Cerca Trova Restaurant Group, once the biggest franchisee of Outback Steakhouse restaurants, filed for bankruptcy on Monday, blaming rising food costs and California's minimum wage law for its troubles. The San Diego-based company operates 61 Outback locations, down from a high of 99 restaurants it ran in 2018, according to court papers filed in US Bankruptcy Court in Wilmington, Delaware.
The company has struggled financially since the Covid-19 pandemic, and its debt has jumped to about $449 million from $269 million in late 2020. Increases in state and local minimum wages in California, where more than half of the company's employees work, pushed labor costs higher, the company said in court papers. Chief Executive Officer David Goronkin said in a court filing that by 2026, "the pressures on the business had converged." Guest traffic and earnings kept falling while food, labor, and other production costs kept rising.
Cerca Trova has a proposed deal to sell its assets to Outback Steakhouse's brand owner Bloomin' Brands, Inc. for $26.3 million, unless a higher offer emerges during the bankruptcy case. Bloomin' has agreed to be the initial bidder at the planned auction. As of June, there were 659 Outback Steakhouse restaurants, of which Bloomin' owned and operated 544, according to court documents.
The broader restaurant industry has been under stress for years, first from the pandemic-driven drop in traffic and later from changing habits. Americans are eating out less, partly due to the increased use of appetite-suppressing drugs like Ozempic and Wegovy. Beef costs jumped about 15% to 20% in 2022 and have risen as much as 5% annually since then, Cerca Trova said. Cerca Trova employs nearly 3,700 people in California, Arizona, Colorado, Nevada and New Mexico.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing