The Supreme (Food) Court

Should You Set up Shop in a Food Hall?

Here’s to a trend that could have hardly been predicted a decade ago: food halls are in again, and are now favorites of foodies. To be accurate, what we are witnessing is not a revival of the classic mall food court, overrun with fast-food franchises whose main purpose is to offer sustenance through long shopping sessions. The concept currently in fashion, best exemplified by places like UrbanSpace or the Dekalb Market, fulfills quite a different function. For one, new food halls are no mere appendices to a main attraction. They *are* the attraction. Second, they are focused on craft and quality, targeting eager stall hoppers in search for culinary adventures

It is projected that by 2020 the number of food halls of this new breed will have multiplied four times from what it was in 2015. The old food courts are also being pulled into the momentum. By 2025, one in five retail spaces in shopping centers could be occupied by a food and beverage concept, more than twice today’s ratio.

Cushman & Wakefield ’s projections for the number of food halls in North America

Cushman & Wakefield’s projections for the number of food halls in North America

With hindsight, it is clear that this trend is a direct outcome of the ways consumer preferences have been evolving. If you are catering for millennials, the winning tryptic is: healthy, convenient, and exotic. In addition, it turns out that a majority of millenials prefer casual and communal table setups. Together, these two facts pretty much spell out the words “food hall”.

But let’s get to the question of interest to us – Is it smart for a small food business today to set up a stall in a food hall instead of a classic streetfront store? To answer this question, it is useful to understand the economic concept of “agglomeration” and what is known today about its impact on the performance of retail businesses.

Agglomeration is when businesses of the same type concentrate in one area. You’ll find the most extreme levels of this in traditional markets like Chandni Chowk in Delhi: endless alleys with only spice shops, or only jewelry shops, or only you-name-it-shops. Agglomeration can also be observed in modern cities. Think of New York’s K-town where you will find an unusually high concentration of Korean restaurants, or the Diamond District that is a single city block packed with more than 4,000 diamond retailers and wholesalers.

The  Maine Avenue Fish Market : A perfect example of economic agglomeration

The Maine Avenue Fish Market: A perfect example of economic agglomeration

The main benefit of agglomeration is simple – it puts you quite literally in the way of your customer. Someone craving kimchi without a specific restaurant in mind may logically start her search in K-town. Similarly, if your food business is targeting yuppy foodies, setting up a stall in a food hall seems a reasonable way to connect with this customer segment and get your brand known.

But joining a food hall also comes with specific risks. For one, first-mover advantage becomes more important. In other words, if a food hall already has a well-established vendor who proposes products similar to yours, joining that food hall may result in lower sales figures than you had (reasonably) projected based on foot traffic and other classic indicators.

Not only that, your presence may in fact give a little boost to your competitor. This is not unrelated to the “spillover effect” identified by marketing researchers in recent years. Here’s an example of how this might happen: Ms. Bernoullesque is walking through a food hall. She passes by your ice-cream stall and catches a glimpse of your display. This triggers a craving: “Oh how I would love some ice-cream now!”. But Ms. Bernoullesque is not familiar with your brand. She pauses for a second, then remembers that your competitor who makes an awesome blackcurrant sorbet has a stall a couple of aisles over. And off she goes…

More generally, what I wish to highlight with this example is that, in an agglomeration setting, the success of a business becomes increasingly dependent on factors that are not directly, if at all, related to product and pricing. Beside brand awareness, businesses must pay closer attention to the attractiveness of their display, the efficiency of their points of sale, and the value of their location.

It is worth dwelling on the last of these factors – location – as it is a major head-scratcher. Determining the strength of a retail location, within or without food halls, is the kind of beast that remains untamed by scientific theory, and is better approached with counsel from one with proven experience and wisdom bordering on sorcery. Even then, wild surprises, good and bad, cannot be prevented. One of Bernoulli Finance’s clients that operates a location in San Francisco’s Ferry Building Marketplace saw its sales double within less than a year after it moved a mere twenty yards within the market. A friend who manages a gourmet-casual food chain in Manhattan recently told me that the sales in one of their locations in a busy area of the city had dropped 60% after their building was scaffolded.

Truly, you can never select a retail location without taking a bit of a gamble. Still, researchers have observed trends in shopper behavior that are useful to keep in mind. For example, as people walk through a curvy shopping aisle, they tend to look towards the inside of the curve. Another interesting fact is that people tend to walk through circular places in a counterclockwise fashion (at least in the US).

But let’s circle back to our headline question – should you sell in food halls?  – for which, you must have noticed, I have not yet offered a definitive answer. And indeed, there is none. My aim through this piece has been to show that setting up a stall in any food hall could equally result in success or failure depending on various parameters, some of which can be controlled (e.g. location, attractiveness of display, operational efficiency) and others which cannot (e.g. presence of a competitor).

Yet, there is an actionable recommendation to draw from this: when a venture opportunity involves making various key decision parameters – as the option to open a food hall location likely does – the first thing to do is to define a set of potential scenarios. For example, one scenario might be that you will set up a 10 sq-ft stall in the East aisle of the food hall, and that you will focus on cupcakes instead of the full range of baking products in your brand. Another scenario could be that you will open a streetfront shop instead. Cost and revenue projections must then be developed for each scenario, accounting for the contextual risks discussed earlier in this piece. Finally a comparison of the scenarios must be made based on their projected financials.

Put simply, before asking whether you should sell in a certain food hall, the first question you should ask is: what are all the ways that I could sell in that food hall?

* Illustration by Dannae Alvarez