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Inside the Stalls of Food Halls with Mike Morris

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Episode #: 241
Inside the Stalls of Food Halls with Mike Morris

Guest: Mike Morris
Topics: The Food Hall Co, grocery-anchored shopping centers


Chris Ressa 0:00
This is Retail Retold, the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC Management.

Today’s episode is sponsored by RoxMedia. RoxMedia is our trusted trade show exhibit partner. In fact, if you had the chance to visit our amazing booth at ICSC, then you’ve seen firsthand the work they do and why they are an invaluable member of the DLC team.

RoxMedia is an exhibit and event management agency designed for companies looking for a creative, collaborative and full service approach to their trade shows and corporate events. From the design and fabrication of your next custom trade show exhibit to the management and execution of your own event across the country or around the globe, our talented team of rockstars has you covered.

Welcome to Retail Retold everyone. I’m your host Chris Ressa. I’m excited today to be joined by Mike Morris of The Food Hall Co. Mike is the podcast’s resident food hall expert. I’m excited for him to be here. Welcome to show, Mike.

Mike Morris 1:19
Thanks, Chris. Appreciate it. Nice to be here. I don’t thin I’m a podcast expert but I’ll at least try to make it interesting.

Ressa 1:26
Well, for me, I think food halls are this newer category. And they’re, they’re hip to the end consumer. But they’re pretty mysterious to I think a lot of people in the real estate investment community and a lot of the brokerage world out there in the finance community. And so I think it’s a really interesting topic.

So we had you on the podcast once, and you did this before, but I want to start from the beginning. And I’d like for you to share a little bit about your career history, so people can understand what your work experience has been, and how you’ve ended up where you are today.

Morris 2:22
Sure, man, absolutely. Happy to do that. And I think part of the mystique, right, is the complexity of the business, which we’ll get into later. And all the things that go into it and the scale that we’re able to operate particularly, somewhat successfully at times.

But you know, my background, and I think to understand how I became the CEO of The Food Hall Co., it’s really important to understand kind of the process I went through to get here because similar to how complex the food hall business is, you know, its parts, real estate parts, operation parts, design parts, bar parts, entertainment, that all have to come together. And I think my background has, quite frankly, mirrored that in a unique way.

And coming right out of college, I was a chemistry major. Thought I wanted to get into medicine. Turned out that that was probably not in the cards for me in a good way. I ended up landing a position in leasing at a local business in Baltimore called the Cordish Company.

Ressa 3:24
So are you a doctor today?

Morris 3:26
No, I’m, okay. My entire family basically, my wife is a physician’s assistant, my brother is a physician. My parents were physicians, are physicians. My grandfathers were both MDs, and one was a PhD. My two uncles were physicians. So we came from a huge lineage of medicine. And quite frankly, the background on a chemistry degree is the difference between pre med requirements. And a chemistry degree at my college was two courses. Those two courses almost destroyed my college career, physical chemistry and multivariable calculus.

But nonetheless, I did graduate, did apply to medical school, deferred a year, decided that I wanted to make some money, do something different, get involved in something interesting. I landed this job with this commercial real estate company as a leasing agent, that sounded like something interesting and cool.

You know, candidly, at the time, the, not the founder of the company, but the founder, the company’s father, Mr. Paul Cordish, had graduated from Yale University. It’s something like 50 plus years prior to me, and the fact that I played lacrosse and went to Yale and could walk and chew gum, and it was just good timing as they had just recently acquired a bunch of projects and they needed support and leasing and I happened to walk in the door.

Ressa 4:44
And for those who don’t know Cordish, you know, a pretty renowned company in America for commercial real estate. They, at the time, they were doing what many who are listening to this might consider a little bit more traditional commercial real estate development and leasing versus what you’re doing today?

Morris 5:04
Absolutely. I mean, the majority of the Cordish Company back then was shopping center development, normally on the route 40 corridor in the Baltimore Washington area, and largely grocery-anchored shopping centers. When I started that was really kind of just in the beginning of, you know, the next evolution of their business which was largely focused on very large scale public-private mixed-use development work focused predominantly in entertainment and sports projects like the Power and Light District in Kansas City, ballpark village in St. Louis, which has now become the precursor to things like Texas Live and the can’t think of the name in Atlanta.

