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Small Business Center

The Rise of Food Halls and Opportunities for Entrepreneurs

March 22, 2024

The restaurant industry is an enticing one for many an entrepreneur — about 50,000 new restaurants open every year in the U.S. — but it’s also a risky venture. According to the National Restaurant Association, about 60% of restaurants fail within the first year of opening and 80% close within five years, largely due to a lack of sufficient capital and to the complexities involved in managing costs, competition and evolving market trends. For entrepreneurs looking to start or grow their restaurant business, food halls are a viable alternative to standalone spaces.

“I speak to experience when I say it is less than $50,000 to get [a food hall stall] up and operational, and most of that would be the purchase of equipment,” said Will Donaldson, founder and CEO of food hall development and management company Politan Row. That means that if you’re in a good location, the potential returns can be substantial, given the minimal upfront investment.

Politan Row opened a food hall at Ashford Lane in Dunwoody, Georgia in February.

And food halls can bring customers directly to you. At brick-and-mortar locations, you alone are often responsible for ushering in new customers. “The hardest job you’ll ever have as a restaurant owner is to get the first 50 customers to walk through the door,” Donaldson said. But at food halls, you can have access to thousands of people walking through the hall a month. “It's just a fire hose of traffic on Day 1,” he said.

Additionally, the entrepreneurial journey can be lonely. Though working with a mentor can help, a food hall provides a community of like-minded individuals facing similar challenges — say, the need for payroll services and cost-effective suppliers. Food halls also typically provide infrastructure support so you don’t have to think about things like overnight cleaning, plumbing and HVAC maintenance.

But before you jump in, carefully consider the decision. Here are Donaldson’s tips for those contemplating becoming a vendor in a food hall.

1. There are a few types of businesses that generally tend to do well at food halls.

The first category, Donaldson said, includes veteran chefs seeking to streamline or scale down operations after overseeing multiple white-tablecloth restaurants. “They’re often in their later 50s, they’ve done the full-service and now they just want to pursue something that would be replicable,” Donaldson said. Their recognizable names often attract customers, and food halls provide a less complex, more manageable environment for their operations.

The second category is second-time entrepreneurs, people who have tried a pop-up or a few and “are looking for a more cost-effective way to get into brick-and-mortar,” he said. For them, a food hall offers the opportunity to establish a permanent presence without the high initial costs associated with traditional brick-and-mortar ventures.

And the third group comprises entrepreneurs who own three or four operations. According to Donaldson, “Food halls provide a really cost-effective way for them to get out of what we call the retail dead zone.” For entrepreneurs working toward the efficiency and thus profitability of multiple locations, food halls offer a practical way to achieve greater financial viability, he said.

Donaldson said food halls are more of a challenge for first-time entrepreneurs, but he doesn’t totally discount their chances. “Entrepreneurship is always wildly difficult,” he said. “Food halls put a first-time operator in front of a lot of eyes and next to fellow entrepreneurs who are navigating the same hurdles. Though the pros outweigh the cons for sure, I do often see that first-time operators in food halls tend to discount the importance of ongoing marketing because of the built in traffic. 

2. Don’t get too creative.

In a food hall, stick with well-known menu items instead of untested concepts. Consumer behavior differs in a food hall. “Customers make a loop and establish everything that’s there, and it’s the second loop where they decide what they’re actually going to buy,” Donaldson explained. “A food hall consumer comes in and wants to compartmentalize everything.” They have an idea about wanting a burger or Chinese food. For that reason, fusion concepts are tough. “It’s not that the customer doesn’t want it,” he said. “They just can’t figure out what to do with it, and subconsciously it goes to the bottom of the list.” Concepts that are easy to understand — say, Mexican Kitchen — tend to do well at food halls. “People think: ‘OK! That’s the Mexican spot. I’m going to get tacos!’”

