food halls Jeff Swensen
Smallman Galley

How to operate in a food hall

They’re hot and here to stay. But are they right outlet for your brand?

Across America, the hottest new culinary destination is probably a food hall.

The number of food halls scheduled to open this year alone is astonishing, and not only in food-hall-stacked New York. New projects are coming to Miami, Pittsburgh, Raleigh, N.C., Marietta, Ga., St. Paul and the suburbs of Los Angeles.

According to a recent report by Cushman & Wakefield titled, “Food Halls in America,” there were 96 major food hall projects as of the third quarter of 2016 comprising 503,000 square feet. Another 35 were expected to open in the fourth quarter last year, adding another 771,000 square feet of new space, and new proposed projects are being added at a rate of nearly one per week.

Food halls are opening in former warehouses, breweries and converted auto showrooms. They’re anchoring busy mixed-use developments and breathing new life into shuttered historic buildings.

In St. Paul, for example, the historic Schmidt Brewery keg house is being transformed into the Keg & Case Market, set to open this summer. In Birmingham, Ala., a former department store is now home to high-rise luxury apartments and The Pizitz Food Hall. In Raleigh, N.C., the Morgan Street Food Hall & Market is scheduled to open in a converted warehouse.

Unlike a food court, which typically offers familiar fast-food options to feed hungry shoppers at a mall, food halls bring together a unique collection of local restaurant concepts and food purveyors under one roof, reaching more consumers and providing, in theory, a more-elevated dining experience with lower overhead and higher foot traffic for operators.

Carolyn Vahey, advisory associate at Hospitality House, a food-and-beverage advisory firm based in New York City, said, “Traditional food courts are designed for efficiency, structured with larger tenants surrounding the perimeter and communal seating in the center.

“Food halls, in contrast, focus on the importance of the social experience, allowing for guests to explore a variety of culinary options to be enjoyed with family, friends, and colleagues.”

Grand Central Market in Los Angeles. Photo courtesy of Hospitality House

A recent study conducted by Culinary Visions Panel titled, “Food Market Culture Report” focused on how experiential dining concepts tap into consumer desire to explore, learn, sample and shop food. The study revealed that 59 percent of consumer respondents liked going to food halls because of the variety of food they offered.

Here’s what you need to know about operating in a food hall:

Lower cost of entry.

Anshul Mangal, co-founder and partner of Furious Spoon, with two standalone locations and one Revival Food Hall location, all in Chicago, said a first move into the restaurant business is much easier in a food hall.

“In a traditional restaurant you have to buildout the entire restaurant, it’s a bigger footprint, and there’s a lot of overhead,” he said. “In a food hall, typically the overhead to build a restaurant is vastly lower because the size is smaller and the dining area is taken care of by the food hall.”

Furious Spoon at Revival Food Hall in Chicago. Photo courtesy of Furious Spoon

Maryanne Carmack agreed.

Carmack has been in the restaurant industry for more than a decade at SPQR in San Francisco and El Guapo Chorizo Grill in Victoria, B.C. But she said her greatest challenge was helping to open Victoria Public Market, or VPM, a food hall featuring 12 local restaurateurs, farmers, bakers, artisans and more in Victoria in 2013 as the market’s general manager.

That year, Carmack opened Roast Meat and Sandwich Shop inside VPM. In 2016, she followed with a second Roast Meat location at the food hall Liberty Public Market in San Diego.

“With a food hall, you’re opening with built-in neighbors that have the same goal — to create an active community gathering place,” said Carmack. “From a business-plan lens, the start-up costs are significantly reduced.”

A sandwich from Roast Meat and Sandwich Shop. Photo courtesy of Roast

Leases are typically shorter term, even as short as one to three years, in some cases.

The communal environment supports shared common costs, including shared bathrooms and dining areas, janitorial services, umbrella marketing, maintenance, electricity, security, office space and landscaping, according to Carmack.

At Morgan Street Food Hall in Raleigh, for example, tenants may also have access to accounting services and possible lending sources, according to the food hall’s website.