But the project that they have there was next to the Atlanta Braves Stadium as well. And you know, it was a very unique time. And I was very fortunate in that I got my master’s and PhD in commercial real estate, kind of placemaking and development I think there and had a lot of opportunity to grow very, very quickly in the business and in the company.

The last project that we ended up being involved in was the Power and Light District in Kansas City, where I was involved in that project was really the inception of the idea of the building in the property through the completion of the first phase of the development which the first phase alone was over 600,000 square feet of commercial real estate we brought an H&R block road headquarters into the middle of it, we built something like 2000 plus parking spaces, 80% were below grade, one block of full entertainment, two levels, you know, with a roof structure.

We worked hand in hand with AEG, who developed what is now called the Sprint Center. It’s 18,000 seat arena directly across the street from the Power and Light District.

We worked with AMC in creating one of the first fully digital movie theaters the United States and created a live music venue, kind of Nokia theater, called the Midland theater. And you know they had an entire block of amenity retail services. So we did a food gourmet grocery store with the Constantino family, and a traditional bank, and a dry cleaner, a nail salon, and blocks away high end steak, seafood and also clothing and chocolate retail. It was a very unique experience at the time, and really gave me an opportunity to kind of learn from ground row ground up, which was unique.

Through Cordish, I got involved a little bit in the hospitality side of what they were doing. Particularly in the bars and entertainment side of the business. I got the bug like everybody did to think Oh, it’d be really cool to own your own restaurant or your own bar. After leaving Cordish, I started my own company which predominantly did consulting work. In large scale mixed use development side retail focused exclusively and got heavily involved in bars and restaurants in the kind of Baltimore Washington area.

At one point I was invested involved are partnered with over 20 restaurants, through a couple of different partnerships, what I realized is I was pretty good at putting teams together and kind of building foundations of of structure and design and concept in business.

But ultimately, I didn’t want to be the person in the front of the house in running the restaurant or having that kind of true restaurant lifestyle, which is a very different lifestyle than, you know, the commercial real estate one is concerned and found really great people and put them in place to be successful with the right structure and great support and great foundation design, construction project management financing, largely became an active board member basically. And you know, fast forward.

So a local developer in Baltimore, I mean, specifically, Scott Plank, acquired Belvedere square in Baltimore, was really my first entry into markets and food halls. He had become you know, friendly, I guess the best term with one of my restaurant partners at the time a gentleman by the name of Spike Dirty, and Spike got intimately involved in thinking through and repositioning Belvedere square, and gave me a really interesting perspective on what does that take and what what does that need?

And realizing that it’s something was very interesting to me, it really combined in a lot of ways, the mixed use development placemaking experience I had gained from Cordish with the restaurant hospitality perspective that I had recently acquired and really felt that it was there are interesting, because he then approached a local developer in Baltimore by name of Mark Kaplan, to potentially support his retail leasing needs in a building, 520 Park Avenue, Mount Vernon, Baltimore.

And eventually after going through several iterations of where to go with basically 15,000 square feet of space in that sub market, landed on the idea that we could develop a foothold there. And frankly, I’ll remember we took Mark and his partner Dominic Weicker down to DC, Union Market had recently opened. And we spent some time there and really realized that we thought we could do this basically, in Baltimore, or something similar.

And we were very fortunate. And we were able to convince Mark to believe in us, this is 2012. And we ended up developing what is now the Mount Vernon marketplace that ended up opening in 2015. And we were intimately involved in the development and curation leasing of that food hall. And that led into an entire kind of business of consulting and developing food halls throughout the country. So I’ve developed now 13 food halls, throughout the United States, as far north as Boston down to Boca Raton, Florida, and I’ve been actively involved in those for quite a while.

We then teamed up, you know, from that conversation, and from that we hit COVID. COVID was an interesting time in the food hall world. It created a situation where, you know, we we put our arms around the other groups that were doing things like we were doing as a support network, and an opportunity to kind of develop a relationship with the others to learn what was going on outside of our world that we could get smart about and could hopefully help each other and ended up establishing a really good relationship with a gentleman by the name of Randy Torit.

Randy is the founder of FP society, which was the creator of legacy food hall in Plano, Texas. And to make a very long story short, ended up working out a the arrangement with with Randy and Jack Givens the other partner at front burner, FB society to get involved with The Food Hall Co.

