Savoring Success: Unleashing the Full Profit Potential of Your Food Hall
Image by Ludovic Charlet
As the retail landscape shifts with the continued rise of online shopping and the rebound from the global pandemic, many property owners and landlords are turning to food halls as a key anchor and revenue driver for their developments. When successfully executed, food halls drive footfall, create a vibrant meeting place, and serve as an entertainment hub for the community. The halo effect from a successful operation can increase the lease rates of nearby office space and drive residential demand for tenants looking for a destination offering energy, variety, and convenience.
However, one of the dirty little secrets of the food hall business is that the profits that come from food and beverage sales aren’t always compelling. The cost of the vendors combined with the build-out, management fees, cleaning, maintenance, beverage costs, and staffing often leaves very little on the bottom line for the owner or landlord. Operators who rely solely on this limited revenue stream often struggle to break even or deliver single-digit profits. To truly maximize the profitability of these large spaces, operators need to supplement their F&B sales with more lucrative revenue streams that take advantage of the incredible energy and footfall that these venues generate.
There is an amazing moment in the movie ‘The Founder,’ the story about Ray Kroc’s rise with McDonald’s. After struggling for years with low margins from burger sales and minuscule franchise fees, Kroc (played by Michael Keaton) realizes that the real estate beneath the restaurants is more valuable than the stores themselves. This ‘aha moment’ shifted Kroc’s thinking from restaurant operator to real estate investor, gave him full control over the McDonald’s franchise, and made him one of the wealthiest men in the world.
Many food hall operators have a similar ‘aha moment’ after settling into their operation. While maybe not on the scale of Ray Kroc, many realize that the ability to grow their bottom line does not come from only selling burgers and beer, but from activating more profitable revenue streams on top of this flow of business. They realize that the most valuable asset in their food hall is the spending power of the people that pass through their door. Once this becomes apparent, the opportunities to grow your bottom line begin to come to the surface. Here are four things savvy operators do to supercharge the profitability of their food hall:
1. Advertising & Promotions
The fastest way to drive revenue straight to the bottom line in an existing operation is to set up a robust advertising and promotions program. Access to thousands of affluent food-savvy customers is an advertiser’s dream, and there are a lot of ways to cash in. While some operators are squeamish about overwhelming their guests with advertising, the ability to create thoughtful and well-designed media and partnership opportunities can deliver significant high-margin revenue for the life of your business. Here are a few ideas:
Add video screens or static light boxes throughout your facility and make them available to advertisers. A media agency can work with you on the right mix of advertising vs. content about your business so you don’t overwhelm your guests. “The strategic presentation of digital advertising assets is very much in line with our vision of the food hall.” Says food hall expert Phil Colicchio, co- founder of Colicchio Consulting, Cushman & Wakefield’s specialty food & beverage consulting practice. “It is a natural thing to do in any environment like a food hall – and an ideal way to maximize the revenue.”
Offer portfolio exclusivity or ‘pouring rights’ to beverage partners in exchange for promotional funds. Beer vendors, liquor companies, and local distilleries all have programs in place to get their products into the hands of new customers. You’ve got to make sure you are compliant with local liquor laws, but there is a lot of money in creating visibility for these brands.
Partner with a local company to co-brand an entertainment series. Local brands will often host entertainment or live music series to create awareness. This is a great way to drive traffic to your business while having someone else pay for entertainment.
Offer ‘naming rights’ for a portion of your facility dedicated to entertainment or events or co-brand the bar experience in exchange for annual partnership funds. Sports arenas, theaters, and office buildings have been doing this for ages, and it works for food halls as well, generating passive revenue every year.
There are many, many ways to monetize the crowd that your food hall attracts, so don’t just stop at one. “We take an ‘all of the above’ approach to advertising and sponsorships,” says Michael Morris, CEO of the Food Hall Company in Plano, TX. “We offer video screens, static signage, and event sponsorships in our food halls. We’ve even had good success with title sponsorships and naming rights.”
But you don’t need to swing for the fences at the start. Nearly every operator can initiate a beverage promotion or on-tap pouring rights with a local distributor and grow the business from there. If you are new to the advertising world, there are resources available to help you monetize your space. Companies like Public (www.public.art) or Pearl Media (https://pearlmedia.com) can work with you to develop an out-of-home video advertising platform for your food hall, in some cases with little or no cost to you. The revenue generated with a few video screens placed throughout the facility can be a game-changer. On the beverage side, look to a company like IMI Agency in Atlanta (http://www.imiagency.com) to help create an effective portfolio-wide beverage sponsorship program that keeps you in compliance with local liquor laws.
Whatever you choose, be sure not to underestimate the value of your customer base. There can be big money in large-scale venues that generate high levels of footfall. “A well-executed sponsorship and partnership program could generate high six-figure, low seven-figure revenue for a busy food hall,” says Morris. This is not chump change! Adding this income stream to your counter-service food and drink sales can really amp up your bottom line.
