Crumble ground beef into a large stockpot over medium-high heat; add onion. Cook and stir until beef is evenly browned, 5 to 7 minutes. Drain; discard grease.

Stir spaghetti sauce, diced tomatoes, kidney beans, water, mushrooms, pepperoni, bouillon, chili powder, and sugar into beef mixture; bring to a boil. Reduce heat to low; simmer, stirring occasionally, until flavors blend, about 30 minutes.

Garnish servings with Cheddar cheese.