And in that capacity, I’m now the CEO of the Food Hall Co., our two flagship food halls, our legacy food hall in Plano, Texas, and The assembly food hall in downtown Nashville. And then we’re actively kind of in a growth mode right now and getting very close to being able to talk about something in New York, which we’re really excited about.

Ressa 12:22
Such an interesting background that a lot most people aren’t in that world. So thanks for sharing. From dealing with sports arenas to, you know, different downtown like new marketplaces that you built to leasing grocery anchored shopping centers. So it’s super interesting, but, and I’m still in the grocery shopping center game. So.

Morris 12:54
There’s still time. We can get you to the dark side soon, it will be fine.

Ressa 12:56
So let’s start with a simple one, or maybe not a simple one. But I think there’s probably some listeners out there who are like, food hall, food court it’s all the same thing. So let’s, what is a food hall? Let’s just define what we’re talking about here. What is a food hall?

Morris 13:15
Well, I think in its most simplest definition, it’s it’s the combination of unique local businesses that create a sense of discovery, almost exclusively focused on prepared food, and supporting the community that the business is set to serve. And I think, typically, the nuance here is the expectation that the majority of the food stalls, if not all of them are independently owned and operated.

And I think that’s important to delineate, because I think that’s the big differentiator between a food hall and a food court, you know, a food hall and a restaurant. And there’s, there’s a number of different I think, groups out there that that apply the term food hall to various different businesses that don’t fit that definition. And that’s, it’s okay, but it’s not really a food hall if it doesn’t kind of fulfill that definition. From my perspective.

Ressa 14:14
Okay, that’s helpful. So independently owned and operated, you know, stalls or, you know, small food businesses. At what, at what point if they own 20 that they still could be the owner and be independent, like across the country, so independently owned and operated? Would that be fit into the appeal of a Foodhall? Operator?

Morris 14:45
Yeah. I mean, that’s where we start to split hairs a little bit. And I think it comes down to, you know, the scale of the business, the scale of the operator, and their commitment to supporting the communities that we serve. I think there is an ability for an operator to have, you know, 15 to 20 units and still have a place in a food hall and be very successful. But the majority of the businesses that we see in our food halls that are truly successful, are typically smaller scale, you know, 123 locations, and are truly focused in that general community in that region that we’re serving, right.

So typically, they’re, they live within a 20 mile radius. And the majority of their business, if they have anything outside of the food hall is within that same distance. And they own the commitment to supporting that community. And they are there physically in that location of considerable if not majority amount of their time. And it’s that kind of commitment that I think makes our food all vendors very successful when we’re able to find those types of businesses, although we have had larger scale operations in our food halls and also seen success. So it’s not to say it doesn’t work. It’s just it’s not the primary focus for us.

Ressa 16:03
Okay, so things that back? How many like in America today, pure food halls, do we think there are? Do we even know like, might Google have any food halls in America? What’s going to come up?

Morris 16:32
Yeah, I think if you Google and I haven’t done this in a while, I probably should have. It’s about there’s ideas. There’s about 320 Food halls in the United States right now give me more than I thought, actually, yeah, but there’s also I’m not exactly sure we’re perfectly aligned in the terminology.

So if you start to really look at what I just defined as a Foodhall, and really focused on what achieves that, I think that number is closer to probably 200, really, maybe even less, and then if you add a couple of different parameters, it gets even less. So, you know, in general, you know, people are calling food halls, and they have every right to do it.

Because it’s not a defined term in the Webster Dictionary yet, you know, as small as a couple 1000 square feet with two to three vendors, right? Is that really a food hall, I would place the position that it’s not really a football, it certainly qualifies under the idea of supporting some local small business, and you know, serving the communities that we support.

But then the reality is, it doesn’t achieve that sense of discovery, that sense of hey, everybody can find something, there’s enough, there’s there’s ample seating, etc. And to do those things, you really need to be in the kind of minimum of 10 to 12,000 square feet, and really minimum of probably seven to eight total vendors minimum. And when you start to look at it like that, I think the number gets even less, I think you start to get into 120 140 category of total fools that have scale that kind of achieve all the other parameters that we’ve talked about so far.

Ressa 18:14
I got a, I got a project, I want to talk to you about food hall after this, Mike.

