invested $20 million. “We paid big money,” Pandya said.
“We believed the brand was very good,” he added. “It just got hit with COVID. The restaurants had been closed for four months.”
Others who looked at the company felt that was too high a price and either bid much less or backed off altogether. And they cited the same problem that Pandya blamed for Corner Bakery’s bankruptcy—those high rents in urban markets that were slow to recover coming out of the pandemic.
Either way, Pandya was now a multi-brand operator. He named his company Engage Brands and promised to bring both chains back to prominence.
“Pandya Restaurant Growth Brands brings an enthusiastic, experienced and successful ownership group to Corner Bakery,” Paci said in a statement at the time, “as well as access to resources that we need to continue to operate our business in this challenging environment.”
Paci, however, would leave the company a few weeks later.
"It was every man for himself. No one wanted to stay there." —Corner Bakery employee
A tumultuous ownership
Corner Bakery at one point was considered a worthy adversary to Panera Bread, but it struggled to fulfill much of its brand promise. System sales declined 5% between 2017 and 2019, according to data from Restaurant Business sister company Technomic.
The pandemic only made matters worse, as downtown hubs largely shut down. The chain’s urban sales fell some 83% in 2020, leading the company to dramatically cut corporate overhead to preserve cash flow, according to company insiders, who would only speak on the condition of anonymity.
By the fall of 2020, however, there were signs of life. Sales had started to pick up again as some markets reopened. The sale gave employees some hope. The company slowly began bringing back some furloughed employees.
Shortly after the sale, however, it started cutting costs. Employees say Pandya demanded cost of goods sold, the combination of food and labor costs, to go back to levels some thought unattainable.
Pandya demanded that corporate staff negotiate steep discounts, up to 70%, off any bill before he would agree to pay it, according to several employees. That demand was commonplace. “I’d sometimes just tell my vendors right off to just [charge] 30% because that was the only way you’re getting paid,” one former employee said.
Pandya himself would not show up when expected and would often show up when unexpected. He was frequently in India, which made him unavailable, but would then call staff late at night to talk about business plans, according to multiple former executives.
And despite the cost cuts, he regularly came up with big ideas and told staff to put them into place—only to refuse to pay the vendor once the bills became due. The company once hired a public relations firm to handle a corporate event, for instance, only to decline to pay the firm without a substantial discount.
Those unpaid bills became a serious problem. Vendors would frequently ask their corporate contacts why they weren’t being paid. For employees, who worried about their career and wanted to maintain those relationships, this was an issue. They frequently found end-runs around payment restrictions, often by portraying that bill as absolutely necessary.
And they started looking for jobs. Workers often shared job openings with one another, and people left frequently. While people felt bad for those left behind, they also wanted out. “It was every man for himself,” one person said. “No one wanted to stay there.” Much of the chain’s management left at around the same time last year. Many people were not replaced, leaving an increasingly bare-bones operation that performed work on both Corner Bakery and Boston Market.
The unpaid bills had an impact on Corner Bakery and its franchisees. The trash company stopped providing service to some of the chain’s restaurants, forcing employees to use catering vans at night to sneak the day’s garbage into someone else’s bins.
When vendors stopped providing food, such as muffins, the company just moved onto a different vendor with a different recipe, according to employees. “Quality was not a concern,” one worker said.
Because so many bills went unpaid, workers at least once a week showed up to a Corner Bakery restaurant to find a padlock on the front door, either due to back rent or unpaid utility bills, several employees said. That put stress on managers and other employees to figure out ways to get bills paid so they could open the restaurants again.
And that wasn’t the only lockout. Employees say that corporate staff arrived at the company’s Dallas headquarters to find those doors locked, too. The landlord then removed the Corner Bakery name from the top of the skyscraper.
Many of the employees we spoke with talked of lingering health issues from that period. “It was just so taxing,” one employee said. “It was awful. It took an absolute toll on my mental health.”
