Outback Franchisee Cerca Trova Files for Bankruptcy, Citing Costs and California Wage Pressures

What Happened

Cerca Trova Restaurant Group sought bankruptcy protection Monday after years of pressure tied to rising food costs, shifting dining patterns, and state and local minimum wage increases in California. The case is Cerca Trova Restaurant Group Holdings, Inc., 26-11749, in US Bankruptcy Court, District of Delaware.

The San Diego based operator now runs 61 Outback Steakhouse restaurants, down from a high of 99 in 2018, and employs nearly 3,700 people across California, Arizona, Colorado, Nevada and New Mexico. The company said its finances have been strained since the Covid-19 pandemic, with total debt increasing from $269 million in late 2020 to about $449 million.

Why The Squeeze Intensified

Labor got more expensive where Cerca Trova is most concentrated. With more than half of its workforce in California, the company said state and local minimum wage hikes there drove labor costs higher. Food inflation piled on: the company noted beef costs jumped by roughly 15% to 20% in 2022, and have climbed by up to 5% per year since.

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Traffic has been softer, too. The company pointed to industry wide declines that began with the pandemic and then reflected changing habits, including Americans dining out less in part due to greater use of appetite suppressants such as Ozempic and Wegovy. According to a court filing by Chief Executive Officer David Goronkin, "By 2026, the pressures on the business had converged." "Guest traffic and earnings continued to decline, while food, labor, and other production costs continued to rise."

What Comes Next for Outback and Investors

A deal in principle would transfer the assets to Outback's owner, Bloomin' Brands, Inc., at a price of $26.3 million, though the court process allows for higher offers. According to Goronkin, the company will hold an auction, with Bloomin' agreeing to act as the opening bidder.

As of June, the Outback system counted 659 restaurants. Bloomin' owned and operated 544 of them, while the remainder were operated by franchisees, the court documents state. The pressures are not isolated: a large Wendy's franchisee filed for bankruptcy earlier this year, and investors have questioned Red Lobster's turnaround less than two years after it exited Chapter 11.

The Bottom Line for Your Portfolio

Higher input costs and softer guest traffic are squeezing full service operators, and the balance between company owned and franchised stores is back in focus. Watch the auction outcome and any read through it provides on valuations for challenged franchise systems.

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