FOOD COURTS FOR FOOD OPERATORS
Excerpts from "Restaurant and Fast Food Site Selection" by John C. Melaniphy, published by John Wiley & Sons, February, 1992
Food courts have become permanent fixtures in today's malls and some downtown office complexes. They are a collection of food service operators with common seating utilizing cumulative attraction of multiple, but diverse, menus. Food courts, which began in the early eighties, were promoted to food operators as a way to cut costs, increase sales, and share common elements. In theory, it has been very effective. In reality, it has been difficult for many, adequate for some and very profitable for a limited number of food companies. The recent recession has had a very negative impact on many food court operators. They discovered that their business is directly related to the success of stores in the mall and the number of customers generated. Franchise food operators were especially hard-hit because of the additional costs that they have related to the Franchisor, namely royalties and advertising contributions.
Initially, space in shopping center food courts was leased to small, independent "Ma and Pa" food operations. Developers recognized that higher rents could be charged to small independent food operators, who were grateful for the opportunity. By 1985, a clear pattern began to emerge.
First, a significant turnover in the number of "Ma and Pa" tenants was evident. These tenants discovered that the level of sales promised often did not materialize. Moreover, many food court tenants were shocked at the actual common area maintenance (CAM) charges (real estate taxes, mall common area operating expenses, snow removal, merchants association fees and often a special clean up charge for the food court itself). The final blow occurred when they discovered that they were not making any money. Many tenants were upset with promises made by the landlord's leasing people, who often "guaranteed" (but never in writing) the level of activity that did not occur. Others were adversely affected by the addition of another food operator (often a national chain) with competitive products, especially after the leasing people promised that this would not happen.
With all of the problems, the opportunity existed for some enterprising food operators to capitalize upon the large number of shoppers concentrated in a single area. New and successful food court chains were born. Most, however, did not come out unscathed. Some had to redesign their entire concepts, get tough with landlords, and create individuality and uniqueness that afforded them an image similar to their fast-food brothers out on Main Street U.S.A.
Those who survived and flourished have developed a strong level of customer awareness and acceptance. Many of these firms finally thought that they have gained a foothold in the consumers stomach, when along came national chain fast-food operators. Most national chains avoided food courts initially because the company's did not have control of their destiny. However, the entry of the highly recognizable fast-food chains to food courts, once again caused the newly developing food court operators to wince, draw a deep breath, get tough, work harder toward success and pray for miracles.
Today, more and more food courts are tenanted with fast-food chains, featuring a broad spectrum of menu items, crossing the selection afforded by numerous other food court tenants. In some cases, the results have been positive, while in a many, the results have been negative. This does not mean that national chains should not be tenants in food courts. Conversely, for many can represent a significant opportunity, if a chain is willing to forego control over seating, signage, hours and clean-up. Also, the broader the menu of an individual unit, the greater the risk of competitive product mix. Finally, food courts truly benefit the mall, more so than the chain food operator.
Let's explore some of the important elements of food courts, and what is being provided versus what is necessary for food operator success. At the onset, it is appropriate to differentiate food courts in major malls from food courts in either atriums or office buildings in downtown areas. Food courts in downtown areas usually have higher sales than their counterpart in major malls. Downtown food courts normally have a larger concentration of employment in proximity to the food court. Also, usually over 50 percent of the items sold are carried out of the court. As a result, a lower level of seating can be provided with a higher level of sales. In contrast, in most major malls today, consumers are discouraged from taking food out of the food court, and therefore, seating and available tables are an extremely critical element. In malls, seating is like parking; the less available; the less business that will be done.
Some of the vital elements for a successful food courts include:
FOOD COURT PLACEMENT
From a food operator's point of view, the food court should be placed where the greatest number of potential consumers in the mall will be exposed. This means that not only should the shoppers be aware of the food court's location, but also the food court should be visible and highly accessible to the majority of shoppers. All too often food courts have been placed in secondary positions, and as a result have floundered.
