The Food Hall Trend and Inclusive Growth

Kate Cooney (00:00):

This is CitySCOPE.

Camilo Monge (00:01):

A new podcast from the Inclusive Economic Development Lab at the Yale School of Management.

Lauren Harper (00:05):

Where we learn about what might be possible in our city by talking with others about what is happening in theirs.

Liam Grace-Flood (00:11):

Are we ready?

Paul Bashir:

Let’s go.

[Music]

Sara Harari (00:28):

Welcome to episode five of the CitySCOPE podcast. Today, we’ll be talking about everyone’s favorite topic, food. More specifically, we’ll be looking at food halls.

Dan Bitner (00:37):

I’m getting hungry already.

Sara Harari (00:38):

Just wait until we really get into it. We’re going to touch on everything from farm fresh baby greens to gourmet tacos. And in between, we’ll be talking about how this new craze can serve as a tool for inclusive development.

Dan Bitner (00:49):

You’ll be hearing a few voices today, so I suppose we should kick things off with some introductions. I’m Dan Bitner, recent graduate, Yale School of Management.

Sara Harari (00:57):

I’m Sara Harari, a recent grad at the Yale School of Management and the Yale School of Forestry and Environmental Studies.

Dan Bitner (01:02):

So Sara, what is a food hall? I mean, growing up, we used to just grab lunch at the mall food court. Is it like that?

Sara Harari (01:07):

Yeah, well, yes and no. I think that the best person to answer this question is actually James Johnson- Piett. I’ll let him introduce himself.

James Johnson-Piett (01:15):

I’m James Johnson-Piett, Principal and CEO of Urbane Development. We are an economic development consultancy based in New York City that also does real estate co -development of commercial and small business assets here in New York, and more and more throughout the rest of the country.

Sara Harari (01:30):

We spoke with James a few weeks ago to talk all things food hall.

James Johnson-Piett (01:33):

What’s a food hall and what’s a food court? I mean, in all honesty, I think there is not a ton different. I would say this - I think for the most part, food courts are occupied predominantly by franchise or … Even if they are local businesses, they tend to be focused on sort of middle of the road offerings. The common offerings are much more plain and simple. There is no real focus on creating a common area energy vibe. Like you’re just going there to eat, and then you’re leaving. Your product’s probably not being prepared to order at a food court; you’re probably having pre-made food that’s warmed or somehow heated up in real time. Then you get it.

James Johnson-Piett (02:21):

Whereas, in a food hall, by and large, the folks are probably making your food. There’s a little bit more to the actual culinary experience. Certainly, the finishes of food halls are a lot more involved. It’s really about creating common area space and opportunity, [inaudible 00:02:41] for folks, for patrons. You’re going to a food hall partly to eat, but probably partly to just be part of a cultural scene. I think food halls are just moving into suburban and rural markets a little bit. But they are a very urban animal, whereas a food court you can find in pretty much any jurisdiction throughout the states and elsewhere. So I’m sure there’s other variations on a theme, but that’s typically how I think about the difference.

Sara Harari (03:09):

Are food halls a new thing? How long have they been around and why are we talking about them now?

James Johnson-Piett (03:15):

Food halls sort of evolved in some markets, in part because of real estate pressures. You started seeing restaurants getting priced out of commercial strips. If you look at food halls and coworking spaces, they surely evolved in very slower tracks. So you had a class of users who both were getting priced out of their spaces, and were responding to those technology changes, and changes in the way you work. In the case of food halls, in the way you want to eat. Those were certain drivers that kind of happened over the last 10 to 15 years. But what we think of a food hall now in its full glory, which sort of ties in a lot of the food truck, farmer’s market meets vendor market, and that explosion is maybe like six or seven years old. I think it’s been in evolutionary steps. But I think when we think about a food hall, that kind of construct, it’s probably been around for like 10 years.

Sara Harari (04:05):

That’s just the beginning.

Kate Cooney

Andrea Strong who is the founder of the food blog Strong Buzz recently posted on Eater, citing from a report from the commercial real estate firm Cushman and Wakefield, the following stats about food halls.

Kate Cooney (04:22):

In 2015, there were about 70 food halls in the United States. Within a year, that number had grown to 86, and by the end of 2017, it had reached 118. At this rate, the predictions are that by 2020, the marketplace will have tripled in size in the span of just five years. There is a quote from this report that says, “We’re starting to see food halls at the heart of new suburban mixed use developments, where the food hall component isn’t just at the center of the action, but it’s usually among the first things built.”

Dan Bitner (04:58):

So food halls have exploded as an eating experience in the last few years. How about from the community building side?

James Johnson-Piett (05:04):

The public market was always the original food hall. It’s a fusion of what the public market aspirations were always, which was spaces that people could gather, and eat, and you could get a variety of different products from various vendors, and have a place to congregate. So you’re thinking about what else am I doing in this space outside of eating that’s going to make you keep coming back? In some cases, food halls are really thinking about how they program. They’re hosting a whole comedy series in their common spaces. You have test kitchens in your spaces. You have test breweries and even distilleries that are creating new products in places. So you have an incubator/production model tying to the food hall. Certainly you have arts and culture, so you’re doing performances, and really thinking about how do you program these spaces kind of multi user?

