Outback Franchisee Files for Bankruptcy Amid Rising Costs

San Diego-based Out West Restaurant Group, formerly known as Cerca Trova Restaurant Group and once Outback Steakhouse's largest franchisee, filed for Chapter 11 bankruptcy protection on Nov. 2 in U.S. Bankruptcy Court in Wilmington, Delaware. In its filing, the operator cited rising food costs and increases in California’s minimum wage as key drivers of its decline, Bloomberg reported.

Out West currently operates 61 Outback locations across the western U.S., down from 99 units in 2018. According to Bloomberg, the company has struggled to regain its footing since the pandemic, with total debt mounting to roughly $449 million, up from approximately $269 million in late 2020.

Bloomin' Brands, Outback's parent company, is positioned to take the restaurants back. Bloomin' signed an agreement to serve as the lead bidder for substantially all of Out West's assets, with an initial bid of $26.3 million, subject to adjustments, court approval and any higher offers that surface during the sale process. The franchisor also agreed to provide up to $5.5 million in interest-free debtor-in-possession financing to keep the restaurants running during the case.

Operations and Employee Impact

Bloomin' said the filing has no immediate effect on guests, restaurant employees or daily operations. Out West plans to keep paying franchise fees and royalties that come due after the filing, along with rent on leases Bloomin' guaranteed.

Financial Obligations and Deferments

Bloomin', Out West and its lenders agreed in December 2023 to defer certain payments after earlier defaults. The bankruptcy proceedings will now determine how those obligations are handled.

Historical Context and Concentration

Out West's relationship with Outback dates to 1994, when it opened its first California restaurant as T-Bird Restaurant Group. The group expanded significantly in 2017, when Bloomin' refranchised 45 company-owned restaurants in Arizona, Colorado, Nevada and New Mexico to the operator, giving it exclusive rights across five states.

Out West's collapse also raises questions about franchise concentration. Bloomin' now has an opportunity to bring those restaurants back under corporate ownership, while the bankruptcy puts the franchisee's debt and years of operating pressure into focus. For prospective franchisees, Item 20 of a Franchise Disclosure Document provides information about openings, closures and transfers within a franchise system. The Outback case also shows why it's worth looking beyond a brand's total restaurant count to understand how much of its footprint depends on large operators.