The Kids in the Hall: Food Halls Are In, Food Courts are Out
August 8, 2019
By: Michele Wood
Imagine your favorite food trucks all coming together, parked permanently in a newly refurbished historic building, offering all the tasty, original, and independent food you love, but now with plentiful seating in a climate-controlled space with clean restrooms and regular events. Oh yeah, and a great bar to boot. If you can imagine that, you’ve just imagined the latest dining-out trend: The Food Hall.
When my mother-in-law asked what a food hall was, I attempted to answer by describing it as “a hipster food court.” But this sells short the concept and the existing food hall properties, though badly done ones surely might be described as such. These are not just mall food courts that converted Sbarro spaces to cold-brew coffee and kombucha. The spaces are concept-driven and highly curated to create more than a convenient place to quickly grab a meal or carb-load for mall shopping, and appeal to more than just hipsters.
While various iterations have been around for decades, such as Boston’s Faneuil Hall or Los Angeles’s Grand Central Market, one of the first examples of the modern version of this trend was Eataly in New York. The brainchild of celebrity chef Mario Batali, Eataly opened in 2013 and features multiple counters to purchase anything Italian-related from gelato to specialty pastas. Retail products are available and artfully displayed throughout the hall, and the path-like buildout of the space encourages exploring around corners and into fun nooks of variety.
Since then, the concept has caught on and evolved, going from 70 properties in 2015 to an estimated 450 by the end of 2020, according to a report by Cushman & Wakefield. Unlike most restaurant space, many food halls are multi-layered in business structure. There may be both a landlord and a hall operator, an entity that holds the master lease and grants sub-leases or “licenses” to individual vendors. Often the operator will be the holder of all liquor licenses and serves as the point of contact for all the hall’s management and service needs. Savvy landlords find experienced operators who understand the important hospitality-centric needs of the hall.
Halls vary in size, with the smallest around 8,000 square feet and the largest as big as 155,000 square feet in New York. Operators pay roughly half as much rent on a price per square foot basis as the vendors do, but it works because the footprints of each vendor are so small, averaging around 200 square feet. In addition, most operators collect a percentage of sales above a breakpoint.
Photo: The Food Hall at Legacy West, Plano TX
Design of the overall space is very important. Of course, it must be accessible, visible, and attractive, but it also must consider issues of flow as there is no hostess to keep order and customers are walking around much of the time while inside. Waste disposal and inventory/product deliveries need to be handled efficiently and out of sight of customers, which can be tricky in a space with many vendors as well as common area trash and restrooms.
Concerns over shared costs need to be addressed, especially if some vendors are using a service or product much more heavily than others (i.e. napkins, water, etc.) Other issues such as noise control or strong odors need to be considered and designed around as well.
Politan Group, which operates food halls in Chicago, Miami, and (opening this fall) Houston, is careful to provide adequate seating, comfortable spaces, and real plateware. Hospitality-minded design can go a long way in food hall layout and service.
Leases, or licenses as most vendor agreements are named, are typically one to three years in term, and are shorter, less complex documents than traditional leases. The licenses cover expected details like rent, term, and stall size, but also food hall add-ons such as shared storage space, trash removal, dishwashing, and rules for operating hours (most have a minimum “hours open” per day stipulated) and non-compete clauses. Of course, each property is unique and will be subject to the laws of the locality in which it opens. These details will help determine which aspects of a food hall are considered real property, and which aspects are strictly growing concerns.
Rent is much higher on a price per SF basis than a traditional restaurant, averaging $100 per square feet in Denver and $400 in New York City, but that number is still much smaller on a total dollar per month basis and other overhead is lower (smaller staff, included FF&E, etc.) The operator then also usually gets a percentage rent, on average somewhere around 10 percent of the daily sales over a breakpoint. Food hall rents average 20 to 25 percent of sales versus the six to 10 percent in traditional restaurants.
Buildout of vendor spaces is primarily taken care of by the landlord or operator to maintain a consistent design and allow for quick rotation of vendors when necessary. This also helps keep costs down for vendors who are paying high rent to sales ratios. For this reason, a chef can come into a space for as little as $10,000, up to $75,000, which is a more reachable number than the $500,000 and higher needed for traditional restaurant buildout.
What are the critical components of a successful food hall? Industry participants have identified five elements necessary for the concept to thrive:
- Curated Experience: Unified vision and management of the plan.
- Pedestrians: Realistic potential for heavy foot traffic at regular intervals throughout the day and night.
- Products: Tenants that can serve interesting, high-quality products easily carried from counters and are photograph-worthy.
- Social connection: Strong event planning for the common area and social media coordination to promote the events.
- Turnover: Efficient and attractive vendor spaces that allow for easy replacement of tenants.
Let’s break down each of the components.
To avoid being just a hipster food court, the space needs to tell a story. Is it a story of the historic building or district in which it is housed? Is it the story of a neighborhood, a story of a culinary tradition as in Eataly’s case? Vendors need to be selected to support this vision, highlighting local and popular cuisine and being careful not to allow vendors who cannibalize each other.