Sara Harari (05:48):

So a food hall is a fun place to get a bite to eat, but also an important community gathering space.

Dan Bitner (05:54):

Right, and there are more and more springing up across the country. Let’s go visit one in South Los Angeles with our next guest.

Kate Cooney (06:00):

We’re so pleased to welcome Nancy Halpern Ibrahim here to CitySCOPE podcast. Nancy has served as the Executive Director of Esperanza Community Housing since 2006. Esperanza Community Housing Corporation is a nationally recognized non-profit, founded in 1989, that empowers the hardworking low income families of South Central LA to build healthier lives for themselves. The Mercado la Paloma is Esperanza’s cultural and culinary hub. It spurs economic development and is home to 11 first time, small, family owned businesses and a second generation, first time, family owned business, and six community serving non-profits. Welcome, Nancy.

Nancy Halpern Ibrahim (06:45):

Thank you, Kate. It’s a pleasure to be here.

Kate Cooney (06:48):

So I thought we could start by having you tell us a little bit about South Central Los Angeles.

Nancy Halpern Ibrahim (06:54):

South Central Los Angeles is part of South LA. It is a place that has been known for having a very strong African American cultural tradition, which unfortunately is rapidly being erased. It was one of the few parts of Los Angeles where African Americans could settle and find housing in this city. It’s a neighborhood with some of the oldest and the poorest housing stock in the city, a place without any historical perseveration protections. So even though we have homes in the area that were built originally at the turn of the last century, many of them have been subdivided legally or illegally.

Nancy Halpern Ibrahim (07:35):

If you drive up and down the streets, you can sometimes see 10, 16 electrical meters outside, on the side of homes that were originally built as single family homes. It’s an area with some of the greatest poverty in the city. The highest unemployment, and it is a notorious food swamp, or food apartheid, where the businesses tend to be mom and pop liquor stores, fast food joints, rather than easily having access to quality, whole ingredients from which to make something more sustaining for families. Access to nutritional foods and ingredients is part of the disparities that folks face there.

Kate Cooney (08:18):

Tell us about Mercado la Paloma. You’re in that first cohort of food halls, and you’re also doing the food hall model in a very intentional way that is, at its heart, an economic development project very concerned with resisting any of the kind of potential displacement that a big infrastructure project can set off in a neighborhood. So tell us about those early days, the thought behind Mercado la Paloma. Did it begin as a potential place for employment for some of the families you were working with?

Nancy Halpern Ibrahim (09:02):

We started the Mercado la Paloma as a project of our economic development design. Our first economic development project was our Promotora de Salud project. I began that project as a way of connecting folks who had never thought about leaving their factory jobs or other forms of making a living to really tap into their own gifts as health communicators and health leaders within their own family, or parish, or potentially the entire community. The Mercado la Paloma was our next undertaking, where we really tried to think, “What other ways can we work to address poverty as the single most significant social determinant of health in a part of the city that has the highest unemployment rate, the least access to opportunity and employment or education, very low educational attainment, and yet is a neighborhood that reflects this incredible wealth of being the most diverse black community and the most diverse Latino community as well?”

Nancy Halpern Ibrahim (10:20):

So tapping into other expertise, folks who come over as immigrants, or folks who have been living within the community, they have skills. They have possibly generational skills and expertise in running a business in their home country, or making a living by selling in the street, or selling in a restaurant. How can we create opportunities for the folks, focusing on food, specifically, to begin with, because we also wanted to address making improvements in the food environment? We started by pulling in, through advertisements in the local press, about six to eight different family would be entrepreneurs, and tried to learn from them what issues were keeping them separated from entering into… opening up their own business. We learned a ton.

Sara Harari (11:14):

Setting up a food hall as a tool of inclusive development is about more than just getting restauranteurs to set up shop. For the types of businesses Nancy is talking about here, Esperanza needed to understand the financial burden to the families.

Nancy Halpern Ibrahim (11:26):

We learned very quickly that the kinds of loans necessary to start a small business were not available to most local families. Either because loans were not available through redlining, either spatially or racially, or because they were people who didn’t have any collateral yet. We also learned that there are very unusual real estate demands for first time business owners, that if you’re going to be serving from your own kitchen, you need to think about not only having a healthy kitchen, and then tables or counters to serve people on, you also need to have restrooms and parking. These all begin to add to the burden of a rental for folks who are just starting out.

Nancy Halpern Ibrahim (12:17):

We decided to help this group of families develop their business plans, and for us as the nonprofit, to look for ways to co-locate those businesses in a building where we, as the nonprofit, could pull and guarantee the loans, and administrate them through the rentals to our vendors, and give a leg up to these first time family owned businesses. We wanted businesses that were focused on healthy, authentic, affordable food that would change, not only change the food environment, but also to celebrate those cultures of folks who had moved into the South LA and South Central Los Angeles. That we wanted a project that would really resemble the folks who lived around there, and celebrate them, and provide a place where community could gather in recognition of the arts and culture, and the culinary arts, and the healing arts, and small handcraft environments and services.

