The third quarter was rough, according to early accounts. The ongoing federal government shutdown will make the second half of the year even rougher for some restaurant chains, in particular.
Cava and Sweetgreen have a big presence in the greater Washington, D.C. market, and at least one Wall Street analyst said Monday that the extended shutdown is likely to take a toll.
Sharon Zackfia, a partner and group head of the consumer sector for investment firm William Blair, said in a report that the shutdown—which was in its 20th day on Monday—is likely to contribute to negative trends more broadly for the second half after the third quarter “ended with a whimper,” she wrote.
Zackfia expects to see restaurant chains downgrading their projections for the year during the upcoming round of earnings reports, which start in earnest next week.
Domino’s has already indicated the economic environment during the quarter was looking bleak.
Early in the third quarter, trends seemed to be improving, but sales began to taper off in mid-August before further worsening in September, the William Blair report said.
Particular areas of weakness were lower-income, Hispanic and younger consumers, a theme that has been echoed by other reports this year. Zackfia said Sweetgreen and Wingstop are expected to see the softest trends, among the chains she follows.
And now, going into the fourth quarter, Cava and Sweetgreen are noted for their exposure to the Washington, D.C. metro area, where thousands of federal workers have been furloughed and laid off amid a partisan impasse over funding the government. Both brands have low-double-digit percentage of units in the region, Zackfia said.
Other D.C.-based chains have been offering discounts, free desserts and extended happy hours to support furloughed workers, from 20% off at Thompson Restaurants (Big Buns, Makers Union, Matchbox and Wiseguy Pizza), for example, to one free taco at Taco Bamba. &pizza offered all government workers a 30% discount, if they could show their work ID, but the promotion ended Sunday.
The outlook, however, was not all bad.
Zackfia still expects to see positive comparable sales at Black Rock Coffee Bar, Dutch Bros., Shake Shack, Kura Sushi and Cava.
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