Looking Back Through Five Years of Data: Food Halls Fared Better Than We Thought
Way back in 2018, Cushman Wakefield put out a “Food Hall Report” that contained a list of 191 existing and planned food halls (in the US). They discontinued the list as a part of the report in 2019, so as 2023 comes to a close we thought it would be fun to check in on each of the projects (in the 2018 list) after five years to see how the industry has aged.
The results were better than we thought, especially considering there was a pandemic in the way! When we exclude the 19 planned projects that never went forward, 144 of 172 projects are still open making up a “success rate” of 83.7%. According to the National Restaurant Association, who cites a scholarly research study from 2005, the success rate of the overall restaurant business is slightly less than 70%, meaning that in the past 5 years, Food Halls have outperformed the independent restaurant benchmark by a whopping 14%.
28 food halls from the 2019 report were no longer in operation and several were pandemic casualties closing in 2020 or early 2021. 28 projects of 172. This results in a failure rate of only 16.3%. In examining these 28 failures:
12 closed during the calendar year 2020 (42.9%)
6 were in New York (21%)
Some were known to be troubled before the pandemic such as The Pennsy (New York), Crockett Row (Fort Worth), and Central Fare (Miami), among others. Most of these projects had at least one significant real estate problem such as access, visibility, or population density.
There are some caveats:
The 2018 C&W report notably missed several “food halls” that were open or planned at the time, however it’s a difficult thing to index any way except manually. We have not tried to update the original data set as we’re not sure that would be conclusively possible. Regardless, we do think that the 191 listed probably represents over 70% of the food halls at the time, which would be statistically significant.
In many instances the names of the food halls had changed or there was significant transactional activity that was found in the news. This doesn’t surprise us as the industry was/is young and there was a pandemic in the middle that upset the greater hospitality industry. We have accounted for any project that is still operating (under different ownership, configuration or name) as “open” as long as it could still be identified as multi-concept dining. If a food hall was converted to a restaurant, we counted it as “closed.”
We only tracked whether or not the food hall was still open for retail shopping, but this leaves out any analysis of internal food concepts which could have a higher closure rate. There is no dataset on the subject that we are aware of.
Of course, the fact that a food hall is open doesn’t necessarily mean that the food hall is profitable, however we think cases like this are limited and special circumstance.
Mostly Success
144 of 172 projects are still open making up a “success rate” of 83.7%.
This all begs the question: if Food Halls outperformed independent restaurants by 14%, then why do they occasionally draw the ire of asset managers? Well, we have some ideas:
Obligation Term Mismatching: Prior to the pandemic there was a lot of short term leasing in the food hall sector, which never lined up with the longer obligation terms (traditional leases) of the food hall operator. This was probably due to the “WeWork” effect of rationalizing term obligation mismatches. Later, with the recent-ish demise of Silicon Valley Bank, we’ve seen this all but dissipate with most food halls using 5 year terms with options.
Absentee Vendors: the average unit volume (AUV) for vendors in food halls is still around $700,000. According to the NRA, the AUV of restaurants in the US is $580,000, which is lower, but it should be noted that lower sales volumes often mean the owner will try to scale physical locations sooner, forcing them to focus less attention on the quality of an individual site. When combined with short-term leasing, this translates to higher turn-over rates.
Undercapitalization: The number 1 cause of business failure is inadequate capitalization and that is absolutely true in the expensive world of food hall development. With the intensive MEP load in most projects, cost overruns can eat into working capital. Secondly, Food Halls are only a decade old and that means most operators are fairly new, having little understanding of the cost profile to operate a food hall well. Some food halls are underwater from the start, if they don’t charge a rent/CAM that matches their expense profile.
In general, food hall development accelerated through 2021 and 2022. In 2023 we do see a fall off in project development with the rises in interest rates. However, through the first part of the 2023 we saw that retail shopping numbers remained up and food halls have prospered as a result. It’s a great time for legacy food hall owners to refocus on guest experience and management expertise as we see where the economy goes through the end of 2023. While 83.7% is a totally reasonable success rate, we also think it’s relevant to point out to naysayers that consumer shopping in these massive volumes mean that the concept is probably here to stay. Finally, a reliance on retail fundamentals and siting can prove that Food Halls are great anchoring projects for larger developments.
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Politan Group specializes in operating food halls, bars, and bars within food halls. We also provide remote accounting, HR, and administration for food halls. Finally, we provide fractional management services for existing food halls where a team needs a leadership group that understands the business of food halls. If you are thinking of building a food hall or need help with an aspect of a food hall you already own, reach out to us. Politan is the most-awarded food hall operator in the industry.