Smallman Galley in Pittsburgh, which serves as a business incubator, offers weekly business-skill training sessions and networking opportunities to restaurant tenants with the goal of helping them move out to their own independent space.

Small spaces.

While the typical food hall vendor space usually measures between 200- and 400-square feet, Carmack said 500- to 900-square feet is ideal.

At the food hall Avanti Food & Beverage in Denver, for example, the restaurants operate out of modified shipping containers, sharing a common bar and dining area.

For established restaurants, it can be a challenge to operate in a much smaller space, said Mangal.

And because many food halls are located in business districts, operators need to know how to handle a higher number of covers per hour than in a traditional restaurant setting, he said.

Tyler Benson, co-founder of Pittsburgh’s Smallman Galley agreed, adding, “We believe the biggest trend is established operators who already own brick-and-mortar restaurants and are opening concepts within food halls. This is likely due to the attractive financial upside at a lower risk and the less demanding operational burden.”

Tyler Benson, left, and Ben Mantica, co-founders of Smallman Galley. Photo: Jeff Swensen

Shorter menus.

As a result, for the menu, short and simple is usually best. But make it unique.

“In a public market setting, there are lots of options. You want to be remembered for unique offerings,” said Vahey.

The size can vary based on available space, so it’s important for food hall developers to offer a diverse mix of options and ample space for seating and circulation.

“Each kiosk should have a short and simple menu that’s specific to the concept and cuisine,” she said. “The draw of a food hall is optionality.”

Furious Spoon in Chicago, for example, sticks with a handful of ramen bowls and toppings, along with sake and beer. The Cannibal’s outlet in New York’s Gotham West offers a relatively short list of sandwiches, like the bulgogi cheesesteak and a Zweigle’s red hot dog with bacon jam and spicy mayo, along with a few salads and snacks.

Ben Mantica, co-founder with Benson of Smallman Galley, said operators must curate a menu that can be executed in a fast-casual setting and sustain a high volume of throughput.

“We look for potential operators who have a defined concept, a team alongside them to make the execution smooth from the start, and a solid idea of the food-and-labor costs they plan to incur,” he said. “Underperformance is still a real possibility if prime costs are ignored or underappreciated.”

Possibly a smaller staff.

How many staff members each food hall tenant requires depends on the business model, according to Carmack.

“At Liberty Public Market, there’s a restaurant that offers full service with servers,” she said. “For my business model, depending on foot traffic, I have two to five staff working.

“We’re considered casual-quick service; everything is prepared in front of the guests, made to order and placed in compostable containers to-go,” said Carmack.

Alcohol optional.

Alcohol should be offered within the food hall, and the beverage selection should be curated based on the menu offerings of each kiosk. If space allows, a separate full bar can be an added draw, said Vahey.

“The trend I’m seeing is that the landlord holds the liquor license for the entire market and manages the main bar that services all guests in the market,” said Carmack. “The license extends outside of the bar so the guest can then walk around the whole market with their beverages.”

In some cases, however, food hall tenants are not allowed to sell alcohol individually, and the bar remains under control of the landlord.

At the soon-to-open Trade food hall in Irvine, Calif., for example, Slapfish founder Andrew Gruel is opening two new concepts, the chicken-sandwich-focused Two Birds and the plant-based Butterleaf.

Gruel, however, is also an equity partner in the food hall’s central bar to help develop the beverage menu and share in that profit center.

Still a risky business.

The space may be smaller and the overhead may be lower, but Mangal warns that the risks are the same.

“Food halls may appear sexy at the moment, but the same pros and cons exist for owning any restaurant,” he said. “There are no guarantees for success.”

He said that operators considering food halls should to do their research before jumping in.

“Talk to other operators,” he said. “Not everyone will do well.”

Correction: April 07, 2017
An earlier version of this story mischaracterized Hospitality House and the story has been updated to correct a misspelled name.
TAGS: Operations
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