This Hall Was Made for Walking
Just because you build it does not mean they will come. Like old food courts, the concept best serves a pedestrian-heavy population with high density. Halls built as ground-level space in multi-family projects or office towers have fared well from captive audience populations ready-made. But one office building or some apartment dwellers are not enough to keep a food hall solvent. Store sales need to be very strong and fairly constant through the day to keep vendors in business and support the high overhead of all the common area and management. Areas with a mix of residential towers, office users, and strong weekend attractions/shopping districts or entertainment and tourist destinations are the ideal mix to ensure that consumers are coming in for their morning coffee and acai bowls before work, to ending their Saturday evenings watching the game or competing in trivia night. Like great city parks, different users circulate through the day and lend the place a sense of vitality and excitement.
Where’d You Get That?
Any retailer will tell you that social media buzz is critical to business success. Not only online, but live exposure is important too when volume sales are the name of the game. If a vendor sells an ice cream cone covered in decorative candy, topped with a donut and a macaron, that item is likely to be photographed by the lucky customer, posted online (and hopefully tagged with a point of origin), and then paraded through a populated area as the customer walks to a seat or strolls around more shops. When your customers become your marketers, sales beget sales. The more eye-catching and “Insta-worthy,” the better for these vendors and the hall operators.
Likewise, foods that are difficult to transport or are un-photogenic don’t tend to fare well. Even the most delicious chicken soup doesn’t move easily across a crowded room or look great on Snapchat, no matter how many image filters are applied.
The exception to the sin of duplicate vendor offerings is only for coffee and alcohol. For larger food halls, it’s important not to make people wait too long for coffee or cocktails. Most will support and even demand more than one option for these products.
Tonight at the Food Hall
Programming is another way in which food halls differ from food courts or even food truck parks. To generate more traffic, especially in the evenings and on weekends, as well as maintain a lively sense of community in the space, most food halls are curating events to cater to all types of customers. During weekdays, there may be arts and crafts for stay at home parents with young children. On weekday evenings, you may see bingo or karaoke nights or specials offered during a highly-anticipated sporting event. Weekend nights may feature live music or comedy.
On a recent walk through Fareground, Austin’s new food hall, the large open area in front of the bar was filled with a mix of people excitedly watching the men’s final round of Wimbledon. Located on the ground floor of the One Eleven office building downtown, it made for a fun atmosphere on a Sunday morning that otherwise would have been unused.
Photo: Fareground in Austin, TX
One of the advantages of a multi-vendor or multi-tenant space for any property owner is the mitigated risk of a tenant moving out. In food hall design, the ideal vendors change with some regularity, even if it is one vendor changing their concept out. Variety and a sense of innovation are popular in today’s retail, especially for restaurants, so a food hall can satisfy these needs without long periods of dark space while a new tenant is found, financing is arranged, and buildout is done. Well-done vendor spaces in the halls can turn over in under a week, with little more than signage and inventory needed for move-in.
Many operators sign short term leases or licenses for just this reason. Some even dedicate vendor stalls for short-term incubator space or for collaborative projects with culinary arts programs at local high schools or universities.
With “plug and play” space available, start-up costs are low for chefs who can then experiment with innovative concepts and products, often allowing them to get a foothold in order to move to a more traditional restaurant in permanent space.
It can work in reverse as well. Well-known, established chefs can open a pop-up space in a food hall to reach a wider clientele or offer more street-friendly options to loyal fans, or test out a risky concept.
One space advertises to potential vendors, “All we ask is that you be passionate about your dream, genuine in your desire to be part of a team, and have a demonstrable track record in whatever else you’ve been doing with your life.” (Urban 8 Local Food Courts, emphasis added)
When well done, a food hall can support an adjacent use. Gotham Organization opened Gotham West Market in Brooklyn on the ground floor of its 53-story residential tower, its second food hall in a multi-family project. COO Chris Jaskiewicz reported that tenant retention rates in the towers are higher than the average residential building, partly because of the food halls.
Google recently bought Chelsea Market in Manhattan for $2.4 billion. It was one of the first modern food halls, opened in 1997. Though office and other retail space had been added to the property, the popular food amenity is thought by insiders to have contributed significantly to the selection of the site by Google.
Globe Street declared 2019 as “The Year of the Food Hall.” Already, new trends in the young concept are emerging. Vendor spaces have gotten smaller, storage and scullery space has been reduced, and developers are adding private event space and delivery zones to cater to online food delivery demand. More halls are using universal point-of-sale systems so vendor sales are reported in real time for efficient accounting as well as identifying struggling vendors. The Food Hall at Legacy West in Plano is an entirely cashless operation.
Food hall failures thus far have been few. Cushman & Wakefield’s Garrick Brown tracks the properties closely and has identified fewer than 10 out of 275 that haven’t made it. The elements that failed halls shared were smaller projects, poor locations with inadequate foot traffic, and underfunding. These are the exceptions that prove the rule: break the formula, pay the price.
As more developers jump on the trend bandwagon, the sector will certainly get overbuilt and we will see more failures. But the projects that are careful to include key ingredients to their design and management will enjoy long-term success. At least until the next trend emerges….