2. Catering & Group Events:
As anyone who has run a hotel catering program can tell you, group dining can be very profitable. Not only are the margins healthier than most food halls or restaurants, but the ability to book parties in advance provides stability and predictability that food halls often lack. Group booking fees, service charges, and bar packages can be very lucrative and help maximize the available space and capacity of your venue. However, tapping into this business requires the right strategy to ensure that the profits hit the bottom line.
Photograph by Aneta Voborilova
The challenge in developing a catering program for a food hall is that the food production is often handled exclusively by the vendors – each of whom has an interest in making a profit for themselves. This leaves the management company in the position of trying to execute events without controlling food production. This situation can cause operational headaches, require approval from the vendors for every event, and result in having to “buy” food at retail pricing to satisfy the guests. This is where the margin erosion occurs.
To solve this, food hall operators turn to a couple of different solutions.
The simplest way is to negotiate ‘wholesale’ pricing with your food vendors before you launch a catering program. With four or five vendors, a savvy operator can stitch together a menu for nearly any occasion. In that way, producing the event involves little more than coordinating and assembling the food from different vendors and looking after the guests. Time Out Market leaned into this approach in their North American markets as they emerged from the pandemic. With the addition of a dedicated sales resource across the portfolio, catering and events grew to a multi-million-dollar business in the first year of launching the program.
Another approach is for the food hall management team to operate several of the food stalls themselves. This provides the infrastructure and culinary team needed to handle catering events without involving other vendors. While working with your other tenants to develop signature menu items as nice, not having to rely on their approval before booking an event is a game-changer. This end-to-end approach is ideal for facilities with significant dedicated space for group business.
3. Retail Pop-Ups & Festivals:
Another way to enhance the bottom line is to develop a retail pop-up program. By providing floor space or a removable kiosk in your venue, you can generate monthly rental fees from retailers looking for high-footfall locations. This works well with specialty food retailers, local craftspeople, artisanal beverage companies, or non-profits looking to hit your target demographic. Adding two or three kiosks on the floor of your food hall could deliver a healthy dose of rental revenue every month and keep guests coming back to see what’s new.
Seasonal pop-ups are another way to build your bottom line. Holiday markets, back-to-school events, and Octoberfest are all great opportunities to host these events. Outdoor festivals and events also allow you to grow your brand and meet new customers. “The ability to make your food hall a “movable feast” is eminently doable,” says Phil Colicchio “Whether it is a county fair or a local festival, it is accretive way to both generate revenue and feature the vendors in your business.”
4. The Bar Program
Most food hall operators have realized that controlling the bar business is critical to delivering a profit. It has become a widely accepted practice to keep the bars in-house and take advantage of the more robust beverage. However, it is worth evaluating your bar program with a critical eye to make sure you aren’t leaving money on the table. Two key areas to investigate are capacity and the sophistication of your beverage program.
When it comes to capacity, right-sizing your infrastructure and bar service is essential. Getting a drink must be easy and quick. “One of the mistakes that we see food hall developers make,” says Colicchio, “is not building enough bar capacity.” Difficulty in getting a drink is not only an inhospitable guest experience, it also serves to decrease dwell time, dampen repeat drink orders, and decrease ancillary food purchases from your vendors. “If we had another bite at the apple for some of our food hall recommendations,” notes Colicchio, “We would encourage our clients and their designers to feature much more prominent bar programs. Even multiple types of bars within the operation. Exploiting the bar operation can be make-or-break for some food halls.
Another way to approach this is to offer roaming cocktail service or beverage carts. Once your guests are seated at a table with their food, it can be daunting to get up again, leave their things (or their kids), and risk losing their seats to get another drink. Bringing beverage service out from behind the bar is an obvious remedy. Adding the excitement and flair of tableside cocktails is even better.
Another area worth examining is the sophistication of your bar program. Because of the large number of guests during peak periods, many food hall operators fall into the volume trap and build their bar menus like stadium concessions. Large-batch cocktails, pre-made mixers, and shelf-stable juices may make their way into the drink program. While these bulk ingredients may make the program easier to execute during peak periods, they are kryptonite for the more sophisticated (and monied) happy-hour and late-night crowds. Transitioning a volume program to a sophisticated, hand-crafted, and market-relevant beverage offering will give your operation the credibility to extend your hours, support private events, and become a destination for the neighborhood. A trade-off worth making.
Today’s food halls offer an incredible platform to experience world-class food and beverage in a vibrant, fun, and communal environment. Despite their appeal, food hall profitability can be challenged by the slim margins from food and beverage sales alone. Savvy operators supercharge their profitability by developing lucrative revenue streams beyond basic food and beverage service, unlocking the full potential of these dynamic spaces and driving their bottom line to new heights.
–––––––––––––––––––––––––––––––––––––––
Jay Coldren brings more than 30 years of hospitality development, design, and operations experience to his current role as the President of ONSET Hospitality. He served as the CEO - Development for Time Out Market, as the Global Hospitality Lead for Streetsense in Washington, DC, as the Managing Director of North American Markets for Dean & Deluca. His background also includes leadership roles at prestigious properties like the Claremont Resort & Spa, the Inn of the Anasazi, The Inn at Loretto, and the Michelin Three-Star Inn at Little Washington.