Nancy Halpern Ibrahim (13:28):

So we have a tailor, we have someone who does income tax preparation, we have a number of different folk art vendors in the Mercado la Paloma. We have built enough restaurant venues in the space to maximize the building box’s capacity. But we still have the room to move chairs around and rent out space to day tables, so folks who want to test the market for handmade objects that they bring, or even foods that don’t compete with the vendors in the Mercado. The Mercado is a place to do that as well. And it has also become a place for celebrating artists, fine artists, performing artists, through dance and music, poetry slams, films, etc. And to provide conferencing space for different community endeavors or community organizations.

Nancy Halpern Ibrahim (14:30):

All of our vendors are first time family owned businesses. And in a city that has so many challenges for immigrant families to begin with, the average tenure in Los Angeles, for a business focused on food, is around two and a half years. The failure rate is enormous. In the case of the Mercado la Paloma, because we have been able to create this environment of mutually supportive enterprises, the average tenure for the businesses at the Mercado is 16 years and growing.

Sara Harari (15:06):

So this is amazing, right? In United States, a majority of new restaurants fail in the first year. Even if they live through that first year, there is a 70% chance that they’ll close in the next three to five years.

Dan Bitner (15:17):

Most of the tenants at the Mercado have been open for business for over 15 years. I’m ready to start planning my trip to LA now.

Sara Harari (15:24):

Shh, some major learnings are coming up.

Kate Cooney (15:26):

So for that entrepreneur, they are paying rent on the space, and how much space do they get? Is it about 200 square feet? Could you talk about, more broadly, that price of that rent, and to what degree you are subsidizing the true cost of hosting them, or to what degree they are covering that cost? And the cost would be the build out of the space. But then also, ongoing costs for running that business.

Nancy Halpern Ibrahim (15:57):

Mercado la Paloma is a structure that was originally built as a garment factory, became a sweatshop. That evidence is built into the bones of the building, and the way that it was originally laid out when we first leased the space. So downstairs, it had the remnants of thousands of sewing machines; upstairs, up a rotunda, was a management suite with its own sauna and leather paneled walls. So we knew what kind of garment environment that was.

Nancy Halpern Ibrahim (16:33):

When we developed this for the businesses, we allowed … The first group of vendors had the opportunity to determine the specs of their original space - mostly around 200 to 300 square feet per kitchen. The square foot rate was way below market, back at the time, I think maybe as low as a $1.75 per square foot back then. Over the years, that has risen somewhat, and we are now trying to standardize all of the rates to make it more manageable. The vendors pay for the rent of their space, a portion of the common space, their share of the electricity, and a parking validation ability. So we have a parking validation in our small and very fraught parking lot, which is at a premium right now.

Nancy Halpern Ibrahim (17:31):

None of the downstairs, even if it is used for cultural activities, has been exempt from taxes. So the taxes are also shared by the vendors below. Each vendor is also responsible for maintaining their own insurance for the space. The upstairs, second floor of the Mercado la Paloma has six community serving nonprofit organizations. And the entire second floor is exempt. But downstairs, we have built the box out to the max. Esperanza maintains the common space, the bathrooms, the roofing, the electrical systems, and use a lot of our ability to bring in either loans or capital to make those repairs as needed.

Kate Cooney (18:21):

To be successful, what have you learned about the kind of working capital requirements needed for these businesses, and the kind of monthly sales they need to try to hit to really make a go of it? Even at that very below market rent for the space?

Nancy Halpern Ibrahim (18:42):

What we’ve found from working with collective vendors is that it is always more costly, there is always more working capital required than families predict. There is always more family labor that needs to go into a business to make it succeed. At the Mercado la Paloma, in addition to serving a brisk over the counter business, most of the vendors also have an active catering business as well, because they are raising their families on these business, particularly in the beginning, when word was just getting out, and they were starting up.

Nancy Halpern Ibrahim (19:29):

The startup years were lean years. Because we maintain a rental agreement with our tenants, this isn’t an incubator. We’re not interventive with their cash turnover. As long as they are able to pay their share of the project and keep it afloat, and continue to thrive, we’re very happy with that. Our arrangement, as I said, is not as an incubator, because we really want to maintain excellence within the Mercado, that is cultivated in South Central LA. Our interest is not having a low cost opportunity for folks to develop their chops, and then take whatever marvelous offering they have to a neighborhood brimming with cool offerings. We believe that excellence is something that our community deserves and should have, and it’s our role to make sure that they feel that they can have that kind of sustained tenure within the Mercado la Paloma.

Sara Harari (20:38):

This is one of the first food halls to open in the country, and one of the most successful at bringing the community inside the development process.

Dan Bitner (20:44):

By working with families, Esperanza has been able to ensure that there is some longevity built into their model.

Sara Harari (20:50):

Right. Some of the restaurants have been passed down to family members. But it’s not just the families. The entire community is bought into this model, dating back to the opening of the Mercado.

