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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. Today we're going to talk about food halls, and what restaurants should look for when selecting a food hall, and whether or not that's the right environment for their next business opportunity. Andy, welcome to the program.
Andy Simpson :
Hey, thanks for being here.
Michael Carro :
So Andy, let's dive right in. I've got a restaurant concept. I'm looking at a food haul. How would I best determine whether or not that's the right venue for my concept?
Andy Simpson :
I think you start out much the same way you evaluate anything else location, location, location has always been you know the the key factor and then the economics after that, but before we even get into the economics really just evaluating what their business plan is, and do they have a great model, really evaluate the entire thing from a how are they planning to operate it? What's their vision for their future? Do they even have a solid marketing and promotions plan going forward? I've heard a lot of stories of folks that were asked to be in a food hall and the developer really couldn't answer any of those questions. So what that means is that whether it's viable or not 100% is dependent upon are that many people going to walk through the door? And does the landlord even understand how many people it takes for the amount of tenants that they're putting in. As an example, if we all know what people are going to pay for a lunchtime venue, which is what most food halls are drawing at, save, there's an average sales of 13-14 bucks, which is fairly high for lunch, lunch ticket. How many folks does it take to support that and do you as an operator feel that that's a viable number that can be reached for that market. You probably know the area, can they actually get 10,000 people in there a week or whatever that number comes to. And you really start there, because I've found that a lot of landlords have failed to really think through that themselves. So if they can show you their operating model that says, here's how we plan to get there. And if that makes sense to you then go a little further.
Michael Carro :
That's a great example. So, in reading some of your bio, you look for the "Why", right? So the landlord has to have a "Why" and of course, then the restaurant operator has to have their "Why". So when a landlord and a tenant get together, how do they exchange their "Why's" to determine whether or not they should even work together?
Andy Simpson :
That's the best. Best question anyone's ever asked as far as that goes. You know, it's just like entering a business with anyone else. If your values match theirs, you're going to have a much better opportunity for an outcome that works for you both. Now, just pragmatically; however, you don't necessarily have to match exactly with there's I mean, there are a lot of developers that don't understand what we've just talked about. So do they have a solid business plan, the end of the day is, is those operators are going to create the environment that's in that facility. So understanding what the vision of the entire project is, is probably the most important thing to start with. Do they have a viable business plan? Do they have a great vision for what the property is? We talked about how food halls are different if a market has a great opportunity for nighttime business as an example, are they programming the Center for that the development for that too, they understand that and how are they reacting to that?
Michael Carro :
I can't tell you how spot on that is because I started and developed the Alfresco food hall in downtown Pensacola, and I can tell you, I developed it as a landlord not as what was really required to be a good food hall owner. And so I made a lot of mistakes. And one of my mistakes was if there was a tenant that had the financial ability to pay me rent, I accepted them. Well, I gotta tell you as I'm redeveloping it now, and we are completely closed down, and we're making a million dollar makeover, I have learned that it's about programming the right tenants. So I can tell you when I reopen, I would rather have a space empty than filled with the wrong tenant. And that's, that was probably what I consider one of my biggest mistakes when I opened Alfresco the first time.
Andy Simpson :
Wow, yeah, I mean, that makes a lot of sense. And and what you quickly discovered, and you're an operator as well, with your restaurant history, you're of your own, you probably just weren't thinking of it that way. You're thinking as a developer, and I see that and the developers who are more successful are considering not just the right tenant as far as a curation like what kind of food it is, but do they have the right mentality? Is that OR operator? Do they have a good business model of their own? And I mean, I would challenge you to get even further into that, and really take a hard look at someone's ability to operate their restaurant effectively, you know, and what is their business model going for? How do they intend to evolve to meet the changing needs of the market?
Michael Carro :
Sure, let's go back to putting our tenant hat on. I'm the tenant and I'm evaluating whether or not this is right for me. I've met with the landlord or the developer, and I like the space and I believe it will work for me. So now we're going to enter in negotiation, what can attendant expect to be included, number one in the space that's being delivered? And number two, what type of lease structure do you see most common? And we can dive into the different details of the lease structure, but with food halls,
Andy Simpson :
Yeah, the the structures of the deals vary quite a bit and a great place to start that is really just to sit down with their deal. Whatever deal that they've given you in writing, compare it to your p&l, because what's going to happen is they may be providing some of those services that are typically, on your p&l. If you're doing a brick and mortar business, you have your utilities, you have all of your controllable costs, they're obviously not going to be hitting your prime costs in any way although the facility might offer you the opportunity to reduce some of those
Michael Carro :
sure based on buying power.
Andy Simpson :
Right. Or, you know, a smaller space might mean less labor. So think about that. But a great place to start to get back to your point is let's look at their deal and compare it to your p&l.
Michael Carro :
predicted p&l Right, right. So you're going to perform predict your your revenue,
Andy Simpson :
right,
Michael Carro :
and then back into all those numbers from there, because that's one of the biggest comments. I'm glad you brought that up. For me. I have to educate tenants that you're not going to be paying $400 a month for waste like you are your current restaurant, your contribution is $60.
Andy Simpson :
Exactly. And as a landlord, if I were you as an example, I would put something like that. together so that you could send it to a prospective operator and say, here's what we're offering. So as you look to your Performa, and your your operating revenue model, here's the things that you can include because you know, every food hall is different.
Michael Carro :
And I have had to break that down. Because when you just give them one number, like wow, that's super high. So hold on, that's actually that's not rent, the rent is this, but the water, the sewer, the grease trap, cleaning,
Andy Simpson :
the entertainment,
Michael Carro :
all of the details and like,
Andy Simpson :
Oh, I get it.
Michael Carro :
And so there is a level of education that goes into it on both sides.
Andy Simpson :
One great example of that a few years ago, when the food hall craze really started, I was looking at one in Los Angeles that was right across the street from a huge development that's very famous there and it looked amazing, but they're trying to do it in a per square foot cost. You know, traditional landlord, Hey, your space is 200 square feet and it's gonna cost you X dollars per square foot,
two hundred dollars a square foot.
They had some extraordinary Math that you had to go to, to even figure out what your square foot cost was. And then it was just a ridiculous number. So you know, forget that and just go right at it with. Here's the facility. Here's what we're providing. And if you even put together a summary p&l that says, here's what we're covering as part of your p&l, it makes that conversation.
Michael Carro :
Oh, I like the idea of the p&l. And that's what I did the first go around, I have not done that the second go around as we redeveloping this. So I will include that because I think that's brilliant. And that will really help them know, Hey, listen, I only have to do X dollars in sales to get to my breakeven and I believe, by the way, they have to believe that they can do more. And if they don't, then of course, they shouldn't get in there. 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.
Andy Simpson :
Great.
Michael Carro :
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.