Food halls are the next step in the evolution of food retail

Len Lewis

Contrary to the popular expression, it appears something can please (almost) all the people, all the time: the new generation of food halls cropping up across the country, redefining both retail and food service.

In the 1800s, food hawkers and pushcarts clogged city streets, turning them into food bazaars with barely enough room for pedestrians. Then came one-stop shop mercantile stores, grocers, supermarkets, mass merchants, mall food courts and the ultimate expression of mobile marketing — food trucks.

All have contributed to the rise of food halls — often considered the next step in restaurant evolution. They are run by entrepreneurs, celebrity chefs and some of the most creative next-generation chefs, and are turning what was once an urban phenomenon into a nationwide trend with everything from comfort foods to gourmet fare worthy of any white tablecloth restaurant.

Food halls are becoming a favorite among mall operators and real estate developers who see them as a part of an experiential retail strategy, and among consumers who are eating out more than ever and want authentic dishes to satisfy increasingly sophisticated palettes.

It’s not a new idea. Macy’s Cellar was the go-to foodie spot in the 1970s and 1980s, and long-established food halls like Harrods department store in London, Grand Central Market in Los Angeles, the labyrinthine Pike Place Market in Seattle and Boston’s iconic Quincy Market — which has been hosting food merchants since 1742 — have become a key part of city culture and a destination for tourists and locals.

In Europe, a culinary explosion designed to immerse customers in a total food experience has resulted in over 100 food halls; about 200 venues are in the pipeline for major cities like London and Paris over the next decade, according to “Food Halls of Europe,” a report by global real estate services company Cushman & Wakefield.

The growth is due to several factors — principal among them is that more people are traveling throughout Europe than ever before. Travelers are increasingly attracted to food destinations, the report said, and when they return home they are likely to continue to seek out the food-related experiences they enjoyed on their travels.

Driving foot traffic

The evolution of this concept is slightly different in the United States, where the food hall evolved from a hybrid of transit-oriented development and tourism-based retail. It could make food halls the saving grace for malls that continue to lose their anchor tenants and are looking for a diverse way to fill the gaps.

A report on 2018 retail trends by FGRT noted that malls have already evolved into food destinations, and food halls — rather than the typical food court — will drive more consumer traffic and offset the effect of store closings.

Top 20 U.S. Food Halls
  1. Eataly — New York, Boston, L.A.
  2. Ferry Building Marketplace — San Francisco
  3. Reading Terminal Market — Philadelphia
  4. Grand Central Market — Los Angeles
  5. Central Food Hall, Ponce City Market — Atlanta
  6. Pike Place Market — Seattle
  7. Revival Food Hall — Chicago
  8. Original Farmers Market — Los Angeles
  9. Union Market — Washington, D.C.
  10. Quincy Market — Boston
  11. Krog Street Market — Atlanta
  12. Union Station — Denver
  13. Liberty Public Market — San Diego
  14. West Side Market — Cleveland
  15. Latinicity — Chicago
  16. Market House, Nashville Farmers’ Market — Nashville
  17. The Source — Denver
  18. Midtown Global Market — Minneapolis
  19. Eastern Market — Washington, D.C.
  20. Market on Market — San Francisco

Source: Cushman & Wakefield

“Food halls are not just upgraded food courts, but spaces that offer products made by local artisans, food-oriented boutiques, butcher shops and … interactive elements such as entertainment and classes,” the report said.

The food hall expansion is one reason for a decline in shopping center vacancies. In fact, an increasing number of mall operators are considering food halls as anchor tenants to fill big box spaces.

In 2006, the Westfield Group was one of the first developers to recognize the potential when it started incorporating non-traditional vendors in the food court in the Bloomingdale’s wing of one of its properties instead of traditional food court fast feeders like McDonald’s and Taco Bell. The new and unique tenants included the Buckhorn Grill, Sorabol Korean BBQ and Asian Noodles.

Since then mall operators have begun to focus on more diversity for their food courts. Few have gone as far as adding artisanal food vendors, although that will occur with greater frequency going forward, according to a Cushman & Wakefield analysis. “It’s a perfect way to connect with consumers while backfilling vacant space left by other retailers who have suffered from the latest wave of consolidations,” says Garrick Brown, vice president of retail research for Cushman & Wakefield.

Low failure rates

In tracing the segment’s recent growth, Cushman & Wakefield found the number of existing food hall projects increased 37 percent in the first nine months of 2016; by the end of 2016, the U.S. had a total of 35 new food hall projects totaling 771,000 square feet. By 2019, Cushman & Wakefield anticipates as many as 200 major projects throughout the U.S.

“We just updated our numbers for 2017, which now show about 155 food halls in existence and 80 more in the planning stage,” Brown says. “By the end of 2018 there will be about 180 in existence.”

He says the Time Out Group, whose food hall in Lisbon is considered one of the world’s top food halls, has three under construction in Chicago, Miami and Boston that will run an estimated 40,000 to 60,000 square feet.

But the biggest spike in growth is in miniature food halls; Brown points to their expansion in high-rise or multi-family projects by developers who see them as important amenities.

“If you have a 5,000-square-foot food hall in a new high-rise in Washington, D.C., for example, renting space for $60 to $70 per square foot upstairs suddenly becomes easier,” he says. “But demand at every level — tenants, operators and developers — will ensure that food halls keep getting built.”

It should be noted that the growth of food halls is also a matter of definition, according to Alan Napack, senior director of the retail services group at Cushman & Wakefield, who told attendees at a recent meeting of the International Council of Shopping Centers that some projects are merely food court upgrades.