Kate Cooney (21:00):

Mercado la Paloma is located in a neighborhood of about 49,000 residents in Los Angeles City, that’s about four million. New Haven, we like to say, is 18 square miles, 130,000 people who live in the city. One of the conversations we had earlier was from a gentleman who lived in Fair Haven, which is a neighborhood of about almost 18,000. I know you’ve said you’re asked a lot about the viability of a model like Mercado la Paloma in my neighborhood, or my neighborhood, or lots of people want to know what you would recommend. What are your thoughts about finding that customer base in a smaller neighborhood? Can you reflect on who is your customer base?

Nancy Halpern Ibrahim (21:45):

Reflecting on the customer base of the Mercado, again, reminds me about the origins of the Mercado with our organization, and how important our own community members were in the pre-financing of it, and the different kinds of activities that they were involved with from the get go, either in terms of animating the space that would ultimately become Mercado la Paloma before we had doors open for business.

Nancy Halpern Ibrahim (22:12):

And also, in selling and utilizing what we called our Dove Dollars. We would sell packets of coupons that would be a dollar a coupon to be purchased now, but redeemable later when the Mercado was open. That idea was embraced so enthusiastically by our community and by our Promotoras de Salud in particular, is that it created an avid interest of participants who really felt connected to the Mercado long before it ever opened.

Nancy Halpern Ibrahim (22:49):

And now I would say among the regulars there are Promotoras de Salud and people who come to participate in arts, or health programming, a lot of the professional community, so the philanthropic community, the political leaders of the city, a lot of the local businesses, so the DMV and FEDEX, and the other large businesses. We have some folks who are USC faculty members, who choose to do their business there, and their student hours at the Mercado la Paloma, because it’s a way of getting their students up and out of the campus, and beyond the walls of Troy, into community. And we have a very thriving and growing base of students from USC and from other parts of the city who come. That’s during the week.

Nancy Halpern Ibrahim (23:47):

On the weekends things become very different. You get the Yucatecans coming to celebrate with the Yucatecan food. The Oaxacans coming to have Oaxacan food. The folks from Michoacán coming to do the birthday parties with the food that’s most familiar with them. The Ethiopian cuisine, we have a brilliant Ethiopian vegan restaurant, and a Thai restaurant. All of the different individual communities come out to celebrate family style. So it’s a very different kind of crowd that happens. We also have some folks who are avid watchers of when we do cultural programming at the Mercado.

Nancy Halpern Ibrahim (24:28):

Increasingly, we are partnering with the community in different ways around culture. So our Cultural Affairs Department is posting our calls for fine arts. We have twice this year invited artists to submit their work to be displayed in the gallery space of the Mercado on the basis of a theme. The first one was around Valentine’s Day, based on love, and nurture, and friendship. The second one was around International Women’s Day. Both times we drew in just fantastic pieces of art that gave the artists an opportunity to present to a whole different audience, allowing some of those pieces to be sold in the process.

Nancy Halpern Ibrahim (25:18):

Mercado la Paloma is also a hub for all of the different collaborative groups that are working toward equitable development, working against police abuse in the neighborhood and for law enforcement reform in the neighborhood. It is the source, it’s the bastion from which a lot of the community based campaigns that are protective of our community’s fundamental human rights, are organized and deployed. A very critical piece, because the pressures of gentrification are relentless and are going to continue. We need to make sure that not only the programs and the projects that we develop remain reflective of the community that we serve, but also as we age, and as I age, and my colleagues age, that we are also very continuously training the next generation of leaders who are indigenous to the area now, who will be carrying the mission of Esperanza and the mission of Mercado la Paloma forward. And also participating actively in all of the other cross collaborative campaigns that are so essential to protecting the rights of our community.

Dan Bitner (26:47):

Wonderful. The Mercado is not only catering to the neighborhood’s current tenants, but creating a space of intersection for new residents. It’s truly a nexus for community building.

Sara Harari (26:56):

Yeah, I think that food is really one of the best ways that we can share our culture. It’s a universal language.

Dan Bitner (27:02):

And as Nancy described it, food halls can also serve as an anchor against displacement. If done right, a food hall can be a collaborative, shared space to continue to provide amenities and healthy foods to all residents.

Sara Harari (27:14):

And at all price points.

Dan Bitner (27:15):

Right, because a key element of the food hall is designing it to be the best fit for the community, not just as another stop for tourists.

Sara Harari (27:23):

So how do we kick these food halls off in other communities?

Dan Bitner (27:26):

Let’s get back to our discussion with James Johnson-Piett from Urbane Development.

James Johnson-Piett (27:32):

You have to understand the business, understand how you advocate for a business. If you don’t understand how the economics of business work, you end up asking for what you think emotionally should be there, but doesn’t tactically work. So you have a hard time finding entrepreneurs, or finding business owners who agree with your passion, which I think frustrates a lot of community advocates. So we try to give them the tools to be able to think about how do you marry the passion with hard economics around how you run a business like this.

Sara Harari (27:56):

Then once you get the community to agree on what they want and how to communicate it, you also need to work with a developer aligned with your interests.