Smart shopping center developers and landlords have recognized the three-fold benefits of food courts. First, they keep customers in the mall longer. Second, the customers tend to spend more and, third, they generate high levels of sales (if done correctly), resulting in higher rents and sales/percentage overages to the landlord. Progressive developers have placed food courts reasonably close to center court, or near the mall's primary entrance. Others have constructed a third level near center court, creating a unique effect with the food court on the third level overlooking the other levels at center court. More recently, landlords have begun to place food courts at the major entrance to the mall, making the food court a major focal point of customers entering and exiting the mall. Ironically, these have not faired as well as the food court integrated into the mall itself. Shoppers entering or exiting malls have made destination decisions and are harder to intercept. Shoppers on the mall are more inclined to be distracted or enticed to the food court.
FOOD UNIT PERFORMANCE
Ongoing studies by our firm and others, continue to find that the sales of a majority of food court tenants is below $500,000 annually. Furthermore, in the latest recession, many food court operators have seen their sales decline, as the number of shoppers in the mall has declined. In order to evaluate performance, one needs to differentiate "hot" food
units (those serving hot meals and sandwiches) from "dessert- type" units (those selling ice cream, cookies, yogurt, candy and nuts, sweet rolls, popcorn, pretzels, and other snack- type items). Furthermore, one needs to separate chain units from independents. When that is accomplished, some rather clear trends emerge. The truly high volume units are usually mall-oriented chains or national fast-food operators. There are almost always two or three low volume units that are hanging on. Even some high volume franchise units may be having profit difficulty because of the royalties and advertising contributions that they must pay to the franchisor.
NUMBER OF FOOD COURT UNITS
One of the common failings on the part of shopping center landlords has been the "if 10 is good then 15 is better" syndrome. Most food courts have too many units. The market within the mall simply cannot support the number of units at an acceptable sales levels. Historically, the food court concept envisioned placing one of each type of food unit in the court (i.e., hamburger, chicken, fish, pizza, Chinese, Mexican, Greek, Cajun, submarine sandwiches, hot dog, salad bar, deli, ice cream, yogurt, cookie, sweet roll and others). Unfortunately, most malls cannot support a total compliment of food operations. Each mall is different and has its own set of age and income customer characteristics. Thus, what works well in one mall, may not work at all, or poorly, in another. Also, the placement of the food court within the mall and its linkages to other aspects of the retail complex, are important in the success of that facility. I have long tried to convince the shopping center industry of the need to evaluate the potential for a food court the same way that we evaluate the potential for the mall itself. Namely, how many customers are going to be generated to the mall on a regular daily basis, what will their ages be, their incomes, and will they be coming with children or are the majority of the visitors employed? Also, how many people are expected to use each entrance and why?
One needs to estimate the potential customer foot-traffic at the food court entrance. Moreover, most food courts should not have more than ten units. However, the number should be based upon the market in each mall and whether major chain facilities will be included. If so, the amount of menu overlap must be realistically considered. On the basis of the potential sales; anticipated average purchase at the mall; customer characteristics; and placement of the facility within the mall, the developer or landlord should determine the number of units which can effectively be supported in the mall. Furthermore, will theaters be placed in the mall and, if so, will they be in proximity to the food court? Whereas they are sometimes in conflict with one another, there is no question that theaters, if properly positioned and operated, will provide business to the food court operators.
TABLES AND FOOD COURT SEATING
Food court table and seating availability is essential to success. Seating is like parking; when you do not have it, it puts a lid on the amount of business that can be generated in the food unit. Seating demand is a function of mall activity; food court sales, the types of food units in the food court; the type of seating; peak hours, seating efficiency; seating turnover and the number of elderly who spend sitting time in the mall. Remember, all seats are never fully utilized.
Seating availability is a misnomer. Seats may be vacant at some tables; however is seating really available? How many people will sit at an already occupied table? In most parts of the country, not many! Therefore, available tables is more important measure than the number of vacant seats. Thus, it is necessary to compute table/seating efficiency. For example, if a table of four is occupied by two people, the efficiency is 50 percent. With one person, the efficiency is 25 percent. A duce, or table for two, with one person has an efficiency of 50 percent. With two people the efficiency is 100 percent. Efficiency plays a very important role in the adequacy of seating in a food court. Seating efficiency is never 100 percent, and more often, around 65 percent if the predominant seating is tables for four. Tables for two are far more efficient. Therefore, the number of total seats is not as important as the efficiency of the seating.
Unfortunately, most successful food courts have inadequate tables/seating. If it were not for some under-performing units, the inadequacy would be obvious. It is almost as though the seating were designed for the first year sales only. As sales and customers increase, seating in the food court will become inadequate. Furthermore, seating determination often does not take into consideration the mall's shopper age structure.