Several franchisees who operated Corner Bakery units watched their support dwindle to nothing over the past two-plus years, according to sources. “The relationship is most likely broken beyond repair,” Jason Binford, an attorney for a group of franchisees, said during a court hearing in March, according to court documents. “We are looking for someone else to come in and be in charge of this company.”
A Corner Bakery in California. The chain has been sold out of bankruptcy. | Photo by Lisa Jennings
The bankruptcy filing
Goldman Sachs last year declared the chain in default on $43 million in loans over nonpayment as well as a refusal to provide monthly financials to the lender, the latter of which was described as “very basic stuff” in court documents.
In January, Goldman auctioned off the debt on the secondary market. Its buyer: SSCP Restaurant Investors, the same company that tried to buy Corner Bakery more than two years earlier. In so doing, SSCP bought the debt at a discount and as a result became the secured lender.
Because the chain and its assets were put up as collateral for the loan, SSCP had certain rights to foreclose on the brand and put it up for sale. And it moved to do so in February, after making what the company said in a filing were several failed attempts to get information from Pandya. Corner Bakery filed for bankruptcy days later to halt the auction.
Documents in the bankruptcy filing, however, show just how bad things had grown financially for the chain by 2023. In April of this year, SSCP said in one filing, Corner Bakery was “hopelessly insolvent,” with $7.1 million in total assets, and $88 million in obligations.
Vendors sued Corner Bakery at least 84 times since Pandya took over in 2020, according to a list provided in court documents. While there are some lawsuits typical of restaurants, such as slip-and-falls, the bulk are over unpaid bills, such as breach of contract or lease issues. Most are from landlords but there are others from waste haulers or governments seeking unpaid taxes.
One of the biggest is from Ecolab, which was owed more than $500,000 in unpaid bills for the leases of dishwashers and water softeners, along with other cleaning and sanitation services. Joseph Koudelka, who was then VP of supply chain for Corner Bakery and Boston Market, asked Ecolab at the time if the company could buy the dishwashers instead, which was a service Ecolab did not provide, according to court documents.
Pandya refused to let Ecolab fetch the dishwashers and instead told the vendor that it would have to go through court to coordinate their pickup, according to court documents. Ecolab did just that, but neither Pandya nor Corner Bakery responded to the lawsuit, resulting in a summary judgment in March. Still, according to employees, some restaurant workers arrived to work to watch their dishwashers get carted out of restaurants, forcing the company to get replacements from the secondary market.
Asked about Ecolab, Pandya said, “I cannot recall.”
But he also cited the financial challenges at the company. “If the bills could have been paid, they were paid.”
SSCP in its filing also cited a default on the payment of “millions” in state sales taxes and employee payroll taxes. There was at least $31.6 million in account payables at the time, SSCP noted, and another $6.5 million in default judgments on unpaid leases—meaning the company didn’t pay a lease, was taken to court, didn’t respond and lost the case by default.
The firm said Corner Bakery was “a deeply insolvent company with no strategy for the future or inkling of how to address” its debts.
When asked about the lawsuits and the finances, Pandya blamed the pandemic, saying that sales improved but not enough to pay the rent on the locations.
He said the company made “a substantial amount of payments to the lender,” but the brand was reaching a point where it wasn’t sustainable.
And he added that the company did not make a bid to buy Corner Bakery out of bankruptcy. “We believe there’s still a substantial amount of time, energy, efforts still needed,” Pandya added. “The group out of Dallas seems to have the capacity” to do that.
Transfers and resistance
Bankruptcy court documents also show that Pandya’s operation, one supposedly providing key management services for two national restaurant chains, was bare bones, haphazard and riddled with inconsistencies. Entire loans went unaccounted for. And the operation was managed “without any observation of proper corporate governance.”
The company has “no officers,” according to one court filing, and there is no evidence of a corporate organizational chart.