Dan Bitner (28:03):

Right, and there’s a totally different calculation from the developer’s side on food halls. Although they may be very trendy right now, it’s also a lot more financially risky than bringing in a tenant like a pharmacy, or a bank, who you are pretty confident are going to be able to pay rent regularly. With food halls, you have a completely different equation.

James Johnson-Piett (28:21):

When I say creditworthy, I don’t mean it as they don’t have good credit, or they’re not nice people. It’s just that, from a bank’s perspective, it takes a significant amount of scale for them to be deemed creditworthy, and for the most part, restaurants don’t fit that bill. And food hall occupants certainly wouldn’t. So as a developer, you’re having to justify how you’re going to make your rent roll with users that are deemed by the bank as fairly high risk.

James Johnson-Piett (28:50):

On top of the fact you’ve had to spend a decent amount of money making sure the space is fit out for them [inaudible 00:28:56] plug in, whether you give them raw space, or vanilla box space, or space that has a lot of the extra equipment and infrastructure that they would walk into; regardless of how far you go along the line, it’s still probably way more than you would have done if you were doing it again for a pharmacy or something like that.

James Johnson-Piett (29:14):

So yes, it’s riskier to put a food hall in, than getting a user like a pharmacy or a bank, something like that. That is oftentimes why folks pick pharmacies and banks, because they know they can make the money, and they can get their thing under it. The other piece, from a developer perspective, is it’s a fickle mistress. So food halls, you’re having to plan something years ahead of time, but let’s say it takes five years from front to back. There is so much that happens in between that time. Restaurants live and die, trends change.

Dan Bitner (29:46):

Sounds like food halls are more trouble than they’re worth from the developer perspective.

Sara Harari (29:49):

Well, maybe. But there is also significant benefits. Back to James.

James Johnson-Piett (29:53):

But on the flip side, when you think about the benefit, you’re like, “All right, well, why am I doing all of this?” Well, it depends. If you’re a market rate developer, and you’re trying to put market rate retail in your space, and you’re going to put market rate residential above it, having a cool, sexy, easy to get to space for your residents that they can take advantage of, and is an amenity for them, you can charge a premium for it. So the money that you’re spending on the bottom floor, hopefully you have enough units in residential, you can make back in multiple and the premium you’re going to have for the residential thing.

Dan Bitner (30:32):

Okay. So food halls, good for the community, check. Good for the developer, probably? Solid question mark there. How about for the entrepreneur who is interested in opening a new restaurant?

Sara Harari (30:42):

Seems like it’s largely a benefit for them too. The Mercado that Nancy described is a dream for a lot of these first time restauranteurs, creating something that has staying power is important. But there is also other things to consider. Namely, the money.

James Johnson-Piett (30:55):

Yeah, certainly, the biggest thing is per square foot, you should be paying a lot less for a food hall slot than you would be if you had your own shingle. I think the point of it is you’re sharing some of the core resources, so you’re sharing your power, your water, and all of the kind of hookups, and all of those tenant improvements that otherwise you have to pay for if you just went to a single space. You’re sharing the costs, you should be able to walk in with your business, and operate from day one, or at the very least, if you have to change some things, you’re not coming out of pocket as much.

James Johnson-Piett (31:27):

The flip side is in many food hall cases, you’re splitting your till with your landlord. Certainly, some restaurant constructs just by themself, you may be doing that as well. But most likely, you’re probably paying a triplet net lease and then you keep your money. In terms of the food hall, the rent structures tend to look a little bit different. So depending on how you’re set up, or if you’re just walking into a fully fit out space versus not, there is usually performance rents tied to it. So your rent profile might be baseline lower than it would be in a restaurant, but then you may have revenue gates, where essentially it almost acts like a royalty, where you’re sharing the revenue with the landlord or the market operator, whoever you’re with.

James Johnson-Piett (32:11):

So as you do better, those relationships become different. So you want to … You have to ward against, essentially, having a partner in a way, if you wouldn’t necessarily have if you were operating just out of your own shingle. Food halls come and go. So you’re also tethered to your other users. So whereas in your own shingle, you have the ability to market yourself, and kind of really create your own really distinct visual identity, and cultural and spatial identity. You’re part of a bigger system in a food hall. If people change, or you get a different user, you have to deal with that, and figure out how you fit.

James Johnson-Piett (32:45):

Also, to some extent, it sort of operates out of a rising tide lifts all boats model, where ultimately you’re saying, “Okay, we need more foot traffic, so ultimately we’re going to get more sales regardless.” You’re kind of competing directly with your neighbor. So when somebody comes in, like they’re making their choices, if you don’t have the best and more optimal choice, your pricing’s off. You have a really direct competitor that’s next door; you can get other product from. So as a consumer… So you’re having to really be smart, having to be smart as a restauranteur about what you do.

