Elon Musk’s decision to reduce the federal workforce as part of his cost-cutting initiatives could negatively impact sales at popular restaurant chains in Washington, D.C., according to new research from Bank of America. This analysis suggests a potential correlation between federal employment levels and restaurant performance in the area.
Table Content:
Potential Impact on Fast Casual Dining
The research, conducted by analyst Sara Senatore, highlights the significant presence of fast-casual restaurants like Cava (CAVA), Shake Shack (SHAK), Chipotle (CMG), and Sweetgreen (SG) in the Washington-Arlington-Alexandria metro area. These four chains collectively operate 231 locations in the region. Sweetgreen and Cava, in particular, have a substantial concentration in D.C., with the area representing 11% of their respective store counts. Chipotle and Shake Shack, while larger nationally, still maintain 4% and 3% of their locations in the D.C. area, respectively.
The concern stems from the potential reduction in lunchtime and dinner traffic due to federal workforce reductions. If fewer government employees are working in the area, these restaurants could see a corresponding decline in sales. This analysis underscores the dependence of these businesses on the consistent patronage of the federal workforce.
Initial Jobless Claims and Traffic Trends
The impact of the workforce reduction is already becoming apparent. Since the February 13th order to reduce federal government agency staffing, initial jobless claims in Washington, D.C., have surged by 248% year over year, according to Bank of America. This represents a significant acceleration from January’s 103% year-over-year increase. BofA anticipates further increases in jobless claims as more cuts are implemented.
This decline in employment appears to be correlated with reduced foot traffic at restaurants in the D.C. area. BofA’s data reveals a 1.6% year-to-date drop in foot traffic for fast food and quick-service restaurants in D.C., compared to a 0.7% decline nationally. Similarly, breakfast, coffee shop, bakery, and dessert shop traffic in D.C. has decreased by 0.8% year to date, contrasting with a 1.2% increase nationwide. These figures suggest a localized impact directly related to the workforce reductions.
Investor Concerns and Stock Performance
These layoffs are “raising concerns among investors about the implications for fast casual chains with relatively large DC area footprints,” Senatore noted. The stock performance of these companies reflects this concern. Year-to-date, shares of Cava, Shake Shack, Chipotle, and Sweetgreen have declined by an average of 23%, significantly underperforming the S&P 500. Sweetgreen has been the hardest hit, with its stock down 33%.
Conclusion: Uncertainty Remains
While the long-term impact of these workforce reductions on the restaurant industry in D.C. remains uncertain, the initial data suggests a potential for significant disruption. The correlation between federal employment and restaurant sales warrants close monitoring by investors in the fast-casual dining sector. The continued performance of these restaurant chains will likely depend on the overall economic health of the D.C. area and the long-term effects of these federal workforce reductions.