Greg Baracato, appointed to be Corner Bakery’s chief restructuring officer (CRO) earlier this year, blamed the company’s financial problems on the mass departure of management, and noted that the chain “was chronically understaffed.”
The only person who appeared to provide support for the chain, according to a filing, was Krupa Patel, who worked for Pandya and served as the chain’s treasurer. Patel oversaw the company’s accounting system, run entirely through QuickBooks.
“Ms. Patel seemed distracted and overwhelmed, regularly failed to timely respond to information requests from the CRO and Corner Bakery employees,” according to one court filing. “And landlords and vendors repeatedly complained that she was not making timely or accurate payments.”
Meanwhile, Pandya and his company frequently refused to provide information or work with lenders and vendors, according to several legal filings. That cooperation even extended to people appointed by a court to oversee the chain in bankruptcy—to the point where he was threatened with a contempt of court charge.
According to a filing from Baracato, a company Pandya created in 2020 called Engage Services actually provided management for Corner Bakery and Boston Market. And Engage Brands, Baracato quoted them as saying, “does not recognize the authority of this court.” They demanded $1.6 million in management fees.
KeyBanc, one of the company’s numerous banks, would not sign over access to Corner Bakery’s account without a signature from Ronak Pandya, Jay’s son, who was the technical owner of Corner Bakery. And the family wouldn’t allow that to happen unless that $1.6 million was paid. Ronak eventually gave a verbal OK.
At the same time, attorneys in court accused Pandya of holding $300,000 worth of checks written to Corner Bakery.
Meanwhile, there are several accusations in court documents of what attorneys called inappropriate transfers, either to Pandya himself or members of his family, or Boston Market or other companies. It’s a relatively common practice for private companies to transfer funds between entities and blur the lines between company and personal accounting. And these transfers frequently become an issue whenever a company files for bankruptcy.
But according to SSCP, the transfers took on another level. In March, SSCP said that some $21 million was transferred from Corner Bakery to other entities Pandya controlled in 2021 and 2022, before data from 2023 was counted. That included $9.2 million transferred to Boston Market, and another $12 million transferred to Pandya Management, just over half of which was labeled for management fees.
In the two months before Corner Bakery filed for bankruptcy, according to court documents, another $7.3 million was transferred to Pandya Management for management fees.
The $14 million in management fees for the nearly one year leading up to the February bankruptcy represented nearly 10% of the $143 million in revenues the chain generated over that period, according to another filing. The management agreement between Pandya Management and Corner Bakery, according to the filing, was for a 1% fee.
There are also PPP loans involved. Corner Bakery in 2021 received a $10 million loan from the Paycheck Protection Program, as did Boston Market. The loan “cannot be fully accounted for in the accounting and banking information provided,” SSCP said in its filing.
When asked about the financial transfers, Pandya said, “I do not know. Any amount paid was probably paid for whatever food purchases or other bills or whatever. That’s a question for … the attorneys.”
The sale
Corner Bakery’s system sales declined 6.5% last year, to $212.3 million. The brand closed dozens of restaurants through the bankruptcy process. And SSCP ultimately took ownership of the chain for $15 million, while agreeing to take on some existing liabilities.
SSCP has a long industry history. It operates 80 Applebee’s and 43 Sonics. It was part of a group that took over Cicis out of bankruptcy in 2021. These days, that chain is finding success by bolstering its use of video games, though its system sales still slipped 4% last year, mostly on a decline in franchisee restaurants.
SSCP would not comment for this story, citing the open bankruptcy process. And whether it can truly stabilize Corner Bakery and get it growing again remains to be seen. It’s difficult for a restaurant brand to recover in the eyes of consumers, not to mention vendors and landlords, when it’s faced the issues it’s faced.
In the meantime, the bankruptcy court continues to work through issues related to the case. But Corner Bakery has new ownership. And it may have avoided some of the issues being seen at Boston Market.
Next: For Boston Market, another ugly chapter in a long and infamous history.