James Johnson-Piett (33:19):

Certainly, beyond that, depending on where you are, what it means to be in a food hall definitely changes, right? So if you’re in Brooklyn, that means something different than if you’re in Omaha. If you’re in a food hall in a place where there is probably not a lot of them, you may be seen as a premiere operator, right? Because you’re getting a premiere slot in the space. Whereas if you’re in an area where there is a ton of food halls, you’re one of many. Again, it’s just, how do you make that work? In certain markets where there is a plethora of this concept, you really have to work hard to stand out.

Sara Harari (33:53):

So depending on where you are, sharing space can be a real asset to a new business. Did you know that Julius Kimbrough from the Crescent City Community Land Trust in New Orleans, who we interviewed in episode three, is also integrating the food hall concept into the Pytheon building?

Julius Kimbrough (34:07):

The Pytheon in New Orleans, which is a mixed income, mixed use building; it’s nine stories tall, the first floor is a food hall with 14 vendors, approximately half of whom are people of color or women owned businesses. Two of the vendors in the Pytheon market, the food hall, one of them is a … He operates a food truck called Francheese, and we’ve been able to help him get into the Pytheon building and create a new outlet, a new channel for his wares, for his product. He makes sliders. He’s got a food truck now, and he also has his physical location. Thus, he’s creating more wealth for his family, he’s hiring more people. The virtual cycle of capitalism is moving forward.

Sara Harari (34:47):

So the food truck business complements the new physical location at the Pytheon. And the food hall spot can be a place where other lines of business are operated.

Dan Bitner (34:56):

What other lines are you thinking about? Delivery apps like Uber Eats, Grub Hub, etc.? I think I definitely order out more than I go to restaurants these days. I mean, it’s so much easier.

Sara Harari (35:05):

Yeah, personally, I love eating out at restaurants, but you’re totally right. In my house, we use Uber Eats as a verb. Like, “Let’s Uber Eats tonight.” My roommates and I take turns picking out the restaurant.

James Johnson-Piett (35:16):

When you think about the onslaught of apps that really are dominating delivery has really changed the way restaurants think about who they are and what purpose they serve, right? So to some extent, the food hall is a natural spur from that. So you have restaurants who have their own shingle all of a sudden see a ton of drops in foot traffic, because folks weren’t coming in to eat anymore. So all of a sudden, you realize, “Oh, wow, I have this 5,000 square foot space that has 150 seats, and am making half my money on deliveries. So why am I paying for all of this infrastructure, one. Two, it messes up the vibe for my dine-in customers, because it’s empty all of the time. And then three, the rhythms of pacing around how you cook change, when you have delivery orders. Your labor changes, obviously. You have folks that are on the waitstaff, bar back, and things like that versus just being able to prep food.

James Johnson-Piett (36:20):

So what you see in a lot of … especially high rental markets, in terms of the pricing, you have these restaurants that feel more like commissaries, like they might as well be spaces where you just prep food and pump it out, because you’re getting some driver showing up to deliver the food. And what’s changed is that that used to be the province of take out places and pizza joints. But now that’s everything. I mean, there are apps for high end, fancy dining. So it’s really changed the nature of being a restauranteur. So all of those things then come back down to whether you’re at a food hall, because of how they’re built, you’re sharing the risk around the space. So at least during high traffic times, you expect to still have that foot traffic, and you still want to have your space be something that speaks to something. It’s not just a commissary kind of vibe, it actually has a personality.

James Johnson-Piett (37:16):

But beyond that, the other big, important piece of it is because what apps do is extend your, essentially extend your catchment area. So people who would have had no idea you existed because you’re three neighborhoods away, because of apps, all of a sudden, wait, now you have a client that’s in another neighborhood, that may order from you one or two times in a month, but may also make their way to your store space as well. So what you may gear up in terms of the splits of revenue from the apps, you hope to get some balance from the marketing the apps naturally bring. But bottom line is from a revenue perspective, because the applications take a cut up front, anywhere between 20 and 50% depending on how you … which app you use, and where you want to rate in terms of their algorithm. You’re having to do that many more turns to make your money. Right? So in the case of restaurants, you’re doing that and you’re paying rent, that’s going to be for a single shingle? You definitely want to downsize.

Sara Harari (38:19):

Just one more reason for entrepreneurs to start off in a food hall. There is none of that awkward empty space, and sharing the burden of getting people in to eat.

Dan Bitner (38:26):

So the trend is picking up across the country for good reason.

Sara Harari (38:29):

Seems so.

Dan Bitner (38:30):

Food halls are just one element of the market concept that mixes food and other kinds of handicraft with the same basic economic structure. Entrepreneurs share infrastructure and benefit from the foot traffic to market.

Sara Harari (38:41):

Give me an example, like Chelsea Market? Didn’t James mention Chelsea Market?

Dan Bitner (38:45):

Exactly.

James Johnson-Piett (38:46):

One of our favorite, it’s not a food hall, per se, but it’s more of a new age retail center. We think about Chelsea Market in New York, in the meatpacking district. That is the sort of template for what we’re talking about. You have the food hall construct down there, along with many other boutique users. They are very handcrafted. So the developer of that, Jamestown LP, the president of Jamestown, Michael Phillips, I talked to him years ago about how he kind of curated the users of Chelsea Market. He told me point blank, he went to Jersey and found his butcher, and had to install the butcher’s point of sale system in it, just like I was doing in [inaudible 00:39:24].