Anyway, okay, so there, there’s, under your parameters, not a ton out there. There’s also, unlike other parts of commercial real estate, there isn’t a significant amount of operators of food halls at scale, correct? You’re you, right?

Morris 18:43
I think there’s probably really five or six, and how many,

Ressa 18:47
Like, 50? No one, there’s only 200? No one’s got like, 50. Right?

Morris 18:52
No, I mean, I look, I think I’m probably in the category of most active developer fruit holes. You know, I mean, combined, the units that I’ve developed with the units that I currently operate, I’m at 15. At the moment, I’m not aware of any other operator north of probably six, maybe seven. And that’s really, I think, most, you know, there’s probably five to six total operators out there that have proven to operate multiple markets in multiple cities.

There are certainly a developer and Foodhall operators that are in their backyard, successfully operating. But there are a few that have really proven that they can take whatever their specific model is, and apply it to a different community, a different market, different city, because it’s not easy. It’s a very complicated business. And all of that focus on that community.

And the success of that specific Foodhall is largely tied into getting 100 different dials correct for that specific community and that specific scale in that specific business. It doesn’t always perfectly translate and you have to be very aware of that.

Ressa 20:03
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And it’s pretty challenging for everybody in the capital stack of a food hall to be making money, correct?

Morris 20:39
Look, I think we’re one of the few operators and I think the, the foundation that that that I inherited because of you know, the thought process that Jack and Randy put into The Food Hall Co., is pretty impressive. And I think they’ve figured out a model that truly aligns the three legs of the stool, right, that the property owner, the food operator, and the food storage vendor. And that in our model, and I think we’re one of the few, all three of those legs stand on their own. And traditionally, that hasn’t essentially been the model for food operations traditionally.

Ressa 21:20
So the three legs of the stool are one again, so everyone can hear. I’m sorry, what are the three legs on the stool again, so everyone can hear?

Morris 21:27
Yeah, the land owner, property owner,

Yeah, the food hall operator?

Yes, we do the in this case, the food hall coach, and you have the actual food stall vendor. Right?

Yeah. Grew behind the stall, you can serving it to their customer. And I think, oftentimes, in a lot of food halls, two out of the three of those are working. And one’s a struggle. And I think because of kind of the foundation that Jack and Randy were able to set up we they really approached it as, as restaurant workers, as operators, and how do we create alignment here? How do we create an environment where that triangle works.

And, you know, they were they put together a really thoughtful model that we continue to tweak and evolve, but the foundation was there. And you know, I think we’ve largely kind of figured that out. And it takes look, it adds a level of risk to follow our model. But because yes, we are doing a traditional, we’re actually I think one of the few little operators out there that will do a traditional master lease structure. So we’ll sign a lease for, you know, 40 5060 plus 1000 square feet, and agree to pay rent.

But it comes with a certain other parameters tied to the investment required on behalf of the landlord property owner. And the flexibility in the rent structure. And largely, our rent that we pay to our property owner, landlords is, is a function of the sales of our business. So the sales of the food vendors, and its trickle, so we collect the essentially 100% of our income as a percentage of the sales that the Foodhall vendors are doing.

And we turn around and provide a percentage of that to the landlord. And so everybody’s aligned in helping the food stalls be successful and drive sales. And when you do that we’re able to pay, I would argue above market rents almost or at least market level rents for the types of spaces that we’re occupying. But it does take a certain risk and ascertain different perspective by kind of all three groups evolved to be willing to do it because on paper, it doesn’t translate perfectly to what you’re used to seeing and, you know, triple net, you know, traditional shopping center retail deals structure.

Ressa 23:54
Sure. So I think that was really helpful for the listener because I think most people think that the landowner and the food hall operator, there’s only two they don’t think that there’s a food hall operator, they think the landowner is the food operator, and then they’re leasing out to the little stalls. And sometimes they are right, sometimes there’s a developer and they they take on they try to be from call operator and landlord. And I think that’s a challenge.

Morris 24:24
Yes, I think a lot of groups are getting away from that right now. Yeah, yeah. Because a lot of them realize that it’s a food hall is not a real estate business. It’s a it’s an operating business that has some real estate principles involved. And you know, it’s it’s the getting that right, and having that hospitality kind of EQIQ approach is so vital to the success of of the operating business.

