Outback Steakhouse operator files for Chapter 11 on $449 million in debt

Major California-based franchise operator Outback Steakhouse has filed for bankruptcy, blaming soaring labor costs, sky-high food prices and dwindling customers for pushing its restaurant empire to the brink.

San Diego-based Cerca Trova Restaurant Group, also known as Out West Restaurant Group, filed for Chapter 11 bankruptcy Monday in Delaware, seeking relief from a whopping $449 million debt burden, according to the Los Angeles Times.

The troubled company operates 61 Outback Steakhouse restaurants in California, Arizona, Colorado, Nevada and New Mexico, with the majority of its locations concentrated in the Golden State.

And company executives say California’s tough minimum wage requirements have only worsened an already brutal financial situation.

California’s state minimum wage rose to $16.90 an hour in January, while fast food chains have been required to pay workers at least $20 an hour since 2024.

Although Outback Steakhouse is exempt from requiring higher fast-food wages, its operators still face increasing wage costs under the state’s broader wage laws.

More than half of Cerca Trova’s employees work in California, according to the bankruptcy filing.

“By 2026, the pressures on the company had converged,” CEO David Goronkin said in court documents cited by the Times. “Visitor traffic and revenue continued to decline, while food, labor and other production costs continued to rise. »

The company’s financial difficulties have been brewing for years.

Its debt rose from about $269 million at the end of 2020 to $449 million this year, as inflation, rising operating expenses and declining customer traffic weakened its bottom line.

Even the chain’s signature steaks have become increasingly expensive to serve, with beef prices climbing as much as 5% annually since 2022, according to court filings.

The franchise operator was once Outback Steakhouse’s largest franchisee, boasting 99 restaurants in 2018 before shrinking to its current 61 locations.

Among the California locations that recently closed: 7575 Beach Blvd. at Buena Park, 25261 N. The Old Road in Valencia and 26652 Portola Parkway in Foothill Ranch.

The company is now seeking to shed its remaining restaurants in a court-supervised sale.

Outback’s parent company, Bloomin’ Brands, emerged as the leading bidder, offering $26.3 million to acquire the troubled operator’s assets unless another buyer comes up with a better deal, according to Newsweek.

The Florida-based restaurant giant also agreed to provide up to $5.5 million in financing to keep the franchisee afloat during the bankruptcy proceedings.

Bloomin’ Brands insisted the financial crisis was limited to the franchise operator and would not disrupt its broader business.

A spokesperson for Bloomin’ Brands told the Post that the bankruptcy is “an isolated situation involving the franchisee and does not affect Bloomin’ Brands’ operations, financing or liquidity.”

This case marks another blow to the California restaurant industry.

A major Carl’s Jr. franchise operator, Friendly Franchisees Corporation, recently filed for Chapter 11 protection through its Sun Gir subsidiary, citing California’s $20 minimum wage in fast food as a significant contributor to its financial problems.

The economic consequences of the wage hike remain hotly debated, with critics saying it has put a strain on restaurateurs while supporters argue its impact has been limited.

Meanwhile, the nation’s casual dining chains are struggling to lure inflation-weary Americans back home.

Red Lobster filed for bankruptcy in 2024, while Oprah-backed True Food Kitchen recently filed for Chapter 11 protection and closed three Southern California locations.

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The Outback also saw a decline in foot traffic, with parent company Bloomin’ Brands reporting a 2.8% year-over-year decline in customer visits during the second quarter.

For now, the steaks will continue to sizzle at Cerca Trova’s restaurants, even as the company struggles to survive the financial crisis.