The definition of what constitutes a food hall is still being debated, but it’s generally accepted that the “foodie culture” — including the farm-to-fork and slow food movements — is largely responsible for kickstarting the modern food hall concept.

“Millennials are a big part of it but so is the push for experiential retailing,” Brown says. “The biggest buzzword is ‘authentic.’ That’s why mass-market commodity chains have struggled to get loyal Millennial consumers. It’s emblematic of a bigger problem. If you can’t give people a great experience in the age of ecommerce, then all that’s left is pricing. That’s why the middle of retail is getting squeezed.”

He says food halls are attractive due to low failure rates. “In our tracking we’ve only found two that have closed, while the failure rate for restaurants is about 30 percent in their first 18 months.”

Therefore, some observers see food halls as a replacement for standalone restaurants as well as supermarket prepared food departments. A major reason is the amount of capital that’s needed.

“Startup costs for standalone restaurants are huge in high-rent cities like New York or San Francisco with an average lease commitment of two years and as high as 10 years,” Brown says. “In food halls, you might pay a higher rate per square foot, but the foot traffic will be exponentially greater than a standalone location.”

Food halls also are less risky for small entrepreneurs, who can often get month-to-month rentals at a number of properties.

Top 10 European Food Halls
  1. Time Out Market — Lisbon, Portugal
  2. Dinerama — London
  3. Mathallen — Oslo, Norway
  4. El Nacional — Barcelona, Spain
  5. Copenhagen Street Food “Papiroen” — Copenhagen, Denmark
  6. Torvehallerne — Copenhagen, Denmark
  7. Market House— Altrincham, Manchester, U.K.
  8. Foodhallen — Amsterdam, Netherlands
  9. La Platea — Madrid, Spain
  10. The Kitchens at Old Spitalfields Market — London

Source: Cushman & Wakefield

Urban renewal

Celebrity chefs like Mario Batali, Todd English and Lidia Bastianich have successfully put their marks on the growing food hall business, and it’s likely that more chef-driven projects will find their way into major malls that are looking for a brand name. But a brand name is not necessarily the formula for success.

In New York, a massive Asian-inspired food hall at Pier 57 on the West Side spearheaded by author and celebrity chef Anthony Bourdain has apparently been spiked after three years of snags in leasing and problems getting visas for the desired Asian vendors who would provide the authenticity that Bourdain demanded.

Some observers are questioning how far and where food halls can be expanded. Among the issues are finding adequate space and a facility that can be refurbished to accommodate multiple, independently owned foodservice operations; how vendors are chosen and how to control the quality of their offerings; whether food halls can compete with supermarkets and local restaurants for a steady trade or are doomed to be largely tourist attractions; and if food halls can build traffic to a point where they become economically feasible and profitable ventures.

On the plus side, food halls bear little resemblance to the standard fast food fare at most malls and have become a destination for increasingly demanding consumers who shy away from processed fast food in favor of a wider variety of foods from vendors that focus on fresh ingredients from local sources.

Food halls are also becoming a key element in the revitalization of inner city areas and therefore a potentially important part of urban renewal. According to published reports, the next iteration includes downsized projects for smaller urban areas like Waco and Plano, Texas, Greenville, S.C., and Raleigh, N.C.

U.S. food halls are as varied as the dishes they serve. The West Side Market in Cleveland is owned by the city. People buy groceries there, and its vacancy rate fell from 40 percent in 2009 to 2 percent in 2015. No place in Philadelphia accepts more food stamps than Reading Terminal Market, at the heart of Center City in Philadelphia, and Grand Central Market in Los Angeles was once such a model of working-class diversity that it was featured in a United States Information Agency propaganda film to fight the impression that America was a racist country.

Cushman & Wakefield’s Brown says food halls have evolved from a loose confederation of food stalls in tourist areas to a tightly knit cultural experience that includes a mix of prepared and unprepared foods that should not be confused with food courts. He emphasizes that the growth in this concept will include people jumping on the bandwagon who won’t understand that a food hall is not a glorified food court. “You have to look at quality, authenticity and getting the right tenants.”

A ‘viable trend’

As with any format, there are several questions that have yet to be answered. The first is whether a marketing area can support projected growth in food halls. “For now, we would argue that the answer is yes, with some caveats,” Cushman & Wakefield’s report said. “Those caveats come down to the two issues that we see as critical to the success of any new food hall project: quality and location. The second is whether we are looking at something that is a viable long- term trend or just ‘trendy.’

“Our research suggests that answer is clear — a definite trend. The intense popularity that food halls are experiencing did not occur by chance. The rise of food and beverage retail, the explosion of new and unique fast casual and chef-driven startup concepts, and the increasing restaurant rents in major cities are among the many real estate factors that have aligned to propel this trend.

“The need for incubator space and the relatively cheaper overall rents that operators face when opening concepts in food hall environments compared to leasing independent space are all positives when it comes to feeding future demand for food hall space.”

Inevitably, the question of whether the concept is in danger of overbuilding comes up. “We might be nearing the saturation point in a place like Manhattan, but in most other markets the answer is ‘no,’” Brown says. “By the end of next year, Miami will have five food halls. But they are in different places around the city, and the one in Brickell City Center is not going to compete with the food hall in South Beach.

“One thing that celebrity chef-driven halls have to worry about is holding on to their brand cache and uniqueness if they get too big. Even if the concept gets oversaturated it doesn’t mean that all of them will suffer. It just means that winners and losers will start to emerge. But right now their biggest competitors are standalone restaurants, and they are the ones that will suffer first.”

Len Lewis is a veteran journalist and author covering the retail industry in the U.S., Canada, Europe and South America.