3. Know what food trends are popular.

At a food hall, your goal is to sell the things that people buy most, to capitalize on what is being purchased more than other items. For instance, “right now, Mexican food couldn't be hotter,” Donaldson said, but “health food, which used to be No. 1 pre-pandemic, is the bottom of the barrel.” He doesn’t recommend opening a business selling, say, smoothies today.  A lot of these trends can be found by simple Googling, he said, noting, though, that “when it comes to food trends, nothing supplants local knowledge.” To see what’s popular in your market, do your homework. “Visit the Mexican restaurants and look at all the flavored margaritas and tacos and things that are hot in that space,” he said.

4. Learn the qualifications for getting a spot.

The requirements for being a vendor in a food hall vary depending on the location and local regulations. “For us, [vendors] have to have professional cooking experience,” Donaldson said. Though experience running a business is a plus, “they have to have cooked professionally so they understand how the industry works.” A lot of food halls, also require you to have certifications like a food handler permit, business license and a ServSafe Food Protection Manager Certification. Do your research.

5. Remember you are working in a smaller space.

“There’s not a ton of storage,” Donaldson said. That means you’re on a shorter prep cycle than you might want to be. It also means you might need to be flexible and adaptive in your menu, as limited storage might impact the variety and quantity of ingredients that can be stored. But being in a food hall results in substantial cost savings, which also can allow you to provide menu items at more affordable prices.

6. Be prepared to deliver your product consistently during food hall hours.

“Most food halls have unified hours of operations because the customer promise of the food hall is the variety, which means everything needs to be available the whole time,” Donaldson said. That means a lot of food halls are open seven days a week for lunch and dinner service. Certain concepts thus may face challenges. Donaldson, for example, stopped including coffee shops in his company’s food halls because “they’re so diametrically opposed to the rest of the business. They always want to be open special hours and they say that they can’t be open the hours of the food hall.” You also need to have enough staff to operate at the required hours.

7. Do your research on locations.

When searching for food halls to establish your business, prioritize those with high foot traffic and convenient, free access to parking. “In a food hall, people don’t generally want to pay for parking because the parking might be more expensive than the actual food,” Donaldson explained. Also choose a food hall that doesn’t already host a similar concept. Visit and spend time at potential food halls before making any commitments, he said.

8. Read the lease contract carefully.

Food halls have existed in the U.S. for more than a decade, but contracts still vary considerably. It’s crucial, Donaldson said, to fully comprehend all the obligations associated with a location.  Some food halls, like Politan Row’s, operate on a gross basis, in which a tenant pays a fixed rental amount that includes all the property’s CAM and operating expenses. “This eliminates surprise charges,” Donaldson said. However, a majority of food halls operate on a net lease basis, where the price of CAM charges can fluctuate each year, based on the overall maintenance and operational needs of the property. Even though vendors share in these expenses, the charges can accumulate significantly. “You have very few square feet in your stall, but the common area is quite large,” Donaldson explained. Consequently, CAM charges could surpass the rent, catching many vendors off guard.

MORE FROM THE ICSC SMALL BUSINESS CENTER: CAM Demystified: A Comprehensive Guide for Small Businesses Looking for a Lease

9. Getting customer feedback requires more work.

Customer feedback helps you identify areas for improvement and ensures that your menu and service align with customer expectations. But customers don’t often take the time to tell food hall vendors that, for example, the shrimp is overcooked or the wait times are too long. “Customers don’t tell you how they liked the meal because it was only $12 and it’s not worth [the time],” said Donaldson. Then, after one underwhelming experience, “you never hear from them again.” Vendors must focus on market research surveys to gather customer opinions actively, he said.

The landscape of food halls is evolving. It’s still very much a young trend in the U.S., and it will continue to transform as tastes change. However, Donaldson concluded, “a strategically positioned food hall will consistently remain an excellent choice for entrepreneurs. They represent an incredible opportunity for mitigating risks and minimizing costs.”

By Rebecca Meiser

Contributor, Commerce + Communities Today and Small Business Center

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