US Food Halls, Part 2

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Food Hall Investment Statistics, Part 1

Statistics that prove a food hall or marketplace is a better and safer investment than other types of restaurants include lower failure rates, more foot traffic, lower operational costs, and shorter lease terms.

Low Failure Rates

  • According to Garrick Brown, vice president of retail research for Cushman & Wakefield, "food halls are attractive due to low failure rates."
  • When Cushman & Wakefield tracked the openings and closings of food halls over a two-year period (2016-2018), just two food halls had failed.
  • This failure rate is significantly lower than the 30% failure rate of restaurants in their first 18 months.

Higher Rents Offset by More Traffic and Lower Operational Costs

  • Although food halls typically charge higher rents than standalone restaurants, the foot traffic that food halls see and the lower operational costs offset the higher rents.
  • Food hall vendors typically pay between 20% and 25% of their income on rent compared to between 6% and 10% for conventional restaurateurs.
  • However, as one food hall vendor found, the foot traffic that food halls generate makes up for the more expensive rents.
  • That food vendor stated, "Here I am paying about $120 per-square foot annually for my 300 square feet of space. That’s about $36,000 per year. If I would have opened my own standalone restaurant I would have been looking at rents probably in the $60 per-square-foot range for about 2,000 square feet. That would have been $120,000 per year and it would have been for space that generates nowhere near the traffic of this place. I would not have been able to afford that, but here I am thriving."
  • Additionally, higher rents for food halls are also "more than offset by lower operational, labor and common-area costs."

Shorter Lease Terms

  • Typically, food hall lease terms are shorter than those for standalone restaurants because "the landlord wants flexibility to rotate vendors in and out."
  • Food hall leases average between one and three years compared with the 10-year standalone leases.
  • The shorter lease not only helps landlords, though. It can also help tenants because if traffic isn't as good as expected, they are not stuck in a bad situation for the long term.
  • A study on food halls by Matthews indicated that the shorter leases make food halls less of a risk than traditional restaurants.
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Food Hall Investment Statistics, Part 2

Three additional statistics that prove a food hall or marketplace is a better or safer investment than alternatives include reduced entry costs, shared amenities (and associated costs), and reduced labor costs. Details of these insights are below.

Reduced Cost of Entry

  • According to Food Halls: How Modern Consumers & Social Media are Setting the Table for the Dining Experience, a study on food halls, the reduced entry costs of becoming a food hall vendor is a significant lure to food halls.
  • When starting a restaurant, a proprietor has to either develop or renovate a space, but with food halls, the property owner has taken care of the infrastructure, so "a food vendor can move right in, focus on their business, and serve customers with amazing culinary experiences."
  • Based on a study, the median startup cost for a restaurant in the United States is $375,500.
  • With a food hall, though, the landlord provides the fixtures, furniture, and equipment, so food vendors only have to pay for rent, ingredients, and other materials to customize the booth.
  • To customize a booth and get it ready to serve food costs a food vendor between $10,000 and $75,000, significantly less than the startup costs for a full restaurant.

Shared Amenities

  • Another benefit to food halls that vendors find attractive is that they share the cost of amenities with other vendors.
  • Amenities such as dining areas, maintenance, security, landscaping, janitorial services, electricity, office space, and marketing are all paid for through rent and are managed by the property owner.
  • Many food hall owners charge a percentage of sales for rent, which varies based on location from between 12% to 30%. According to Will Donaldson, owner of St. Roch, a public marketplace in New Orleans, the 30% he charges food vendors is "not really rent: It covers the entire overhead of a stall, including property insurance, utilities, marketing, buildout — even plates and flatware, ice and bathroom soap."
  • Donaldson also stated that the 30% rental costs, "cuts a chef's labor costs in half by providing bussers and janitors."

Labor Cost Reduction

  • Current food hall operators say that labor cost reduction is a main benefit of having a stall in a food hall rather than a full-service restaurant.
  • Michael Zislis, owner of The Brews Hall, indicated that the reduced labor costs of a food hall allows "the brand to meet minimum wage requirements for staff without going over budget."
  • Zislis stated of his decision to open stalls in food halls, "In 2019, where minimum wage is at an all-time high, we are hoping to reduce labor costs and take the idea to new markets."
  • The 2019 Cushman & Wakefield study on food halls indicated that a typical single-location restaurant in the United States spends 34.6% of its gross sales on labor.
  • A seated, but casual dining restaurant typically needs one server per every 4-5 tables, per shift, and four back-of-the-house employees for every 50 customer checks. A fine dining restaurant typically needs one server per every 3-4 tables, per shift, and 6-7 back-of-the-house employees for every 50 customer checks.
  • Food hall vendors can "reduce wait staff to just the people taking orders at the counter." Additionally, the volume of business is typically less at a food hall, which allows for a reduction in back-of-the-house employees as well.