The personal stress that comes with working toward — and then maintaining — a Michelin star has been well documented in TV shows such as The Bear or memoirs like Burn the Place. On the other hand, it would seem the restaurants themselves can only benefit from such a major accolade. Yet a new study published in the Strategic Management Journal, actually finds that restaurants that received a Michelin star were more likely to close in subsequent years because of added pressure to their value chains.
Daniel B. Sands of University College London looked to explain how third-party evaluators’ reviews, ratings, and rankings can help or hurt the creation and capture of value for restaurants. His findings underscore for managers the importance of solidifying key relationships and resources before the reviewers ever come to town.
Michelin stars have been awarded for almost 100 years, and the first Michelin guide to America — covering only New York City — was published in 2005. It would be reasonable to assume that a Michelin star would lead to greater customer interest and opportunity for the starred restaurants. But Sands wondered: Does getting such an accolade actually lead to a greater ability for firms to capture value, or is that ability limited?
Sands began his investigation by gathering data on which restaurants in New York were “at risk” of receiving a Michelin star. To develop a baseline sample of such restaurants, he compiled a list of all newly opened restaurants from 2000 to 2014 that received a New York Times starred review, which provided a set of subjects that received a favorable professional critic evaluation during their first year of operation. He then tracked which restaurants also received a Michelin star, and which restaurants remained open through 2019.
Sands met with restaurant owners — including some whose spots had closed — who described what it was like to get a star: the effects on their restaurants, and how they thought about approaching the business before and after. The challenges they described after receiving a star stemmed from intensified bargaining problems with landlords, suppliers, and employees, in addition to greater consumer expectations.
For the former group — landlords, suppliers, and employees — they may see an opportunity to negotiate higher prices or salaries after the Michelin star is awarded. An employee could use it as an opportunity to find new work or open their own restaurant, increasing competition in the market.
As far as post-star customer challenges, in turn, many restaurants described getting new types of diners coming in: People who were interested in seeing something special, who had a desire to be wowed by a Michelin-starred restaurant, as well as tourist-diners coming from out of town who weren’t their typical guest prior to the Michelin accolades. Sometimes their pre-star regular customers — a crucial segment for restaurants — came in less frequently. The restaurant owners would occasionally see these new customers coming with different tastes and preferences: One interviewee said they responded to changing customer expectations by reorganizing their seating schedules and adding new, bigger tables — even though the restaurant wouldn’t gain any additional revenue from these changes.
In the end, sometimes these stressors are too much for a restaurant to withstand.
“Not all the effects of Michelin stars are bad,” Sands says. “There’s variance in outcomes: Some firms perform fine and are successful post-Michelin star.”
Certain restaurants may just be more vulnerable, Sands says. As such, he identified three managerial takeaways from his findings:
- Understand that prestigious third-party rankings can cause disruptions to your value chain.
- Protect against instability by knowing and protecting your firm’s key personnel and resources. Figure out ways to better integrate and solidify them.
- Know the importance of both upstream and downstream relationships.
“The best way to manage this is: We recognize that third-party ratings, rankings, reviews come with potential changes or potential new challenges,” Sands says. “Figuring out what those are for your business, and figuring out how to get in front of managing them, is ultimately the best way to ensure that — if there are positive effects — that you capture value from them. And if there are negative effects or potential negative consequences, that you’re able to mitigate them.”
With the proliferation of third-party ratings, rankings, and reviews in recent years across industries, Sands’s article explains how evaluations and accolades have the potential to both promote and impede the creation and capture of value. Because of the way these third-party systems produce reactions not just by the firm being evaluated, but by market actors as well, firms must understand that even a great rating can disrupt their key relationships. Before the secret shopper or critic ever comes calling, managers need to know how to solidify their most important resources and relationships.