Michelin is an ICONIC century-old brand!
In its 132nd year of operation, it made
1. Sales = €23.8B
2. Net Income = €1.8B
But, it also sold over a MILLION guides listing Michelin Star restaurants!
So why is Michelin in the business of giving culinary stars?
Let's find out 🧵
In its 132nd year of operation, it made
1. Sales = €23.8B
2. Net Income = €1.8B
But, it also sold over a MILLION guides listing Michelin Star restaurants!
So why is Michelin in the business of giving culinary stars?
Let's find out 🧵
Structure:
1. Why did Michelin start publishing guides?
2. The Machine behind Michelin
3. But, is giving out stars good for business?
4. Chefs' love and hate for Michelin!
5. Closing thoughts
1. Why did Michelin start publishing guides?
2. The Machine behind Michelin
3. But, is giving out stars good for business?
4. Chefs' love and hate for Michelin!
5. Closing thoughts
1/ Why did Michelin start publishing guides?
Back in 1900, when the Michelin brothers had just started selling tyres, only 3000 cars were present on French roads.
Folks were not so keen on owning a vehicle or using it so often that it would need a tyre change.
(contd.)
Back in 1900, when the Michelin brothers had just started selling tyres, only 3000 cars were present on French roads.
Folks were not so keen on owning a vehicle or using it so often that it would need a tyre change.
(contd.)
So, Michelin not only had to
a) convince the existing car owners to buy their tyres
b) but, also had to work on expanding the market
So, to help with these they created travel guidebooks that included basic info like country maps, maintenance guidelines, etc.
(contd.)
a) convince the existing car owners to buy their tyres
b) but, also had to work on expanding the market
So, to help with these they created travel guidebooks that included basic info like country maps, maintenance guidelines, etc.
(contd.)
The first guidebook immediately sold 35K copies.
Now, only rich people could afford to buy a car back then. And, these folks obviously fancied visiting good restaurants in their car.
So, Michelin decided to add independently reviewed restaurants in their guides.
(contd.)
Now, only rich people could afford to buy a car back then. And, these folks obviously fancied visiting good restaurants in their car.
So, Michelin decided to add independently reviewed restaurants in their guides.
(contd.)
The guides encouraged more people to consider buying a car and to visit a Michelin-reviewed restaurant.
The strategy worked out perfectly!
More restaurants in the guidebook = More travelling = More tyre sales,
which is exactly what Michelin wanted!
The strategy worked out perfectly!
More restaurants in the guidebook = More travelling = More tyre sales,
which is exactly what Michelin wanted!
2/ The Machine behind the Michelin Star Business
Today, the machine behind the Michelin Guide is a complete BEAST of an operation.
It features CIA-level secrecy and a trove of inspectors that visit restaurants throughout the year to test and feature them in the Guide.
(contd.)
Today, the machine behind the Michelin Guide is a complete BEAST of an operation.
It features CIA-level secrecy and a trove of inspectors that visit restaurants throughout the year to test and feature them in the Guide.
(contd.)
The inspectors then assign restaurants with stars.
⭐ — 1 star — "A very good restaurant in its category"
⭐⭐ — 2 star — "Excellent cooking, worth a detour"
⭐⭐⭐ — 3 star — "Exceptional cuisine, worth a special journey"
(contd.)
⭐ — 1 star — "A very good restaurant in its category"
⭐⭐ — 2 star — "Excellent cooking, worth a detour"
⭐⭐⭐ — 3 star — "Exceptional cuisine, worth a special journey"
(contd.)
Michelin Guide are only present in select cities of very select countries. When the Guide enters a country, it's considered a big affair.
Today, the guide covers ~20,000 restaurants in its published piece, out of which only ~10% receive a star.
Today, the guide covers ~20,000 restaurants in its published piece, out of which only ~10% receive a star.
3/ But, is giving out stars good for business?
Well, yes and no!
The Michelin Guide mostly makes money from selling its guide copies and occasionally receives non-recurring amounts from countries.
All in all, the business of stars is an unprofitable affair.
(contd.)
Well, yes and no!
The Michelin Guide mostly makes money from selling its guide copies and occasionally receives non-recurring amounts from countries.
All in all, the business of stars is an unprofitable affair.
(contd.)
But, It's a marketing expense that Michelin can easily justify.
How? Well, let me explain!
In 2007, Michelin launched its Tokyo guidebook.
Japan's thriving automobile sector alone accounted for 7% of the global share. So, winning in Tokyo was all too important.
(contd.)
How? Well, let me explain!
In 2007, Michelin launched its Tokyo guidebook.
Japan's thriving automobile sector alone accounted for 7% of the global share. So, winning in Tokyo was all too important.
(contd.)
On the launch day of the guidebook in Nov 2007, over 100K copies of the Red book were sold. Within 5 weeks, the number reached 300K.
But, was the Japan launch good for business? Well, let's do some math to figure it out.
(contd.)
But, was the Japan launch good for business? Well, let's do some math to figure it out.
(contd.)
1. Number of guides sold in 2007 = 1.2M
2. Average cost of 1 guide = $20
3. Michelin made => 1.2M x $20 => $20.4M in revenue selling guides.
4. According to a report, they lose $15M on Michelin Guides every year.
(contd.)
2. Average cost of 1 guide = $20
3. Michelin made => 1.2M x $20 => $20.4M in revenue selling guides.
4. According to a report, they lose $15M on Michelin Guides every year.
(contd.)
Loss = Expenses - Revenue => Expenses = Revenue + Loss
So, in total all their expenses amount to => $20.4M + $15M => $35.4M
5. Michelin's Total Marketing spend in 2007 = $1915M
So, Michelin guide expense accounts for = $35.4M/$1915M x 100 = 1.8%
(contd.)