James Johnson-Piett (39:24):

You’re doing the hand to hand, whether you’re the high end or the low end. So he’s curating his experience down there for the purposes of his upper commercial and office tenants. Chelsea Market, you think about that building before it was sold, Google bought the building, but they were initially a leasing tenant. They came there in no small part because their employees and the folks who were there working with, you go downstairs, and go eat, and shop at Chelsea. So they wanted to be near that experience. So I think lots of office users look to it as a kind of clear amenity point. Like, “Oh, we need to get lunch.” You go downstairs, you can get what you want to get, you can go hang out after work and get a beer, all of those things are there.

Sara Harari (40:05):

Mercado de la Paloma also features different kinds of vendors, but focuses on food. Also, they don’t have alcohol. So there’s variations to this theme. Urbane Development in Brooklyn is developing the new Caton Market, and building on new economic development practices. They’re thinking about striking the right balance between providing space for the current vendors, while also offering community space for production and opportunities to incubate new business ideas.

James Johnson-Piett (40:29):

What established Caton Market? So 20 years ago you had about 10 Haitian old ladies who were getting product directly from Haiti and selling them on the street in New York City, which was illegal. But at the same time, it was pretty much their sole means of survival. So they sold products day and night, winter, summer, out on the street. There was tons of issues with the police pushing them around, because they were selling products on the street illegally. So Dr. Una Clarke who was a councilwoman of the district at the time created this market to give them an indoor, legitimate shingle to be able to set up shop in. She wanted not just those Haitian vendors who were on the street corner, but also other Caribbean vendors who were in the neighborhood to have an opportunity and a space to be able to sell their products and services legitimately.

James Johnson-Piett (41:20):

Fast forward about 20 years and the market, while still vibrant in many ways, hadn’t really kept up with the times in terms of products and services, and the economics of the market itself. Absolutely, the audience had changed. The neighborhood was beginning to gentrify, the generational elements around your immigrant migrations were shifting as well, so even your second and third generation Caribbean residents wanted different things. I think most importantly, Flatbush Avenue had really enlivened as a commercial strip, and a lot of the products that the vendors were selling were in direct competition with individual shingles.

James Johnson-Piett (42:02):

In terms of what they were offering, they didn’t differentiate between the rest of the avenue. So if you weren’t competing on price and you weren’t competing on variety or value, what were you competing on? When the city is looking at a single story commercial space that’s sitting on city land, and thinking we have a housing crisis, what do we do? So how do we leverage this city property while still committing to the vendors, and trying to make sure they have their business preserved in an increasingly competitive and expensive marketplace? When we won the RFP to redevelop the site, my partners, the first point of focus was how do you develop something like this where you don’t displace people?

Kate Cooney (42:46):

What is the vision for the new space?

James Johnson-Piett (42:48):

The goal of the marketplace now is to have the best of commerce and culture in the Caribbean marketplace in New York. We want to sell [inaudible 00:42:57] and interesting Caribbean goods and wares. We want to really add prepared food as a core element to drive, both for traffic and cultural expression in the space. We want to really create the opportunity for cultures to really thrive beyond just the product services perspective, but really leverage the history of the market as a cultural center and really as a community hub. At the same time, the neighborhood is changing and you haven’t recognized the audiences are diversifying as well.

James Johnson-Piett (43:29):

So how do you stay relevant in that context? What we’re looking at is how do we differentiate from what’s already on Flatbush Avenue? Because your customer is not just on Flatbush Avenue, and not just in Flathbush’s neighborhood. They are throughout Brooklyn, they are throughout the New York region, they’re throughout the country, they’re throughout the world, because there is multiple ways you can get to them. Right?

James Johnson-Piett (43:50):

So that’s everything from taking advantage of social media, getting earned media, having an eCommerce presence, being able to dropship. So things that they take for granted as a consumer, but they don’t think about as their own businesses. But how do you get a customer who is nowhere near you? So what’s your special sauce? You have a core user who wants what you have because they’re part of a diaspora that they’re not in. So unless you are in one of the 27 Caribbean countries, you’re some place else. You’re in Toronto, you’re in Miami, you’re in London. But you try to get your hands on something that brings you back to home, and we think what we’re really trading on is both our physical experience that you’re going to have when you’re in Brooklyn as a diaspora that you can get a piece of home when you come back.

James Johnson-Piett (44:37):

But then you also can get something from there, whether you’re in our space or not. So having the channels to be able to fulfill someone’s desires in that way is something that they’re going to have to get used to, that they’re not dealing with the physical customer anymore. A lot of their marketing is thinking about this wider range of players. The only other big piece that you should keep in mind is there is a really clear incubator function here. So when Dr. Clarke initially opened the marketplace, the focus was really to try to incubate new businesses, formalizing some of your infrastructure so they can eventually get on their feet and move on. I think something got lost in translation over the past 20 years. I think a big focus for us is to bring that life cycle back, so that a lot of our users, the goal will be growth.