And so I think there had been a lot of groups that got involved as the developer owner, and we realized, you know, what, we need to bring it in and that But we need to bring in somebody who knows what they’re doing and knows how to build a culture who knows how to create hospitality environment that’s successful. And, and if we can, you know, bifurcate that and potentially even create a separate mechanism for them to hit a return and us to create a return, then that’s a win win.

Ressa 25:19
Got it? So helpful to understand. So with that?

What is the landscape look like today for I think he gave us like a really robust education on food loss, what the brain is to like, current events, what’s going on in the Foodhall? world right now? What are some of the latest trends? What is you know, this has been a new industry, what’s what, where do you see it going? And, yeah, I’ll leave it to two questions. What are the trends? Where does it go?

Morris 25:52
So I would say that, look, selfishly, I think the trend for us right now is scale. And I think we’re not the only ones that have figured that out. I think there are a lot of other Foodhall operators that have realized that this takes a lot to be successful and to be successful, you have to be able to drive a certain volume of sales.

And you know, our experience, by the way, and I think I’ve mentioned this to you in a previous conversation was, you know, our check average, and it doesn’t matter which food hall we’re really referencing, whether it’s, you know, a food aisle in Boston with James Beard award winning chefs or, you know, food all in High Point, North Carolina that’s supporting a medical facility in a local baseball stadium and some university students are check averages is virtually identical. It’s roughly in the $17 range.

And the difference between the top line volume of one football versus the next is largely on foot traffic, and the foot traffic and sales is tied to seats. And you’ve got to have a certain scale to achieve the top line sales that we look to create in order to support our model. And I think what you’re going to see is there were a lot of food halls that were created that were either too small or under seated because they were being driven by real estate economics, real estate principles that are either going to have to evolve and change, or likely fall by the wayside and not be supportable long term.

And I think tied to that a lot of the groups like us, yo, you’re seeing these food halls getting larger and larger in the newer ones that are opening, because I think that everybody understands that, that that’s what it takes. For these to be kind of successful.

And layering in additional uses that drive people to these properties. I say all the time to landowners and property developers, I want to be a destination I don’t necessarily want to create a destination and and you know, what I want is I want to be in a place that has in place foot traffic and then create a reason for those people to come to me and create a reason for more people to add into that and there are a lot of other groups out there that are starting to to play around with what does that mean?

How do you drive people outside of the food largely so far, our model has been very entertainment private event driven, right, so we have two venues one in legacy, we have the Lexus box garden which is about a 17 150 seat, live entertainment event space.

We have the Sky Deck on Broadway in Nashville, which is about an 18,000 1800 seat event space and programming we’re doing national touring acts we actually had a One Republic concert as a private concert this week on the Sky Deck which was just exciting to see a group of that caliber playing in the venue is pretty cool. The there are other groups out there and whether that’s how do you combine food hall with you know, bowling, how do you combine food hall with Papa golf?

Or pickleball, I think pickleball is, by the way, a very interesting concept of what’s happening right now across America. And you know, the great thing about a food hall if it’s executed correctly, it’s a pretty stable environment in general for large scale kind of food and beverage use but again, how do you create additional reasons for people to a spend time there and be come back? And I think that’s tied to the scale initiative. Those things are kind of drive I think food goes through the roof so it’s so

Ressa 29:10
So, super interesting. Let’s let’s let me be the devil’s advocate and poking you a bit. Okay, so I mean, when you talk about this, right, all I’m hearing is like, we want to bring food and entertainment to the same place. How does that like really any different than like, Cordish is second evolution like when they went from grocery shopping centers to some mixed use developments like or what a lot of people are doing right there. Just They’re taking food and entertainment and they’re trying to make it into a real estate project?

Morris 29:45
Yeah, it’s a great question and I’ll tell you there’s one specific nuance. Ultimately, we’re supporting small and often times minority women of business in this endeavor. If you look at our average food hall, we ended up with one 18 till 23 food stalls, of which north of 60% are women of minority of business, and about 85% of these businesses are local to the market that we’re serving.

One like traditional entertainment project that’s focused on bar business and large, national brands, and by the way there’s actually a place in real-estate hexagon for those businesses to be successful. I think the difference in the nuance that we’re bringing, you know, is things like, I’ve heard recently a number of comments from groups in Nashville to our team, that they could never afford real estate to be at 5th on Broadway, based on their business in their model.