Let's look at two situations. First, a mall with a food court located in a densely populated older suburban area, with a fair degree of elderly people. Here there will be a greater need for more seats in the food court. Many senior citizens will come to the food court, buy a cup of coffee and occupy seats while they visit with fellow seniors. It is not unusual for them to stay three or four hours. When this occurs, seating available for peak periods is reduced.
The second is a food court in an area with a very young population with young children in strollers. They often stop to rest in the food court, while not buying much. Also, more aisle space is usually needed to accommodate the strollers. Here again, the number of available tables (seats) is reduced. Situations like these are forecastable. Table turnover represents the number of times a table turns over during a giver time period, usually an hour. We find that the average is about three times per hour or every 20 minutes. However, there are considerable variations depending upon the age of the customer, workers versus shoppers, the type and number of food units in the food court, weekend day versus weekend malls and other factors. It is important for each food operator to know how quickly his customers turnover their tables, so that he can determine how much seating he needs close to his unit in the food court.
Most malls have about 400 seats. In my opinion, major food courts in malls should have at least 50 seats for each hot foods unit and 30 seats for each dessert food units. The 30 seats for dessert units is variable, depending upon whether the mall has a policy of not allowing the consumers to carry dessert foods out of the food court area. Thus, if a facility had six hot food units, a total of 300 seats is required for those units. Furthermore, assuming that there were four dessert-type facilities, they would require 120 seats, resulting in a total of 420 seats. Further, if the seating efficiency were 70 percent, a total of 600 seats are really required. Also, dealing in extremes of young or old,
an additional 30 to 40 seats may be needed to meet peak demand. Therefore, the minimum number of seats in successful, well placed and tenanted food courts should be a minimum of 500 and a maximum of about 600 seats, unless table turnover averages four times per hour or every 15 minutes.
COMMON AREA MAINTENANCE (CAM) CHARGES
Almost every food court tenant is upset about his or her common area maintenance charges. Perhaps, they are most upset because they have no control over those charges. Furthermore, shopping center managers are as vague as possible when defining what constitutes CAM charges. In addition to the average CAM charges, most food court tenants are billed for an additional clean up fee, relating only to the food court area. I was talking to a food court tenant the other day, who told me that he is now generating over $900 a square foot and only now beginning to make a profit because of the expensive CAM charges he is paying.
I think the current recession and the pressure on retail profits will bring a great deal more pressure to shopping center operating people regarding CAM charges. In my opinion, there should be no special clean up charge in the food court area. Instead, food courts contribute considerably to the shopping environment within malls. Eating has always been part of the carnival retail atmosphere. Without it, it would be dull and boring and consumers would not spend as much time in malls. Studies which we have conducted indicate that consumers do, in fact, spend more time and money in malls that have food facilities than those that do not. Thus, the additional clean up in the food court area should be allocated over all of the space in the mall and not specifically charged back to those tenants within the food court area. Finally, it may be necessary for all prospective food court tenants to get together and force the CAM issue with mall managements.
Food courts have too much sameness. I have long advocated that in order to truly be effective, food court operators need to create a unique presentation and environment. Certainly it is difficult to do when your counter space may only be 15 or 20 feet. Nonetheless, it can be accomplished and shopping center management should encourage it, rather than discourage it. I recall some of the problems that Sbarro's had back in the early eighties in trying to find its identity and success in food courts. By shedding the developers idea of sameness, Sbarro's created a unique, interesting and identifiable presentation, which has resulted in success in major malls throughout the country. This same kind of uniqueness is necessary with other food operators who wish to become chain facilities.
In summary, successful food courts of the future will have fewer tenants with much higher sales. They will be slightly larger individual units, permitting the operators to capture even greater sales than they currently are experiencing. The food courts will be closer to center court, (if not at center court), tastefully decorated, effectively presented without a jungle of trees and bushes obliterating the signage. Very few independent tenants will be in the food courts of the future. The majority of seating will be moveable "twos" since they will provide the greatest seating efficiency. Finally, tenant selection will be on the basis of contribution to the whole, rather than one based upon rent and filling space. Before that can happen, the economy must improve to permit the consumer to spend some of that pent-up demand that we continue to record in customer surveys.