Worries About a Second Wave of COVID-19 Impact Restaurant Stocks

The Predicted Fall Uptick Has Arrived

Public health leaders were anticipating a fall spike in COVID-19 cases as students return to school and temperatures drop. This uptick appears to have arrived in the US and around the world. The number of cases in the US rose over 15% during the 10-day period ending September 21—the sharpest rise seen since early spring.

In other parts of the world, Israel is putting a three-week lockdown in place as cases rise, despite the country’s success in curbing the spread of infections early on. France and Spain are also seeing cases jump after loosening lockdown restrictions.

Dine-In Restaurants May Suffer

Earlier this week, stocks tumbled around the world as the reality of a second wave of COVID-19 set in. Many investors had their eyes on restaurant companies, which were battered during the first wave of infections.

During Monday’s sell-off, restaurants that depend heavily on dine-in traffic saw their stocks decline. For example, Red Robin Gourmet Burgers (RRGB) and Ruth’s Hospitality Group (RUTH), which owns Ruth’s Chris Steakhouse, both saw their shares drop by 8%. Though shares of both companies have seen slight upticks midweek, analysts still expect a difficult road ahead for these and other dine-in restaurants.

Quick Service Restaurants May Fare Better

In contrast, quick service restaurants like Chipotle (CMG) and Starbucks (SBUX) have fared better this week. Analysts noted that these companies have struggled because consumer habits, like grabbing coffee before heading into the office, have been broken. However, they are ramping up safety measures like drive-through options and social distancing as a way to bring customers back.

People may turn to these types of restaurants for a low-cost, safe taste of normalcy—especially heading into a fall and winter that will likely be abnormal in many ways. Investors will continue to watch carefully to see how a second wave of COVID-19 will impact restaurants and other industries.

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