Can Food Halls Be A Hack for Scaling Brands?
Lately, we’ve been seeing a lot of vendor/food purveyor applicants in food halls that are attempting to mount an ultra-fast scaling strategy. How fast? We just saw one vendor/food purveyor with 5 planned openings across 5 food halls in a single market in less than 6 months. Even more interesting to me is the fact that unit #1 isn’t open yet!
For many years, we have offered internal expansion opportunities to our successful existing owners in an effort to ease them into multi-unit management. We find that a lot of entrepreneurs totally underestimate the people management skills, incentive compensation plans, and administrative infrastructure that it takes to manage multiple units.
However, the financial structure of food halls enables a lot of scaling opportunities. For example, food halls typically:
Come with infrastructure including hoods and sinks
Require dramatically less security
Allow shorter lease terms
Have flexible breakup clauses
Have built-in foot traffic, and
Are already shopped in multiple day parts
So, what’s the catch? Food halls also:
Have their own consumer shopping habits that differ from street side installations
Have competition restrictions to prevent overlap between vendors
Have defined hours that may not fit a concept’s desires
May have some brand exposure limitations (street frontage, installation requirements, restricted visibility)
For example, a food hall’s least profitable day part has historically been breakfast. It’s a big ship and the costs between staffing and utilities to keep an entire food hall open for the handful of vendors who choose to offer breakfast typically doesn’t pencil out. If you are mounting a coffee shop brand and plan to use food halls as an expansion vehicle, you’d want to ensure you are going into a food hall that would support your biggest day part (mornings).
On the other hand, if you are in a vertical that is already very successful in food halls then it’s generally a good bet that a food hall expansion model could be very affordable. Tacos, burgers, noodles, and sushi all come to mind as verticals that are in demand and clearly work in food halls. A multi-unit expansion in these formats could be a great move to minimize the capital expenditure budget (and time delay) associated with 5 back-to-back brick and mortar openings.
Aside from cap ex, operating expenses are also a consideration. Here we like food halls better, too. Food halls have differing structures and costs, but the leasing market is usually very price efficient. It’s also difficult to put a price on the shared value of built-in foot traffic as a good food hall can expose your new brand to 30k+ customers a month who are already at the point of purchase.
Another common mistake we see is not focusing enough on the psychographics of each particular area. Food halls can feel like a one-size-fits-all business model, but they really aren’t. A food hall in the burbs is different from a food hall on a bar strip. It’s important to study the populace and make slight adjustments to pricing, combinations, and specials to fit the local audience.
And lastly, for the Food Hall Manager, check that the operations infrastructure is there for a hyper-expanding brand. Some obvious checks would be administrative setup, compensation plans, routine financial processes/procedures and appropriate capitalization.
When we see scaling brands enter the food hall scene it’s important to ask three questions:
“What’s the brand story?”
“Who’s your customer?”
“Tell me about your operations infrastructure?”
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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.