So, in total all their expenses amount to => $20.4M + $15M => $35.4M
5. Michelin's Total Marketing spend in 2007 = $1915M
So, Michelin guide expense accounts for = $35.4M/$1915M x 100 = 1.8%
(contd.)
Considering the cultural cache of Michelin stars, spending 1.8% of the total marketing spend on running these guides seems entirely justified.
Additionally, an internal study suggests that the presence of the Guide increased tyre sales by 3% in a country!
(contd.)
Additionally, an internal study suggests that the presence of the Guide increased tyre sales by 3% in a country!
(contd.)
1. Michelin total sales in 2007 = $17.9B
2. As we know, Japan accounted for 7% of the tyre market.
Let's say its share in Michelin sales is also approximately 7%.
3. So, specifically, the Japan sales are => 7% of $17.9B => 1.25B
(contd.)
2. As we know, Japan accounted for 7% of the tyre market.
Let's say its share in Michelin sales is also approximately 7%.
3. So, specifically, the Japan sales are => 7% of $17.9B => 1.25B
(contd.)
4. If we say, the 1.25B number includes the 3% increase in sales.
Let's calculate just the increase in sales in 2007.
Here, x is the sales without the 3% increase.
0.03x + x = $1.25B
x = 1.25B/1.03
x = $1.21B
3% of 1.21B => $36.4 million dollars!
Let's calculate just the increase in sales in 2007.
Here, x is the sales without the 3% increase.
0.03x + x = $1.25B
x = 1.25B/1.03
x = $1.21B
3% of 1.21B => $36.4 million dollars!
4/ Chefs' love and hate for Michelin!
So, even though, the Michelin Guide lost $15M, its tyre sales in Japan increased by $36.4M!
Now, there's no denying that Michelin Stars are important to the company.
But, it has much much more value in the restaurant community.
(contd.)
So, even though, the Michelin Guide lost $15M, its tyre sales in Japan increased by $36.4M!
Now, there's no denying that Michelin Stars are important to the company.
But, it has much much more value in the restaurant community.
(contd.)
Chefs begin their careers aspiring, dreaming of one day receiving their first Michelin star.
And although, one may argue that Michelin Stars are losing its parent companies' money, but when a restaurant receives a Michelin star, it's always good for their business!
(contd.)
And although, one may argue that Michelin Stars are losing its parent companies' money, but when a restaurant receives a Michelin star, it's always good for their business!
(contd.)
According to the late Michelin star chef, Joel Robuchon,
One Michelin star => 20% more business
Two Michelin stars => 40% more business
Three Michelin stars => 100% more business
Now, let's calculate the increase in revenue from these numbers.
(contd.)
One Michelin star => 20% more business
Two Michelin stars => 40% more business
Three Michelin stars => 100% more business
Now, let's calculate the increase in revenue from these numbers.
(contd.)
Let's say, prior to receiving a Michelin star,
- a cafe sees a footfall of 200 people/week
- the average cost of meals is $100
- Then, it makes $20,000 per week.
Now, with Michelin stars,
- the footfall increases
- and, the cafe also increases its meal cost.
(contd.)
- a cafe sees a footfall of 200 people/week
- the average cost of meals is $100
- Then, it makes $20,000 per week.
Now, with Michelin stars,
- the footfall increases
- and, the cafe also increases its meal cost.
(contd.)
⭐ 1 STAR
Footfall => 20% ⬆ => 240
Meal Cost => $120
Revenue => $28,800 - 44% increase
⭐⭐ 2 STAR
Footfall => 40% ⬆ => 280
Meal Cost => $150
Revenue => $42,000 - 110% increase
⭐⭐⭐ 3 STAR
Footfall => 100% ⬆ => 400
Meal Cost => $200
Revenue => $80,000 - 300% increase
Footfall => 20% ⬆ => 240
Meal Cost => $120
Revenue => $28,800 - 44% increase
⭐⭐ 2 STAR
Footfall => 40% ⬆ => 280
Meal Cost => $150
Revenue => $42,000 - 110% increase
⭐⭐⭐ 3 STAR
Footfall => 100% ⬆ => 400
Meal Cost => $200
Revenue => $80,000 - 300% increase
But, receiving a Star is a double edge sword!
With more recognition comes more pressure.
These restaurants have to consistently deliver good food.
And, if these standards are not constantly met, restaurants can lose their stars which is incredibly harmful to their business.
With more recognition comes more pressure.
These restaurants have to consistently deliver good food.
And, if these standards are not constantly met, restaurants can lose their stars which is incredibly harmful to their business.
5/ Closing thoughts
It's strange how a tyre company holds the fate of food-industry players in its palm.
Especially in an era when very few people take long car drives to visit a restaurant.
Today, you'll have to hop on a plane to visit a Michelin-star restaurant.
(contd.)
It's strange how a tyre company holds the fate of food-industry players in its palm.
Especially in an era when very few people take long car drives to visit a restaurant.
Today, you'll have to hop on a plane to visit a Michelin-star restaurant.
(contd.)
So, why still continue with this?
Well, even if, today, these guides are not our travel companions, they are still excellent branding tools.
With Michelin Stars, Michelin creates its luxury brand image, and given its excellent sales numbers, the image is thriving.
(contd.)
Well, even if, today, these guides are not our travel companions, they are still excellent branding tools.
With Michelin Stars, Michelin creates its luxury brand image, and given its excellent sales numbers, the image is thriving.
(contd.)
As for the chefs, receiving a Michelin star is a very worthy goal, even if many journalists will call the whole affair and Michelin-worthy food pretentious.
And, given the cultural significance of these stars all over the world, this business won't be ending any time soon.
And, given the cultural significance of these stars all over the world, this business won't be ending any time soon.
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