Andy answers common questions like what type of lease structure to expect, how rent is calculated, and how POS systems work within a food hall environment.
Andy answers common questions like what type of lease structure to expect, how rent is calculated, and how POS systems work within a food hall environment.
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Michael Carro :
Welcome to the restaurant realty in 10. Ten minutes of uncensored straight talk for restaurant entrepreneurs twice weekly The Restaurant Realty in 10 dives into restaurant operations, facilities, real estate and investments. Welcome to The Restaurant Realty in 10. I'm your host, Michael Carro and today I want to welcome Andy Simpson with Hospitality Design and Development. Andy works with food halls, creating them, designing them and developing them. So Andy, let's dive right in. I'm going to just pepper you with some real basic questions on the lease. How many years is typical in a food hall lease?
Andy Simpson :
So most food halls don't have a traditional lease they are doing License Agreement,
Michael Carro :
okay,
Andy Simpson :
the deals are generally shorter, two to three years. In some cases, you might have terms that go longer than that for a solid operator. But part of that has to do with what the landlord's after. A great food haul is about discovery of food. So really, if you were to build a food hall and you had a bunch of long term operators inThere, you're gonna end up with a static environment, which is just like an old food court. So
Michael Carro :
I gotcha.
Andy Simpson :
You see what I mean?
Michael Carro :
Yeah.
Andy Simpson :
So having the ability to change out people is great. And it also is great for the operators because some of the best food hall operators wouldn't be able to qualify for a long-term lease.
Michael Carro :
So are you seeing percentage rent or base rent?
Andy Simpson :
That question is, is different again, and the type of facility is, I think it can work both ways. Having one number makes a lot of sense to an operator. So let's say the project is simpler than a big giant food hall and the number is x thousands of dollars per month is your base rent that has advantages to the landlord because they can book it as here's my rent factor. However, it also limits pretty dramatically what they're able to get. I believe that there's a better model and charging a percentage of sales and offering some services because as a developer, when you build a food hall, as we talked about, you're kind of forced to end up providing some services. So agreeing on a percentage of sales ends up making it viable in a few other ways for the landlord, we can get into that as well.
Michael Carro :
Okay, and so are you seeing marketing fees attached to leases or licensing agreements to help with the programming, maybe live music, other types of unique events?
Andy Simpson :
Yes and No, when it's a deal that is based on a solid number, so it's x thousands of dollars, there's going to be a list of here's what the landlord's going to do. However, they're not really going to it's impossible for them to define that. So it's a marketing contribution like you would in a franchise where it's X percent of sales on top of that, I haven't seen that so much in the food hall model, as I have a landlord is including a certain amount of promotion as part of their
Michael Carro :
so it's builtin into the rent factor.
Andy Simpson :
Yes,
Michael Carro :
I've got you. Okay. And then hours of operation to landlords and developers require a certain level of hours. That way there's continuity and consistency for customers coming in.
Andy Simpson :
Definitely, andit's important for the project as well as the operators to make sure that that's happening. You know, as we talked about earlier, what's their business model looking at if a landlord is thinking about that, so you have to have enough people doing something at a particular day part to get interest. So if it's in an area where you think you can have some breakfast sales an example, better have enough people. What number is enough? There better be a good answer to that. And it better be one that's thought through and we think that we need to have three or four people doing breakfast as an example. Okay, do we have a strong coffee vendor in the facility because that really drives that kind of thing. And you can take that same thinking to to dinner and late night as well.
Michael Carro :
Okay, couple more questions. POS system? Do most landlords require all of the food users to have the same POS that way they can maybe track sales, especially if there is a percentage of sales or do they leave it open for the tenants to select what they think is best for their business.
Andy Simpson :
Generally operators and tenants are using their own POS systems. We actually did a food hall where we did a common POS system, it was very difficult. There's a bunch of great potential opportunities to using a common POS system. But it also comes with a whole lot of problems. So it really depends on how far you're dedicated to the operations. And a lot of that has to do with how much on-site oversight and participation that developer has with it. From a developer's standpoint, the easiest thing to do is have everybody provide their own POS system, you're then not their IT person or involved in their decisions and have to respond to all those potential problems, which are many.
Michael Carro :
Andy, the last topic I want to dive into is operational support because you are one tenant amongst many, you're going to be reflected based on your neighbors and how well customers are treated by others that may not be coming to your restaurant, but you are going to be lumped into either a good pot of people or a bad pot of people. So as a tenant, what would you be looking for in that environment? And how can you secure that you are going to be in an environment that is going to be of the like quality?
Andy Simpson :
Yeah, that's an excellent question. And probably the most difficult for a developer to execute. That's not typically what they do. The landlord is typically a landlord. They're not operators like we are. So while they may understand those concepts it's very difficult for them to act upon it. So that's a great thing to find out who is operating the food hall, there are a couple of landlords that are now looking to management contracts with folks like us. We do that with a number of landlords right now where we're going to be operating their food halls and providing that leadership which would then help those operators on a much higher level. Early in my career. I did a lot of food courts, and it was no man's land, which from a guest perspective is the worst scenario right? There's basically no service. Once you're sitting in the middle of a common seating area, you know, you're kind of on your own. And that's really why there's a tremendous opportunity for a forward thinking landlord to really think how can we talk about guest experience and make sure that we're doing everything we can do to make that guest experience the best we can. And in my opinion, that means really stepping up the ability to support those operators and operate the facility. I had a great conversation once with a developer who had done a very successful food hall in Atlanta, and they opened it and they had a bunch of great tenants in there. And they realized about one week into it, hey, we're actually in the hospitality business. It was a great conversation, because he said, you know, we didn't realize that that's the business we were going to be in and we realized that we didn't approach it correctly. So well. That's a great lesson to learn because now you can go back in there thinking about it from a guest perspective, and how would you make this work better and then they they started to do that?
Michael Carro :
Absolutely amazing. Great interview. Andy. Thank you so much, folks. Andy. Simpson with Hospitality Design and Development and Andy, We look forward to having you back on the program. Thank you for listening to The Restaurant Realty in 10. If you're interested in restaurants, whether operations, facilities, buying, leasing or investment, The Restaurant Realty in 10 is for you. Please subscribe to this podcast and you can also visit therestaurantrealty.com for show notes, topics and additional information.