Sara Harari (45:27):

The potential sounds amazing. A Caribbean hub for the disapora in New York City.

Dan Bitner (45:32):

Also, seems like some hard work to get from point A, where the market is now, to point B.

James Johnson-Piett (45:37):

I think the interesting thing about our market that’s probably a little bit different than some other ones is that we have this kind of mixture of really elder based entrepreneurs. Our median age is 60. We have vendors who are 85 years old. So the idea of succession, the idea of the next intergenerational entrepreneurship of capturing and preserving culture through entrepreneurship is a big deal for us. Figuring out the whole, can you teach an old dog new tricks is definitely a key part of our construct, which is not something that most other food halls, or public markets, or other shared spaces are thinking about.

Kate Cooney (46:17):

You just laid out questions about how to prepare these entrepreneurs for taking advantage of the changing neighborhood, the changing levels of income, the ways in which you are programming the building, and maybe creating opportunities for the entrepreneurs to work together to grow in ambition and reach of their business.

James Johnson-Piett (46:42):

A lot of what we’ve been focused on is how do you differentiate between the growth entrepreneurs, so someone who is really seeing their business as something that’s going to be sort of a true growing, and viable business that someone can have employees, and let you move out of a space like ours and moving up, versus the more lifestyle business that you tend to hear about, where you’re trying to give an entrepreneur and their family, maybe an employer too, a real chance to have a quality of life that isn’t an easy and simple one, but one that has a lot of quality and is a place for you to really feel safe, and secure, and comfortable. For all of those users. It’s our job, as market manager, orchestrator of all of this stuff, to think about where the unique channels, outside of just in retail, where you can move your products. It’s actually where I think we’re headed, and then the space becomes a place where you can really rapidly prototype. I think that’s something that we’ve been thinking a lot about.

Kate Cooney (47:44):

Say more about how rapid prototyping fits into all of this.

James Johnson-Piett (47:47):

So we’re staring out with food, obviously, so the simplest way to do that is we have a shared kitchen. Our vendors, and also creators in the community, can go and basically make what they want to make. We’re also allowing for space in the health and beauty space. It’s really, really hard to find clean space to make cosmetics in, particularly natural based cosmetics that have a kind of [inaudible 00:48:08], salt and sugars, fruits and vegetables as a base for what they are. Getting those core ingredients at a price that’s not prohibitive for you to get some scale with, and having a clean space to be able to make your product in. Having a facility where you can get a custom cream made for you, you can see where the ingredients come from, you can see the process of making it, and you can see your final product being sold, creates a much different kind of experience than just going into a cosmetic store and buying something off the shelf.

James Johnson-Piett (48:37):

We also have space for some advanced textile manufacturing. So we’re still thinking through how much do we want to go deep on the apparel side of things? I think there’s some definite opportunities for a lot of our clothing makers, so we can support and resource them. I’m of the opinion that you try your best to create a facility and a space that people can get excited about and discover things in. We are under no illusion that all this is going to work. Some of it will, some of it won’t. We’re going to try our best to kind of make it happen. But what we’re excited about is you don’t usually see this level of investment, and when I say that, I mean more around the infrastructure and system of support in neighborhoods like Flatbush. You don’t really see that. You see them in other places. We want to try to really stimulate the innovation cycles that are happening in these communities, because this kind of innovation is already happening there. It just, again, doesn’t have a place to go.

Kate Cooney (49:29):

Right.

James Johnson-Piett (49:30):

To be able to get to the next level of scale. So we think our facility can be that for folks.

Dan Bitner (49:34):

This is exciting stuff.

Sara Harari (49:35):

And things are really starting to move on the Caton market. They broke ground this spring.

Dan Bitner (49:39):

Looks like Southern California won’t be the only stop on our itinerary. So many food halls and markets, so little time.

Sara Harari (49:45):

Yum. Well, that’s all for today, folks. Thanks for joining us for our close look at the economics of food halls and markets, and how they can be used for inclusive economic development.

Dan Bitner (49:54):

Tune in next time for an episode on fab labs.

Sara Harari (49:56):

Fab labs? So cool.

[Music]

Lauren Harper (18:49):

This podcast was recorded in studios at the Yale School of Management, the Yale Broadcast Studio and the Poorvu Center for Teaching and Learning.

Liam Grace-Flood (18:56):

Created by Kate Cooney and the students of the Spring 2019 Inclusive Economic Development Lab class.

Kate Cooney (19:03):

Special thanks to everyone at the Yale SOM studio and Media Control Center: Froilan Cruz, Abraham Texidor, Donny Bristol, Enoc Reyes, and Jessica Rogers.

Kate Cooney (19:12):

And at the Poorvu Center for Teaching and Learning: Brian Pauze and John Harford.

Paul Bashir (19:18):

Audio engineering and production by Ryan McEvoy and Kate Cooney.

Kate Cooney (19:22):

Music from the album, Elm City Trees, composed and performed by the artist, K. Dub. For more information and show notes, visit our website at IEDL.yale.edu.

Camilo Monge (19:36):

Thank you for listening.

[Music]