But us having this food hall has given a place for those kind of businesses to get in front of an international customer base, let alone a local residential market and support in a really meaningful way for them. I think that is really for food halls the most important think that we can do.

Ressa 31:11
Well, so that’s fantastic on a minority of business and women of business, fantastic. One of the other things I’ve heard there though, was that I think is a significant differentiator from the project they talk about, is your deal structure. And how you create the size, the rent, the whole package. Now creates access and enables that local entrepreneur that could never get on 5th of Broadway.

Morris 31:53
Yeah, yeah, absolutely, I mean the whole model is their support right. I mean we don’t have personal guarantees in our agreements, you know we charge typically a flat what we call location thing, for the vendor to be kind of vested in the space. We turn the space though, so we take on the construction of building up the space. We deliver the space fully equipped. The vendor has to bring in their specialty small wares, so their pots and pans, knives, and they’ve got to bring in their opening inventory.

So we really try to lower the fare of entry to as low as reasonably possible. We do have a little bit of skin at the game, and then on the rent and occupancy perspective, our occupancy costs are 100% a percentage of their sales.

So we live and die by their success, we are aligned to help promote and do everything we can as a team, within our organization we have a number of different parties. We have a beverage director, we have a procurement team, we have an entertainment/marketing group, we have a training team that is there to not only support our initiatives but to support our vendors, and help them be successful.

Ressa 33:12
If I would define a food hall based on everything we’re talking about right now, I think one of the ways that I would define it, is that the model, I think people think about it from what it looks and feels like from a real estate perspective, what really allows it to be what it is, is the model that’s behind it and how the operators are running it is kind of what I’m hearing.

I don’t know if you agree with that but I think the model .. that’s a big difference between, you know, if someone in an enclosed wall wanted to put a food court in there, and they ran the same economic model that they used for the national franchise brands that ruined the food court. I don’t know if that’s the same as a food hall, even though they have small businesses in there.

Morris 34:01
I think that’s right and I think look what we are trying to do is to create a model that, you know, frankly, if you look at Nashville for example, if you look at the rent we are ultimately paying, I would argue we are paying, really a market driven, if not higher rents on second and third floor space, which, for a landlord’s perspective is significant and successful, and from the food vendor perspective also been significantly successful, because they are thriving in a market that they otherwise could not go into.

And achieve sales that because of the primary real estate being triple A location, they’re more successful than they would have been in a type of real estate that they could’ve acquired on their own, independent of this model.

Ressa 35:00
So interesting, well, so, one of the things you talked about is we’re starting working, you think what’s coming is some of this mix of other destinations being brought to, you know, the food hall. Whether its, you mentioned pickle ball, pot pie, the concert venues, you know that’s a trend you should look out for. Anything else that is going out in the space that you think is worth while to talk about?

Morris 35:35
Well, I think the couple of things are coming to my mind. I think there is gonna be a natural matriculation in the space, you know there is an evolution of, you know, food halls, kind of process iteration have been around for 7-10 years, there is a process that we’re about to go through, where we’ve gotten out of COVID, we are now really looking at each model, what’s working, what’s not.

As I mentioned earlier, some are probably struggling because of their scale, they’re just under seated, and maybe there is a way to change that. Or they don’t have the programmable space that’s probably gonna be required for their long term success.

Ressa 36:18
You mention under seated a lot, I think people had a vision of the size of a food hall, what is the idea, what the workable size to get to the right seats in a food hall today, what’s the size of this building?

Morris 36:31
So I think the current kind of average in the US is, call it somewhere between 15-20 thousand, I think the average price is 17-18 thousand square feet a space, and the challenge with that model is that, regardless of the square footage for a second, it was largely driven by real estate economics.

And what I mean by that is, when the operator of the food hall, the developer of the food hall, whether its property owner, or a third party, was looking at the space and the design and saying, I could either put 60 extra seats, you know, 500 square foot space, or I could put another stall.

And that stall generates x dollars in rent, and, you know ultimately I’ve got to spend Y,  and either I’m investing those dollars or gaining dead loan or bank or other investors involved and I have to have, hit certain returns, and there is a certain downward pressure based on the financial markets, making you do certain things that don’t come with an operating business.

And that my experience has been is that that business, that one business generates a a certain volume. But those extra seats could potentially generate every other vendor in the food hall. And getting that number of seats right is more important than having one extra stall, or two extra stalls.

So there is not a perfect metric on seat count, but some of that is dependent on, is the food hall suburban, is it urban in nature, I think a lot of people thought that ghost kitchens were going to be wildly efficient, but the thing is it’s just like delivering groceries. It is inefficient by nature, and it eats in the margin of otherwise an already tight business to start with. Delivery and takeout is great, it adds some positives to the business for sure, but on its own it is difficult to generate the same amount of dollars to add a line going out your door.

Ressa 38:41

Morris 38:42
And so, right now, when we were developing a model a couple of years ago, we were averaging 35 to 40 seats per hall, we were sometimes doubling that number, specifically in suburban situations, where the hours of operation are tight, right? So in an urban location, when you’re seeing customers come in as early as 11, the number of seats is a little less than in a suburban market, where the average hours of lunch traffic are 11:45-1.

And you need to be able to maximize seats during a very tight time frame. And so the impact and importance of the seats skyrockets. And frankly, the majority of the food hall business is fast-casual, it’s driven by roughly a 42 minute experience, and that customer has to walk in and see seats available, and be able to sit. They are looking to dine in store, in general. And so the premium on seating in our environment is pretty good.

Ressa 39:54
What’s that leading to from square-footage perspective? What is your prototype, what are your competitors today?

Morris 40:00
So, we basically aren’t looking at anything that isn’t 25-30,000 square feet. And on average, the majority of the spaces we are looking at right now are 35-40,000 square feet. Now that includes the delta, but in the 10,000 square foot swing, is that an event programmable space?

So, the food hall itself is typically in the 25-30,000 square foot category, and at a minimum needs to sit somewhere between 650-800 people minimum. To put that into real terms, Legacy in Texas roughly is about 800 seats, and Nashville we have over 2,000 seats in Assembly in Nashville.

Ressa 40:46
Mind blowing.

Morris 40:47
We would argue that Nashville is probably the highest grossing food hall in the United States right now, and I think that’s largely a combination of factors, right. We’re at Main and Main, Nashville is a very unique market in the United States now, it’s got a combination of strong daytime population, great residential population, unique drive, unique demand, the stadium, the country music hall of fame, convention center, all stacked on top of each other.

All those things are happening within a 10 block radius. And the tourist and visitor component that is layered on top of that, with a very specific kind of mindset approach, is very, just, unique, and very successful for us there, and we are seeing on average, 8,600, 8,700 people a day. Just in our food hall.

Ressa 41.51
Amazing. I’m conscious of time, one question I wanted to ask, so you mentioned this percentage, give me a range, you don’t have to give me specifics, but if I’m opening up a, I don’t know, a whatever shack, and I’m going to open up a stall, what percentage rent am I paying you?

Morris 42:16
So, we end up kind of in the lower third of the mid twenties is what we charge, and candidly we turn around and give the landlord the upper middle, the upper part of the middle third of single digits to the landlord.

Ressa 42:40
Got it. Well Mike, anything else we didn’t talk about today?

Morris 42:45
I think we covered a lot.

Ressa 42:46
We covered a ton, man.

Morris 42:49
If that was poking, by the way, I’d love to see what really going at it is.

Ressa 42:56
Oh, I didn’t want, I didn’t want to, that wasn’t hard, right?

Morris 43:00
No, thank you. I mean, it’s a hard time to be in the industry. The big challenge is that there is no rulebook and there is no clear cut answer to any of these questions. And that provides a great opportunity for groups like ours to go out there and try things, and when it works, we continue to tweak it.

And I think that’s the biggest thing, any food operator who is going to listen to this is going to get, is that it’s got to be iterative, and you need to keep evolving, and tweaking it. When you get something that’s working, keep building on it. Because if you’re not building on it, unfortunately in this day and age, in the operating business, you’re likely going in the other direction.

Ressa 43:44
For sure. All the comments about thinking about it from real estate economics, and thinking about it from an operating business, you know, at DLC we recently got into operating businesses, different from food, but understanding that, obviously. Really appreciate the time, everyone should follow Mike if you’re interested in food halls, he’s the guy to know. Mike, this has been great, thanks so much.

Morris 44:09
Awesome, thanks Chris, appreciate the time, thanks so much.

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