The Michelin Star Empire

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Happy Wednesday and welcome to the 10th edition of Weekly Olio - your weekly dose of curated content with a tinge of a thought piece (yes, we mean Publisher’s Parmesan here). 🤭

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Today’s, Publisher’s Parmesan covers Michelin Guides - the iconic series of guidebooks that awards up to three Michelin stars for excellence to a select few food establishments.

Let’s start with the curation first.

The Quote󠀢 💭

The Tweet 🐦

Okay! So, ROE is a logical idea taken too far! Agree? Disagree? Let us know.

The Infographic 💹

After a dip during the pandemic, about 88,000 high-net-worth individuals were projected to relocate by the end of 2022, and a record-setting 125,000 transnational millionaires are anticipated to be on the move in 2023.

The Short Read 📝

How Chinese influencers are dodging YouTube’s anti-propaganda rules - by Daria Impiombato

Daria Impiombato is an analyst at the Australian Strategic Policy Institute. She mainly works on human rights and technology, Chinese public and foreign policy and the role of communications and new media in international politics.

Chinese YouTubers, TikTok stars, and other wanghong (internet celebrities) are “guerrillas or militia,” fighting on the flanks in “the international arena of public opinion.”

What we’re seeing is an ever-evolving information contest, where the borderlands are also the frontlines. 🤺

The Long Read 📜

Discounting Belief - Packy McCormick

While it’s hard to measure precisely, belief is one of the most important inputs to tech and crypto valuations, even though it doesn’t show up in a DCF model.

Woah! Intriguing, right? 🤯

It seems the Belief Rate is something like a conversion rate between a company’s projections and the future cash flow number that shows up in investors’ models.

Publisher’s Parmesan 🧀

The Michelin Star Empire

Michelin is the largest tyre company in the world. But, it is more famous for giving stars to restaurants. Now the question is, does the Michelin guide business actually sell more tyres?

The Michelin company is an ICONIC brand!

Founded in 1889, the French tyre company is now the largest in the world, closely beating its rival, Japan's Bridgestone. It made a total sales of €23.8 Bn in 2021, which generated a net income of €1.8 Bn!

Strangely, even though Michelin tyres are used in Formula 1 race cars, luxury cars and even space shuttles now, when we hear the Michelin name, we never immediately think of tyres or the famous Michelin man. But, instead, we think of food!

The Michelin star business is a mammoth on its own. Michelin restaurant chefs are considered culinary geniuses, so much so that the notoriously tough, Gordan Ramsay, was in tears when he lost his 2 stars in 2013!

Why did Michelin start publishing guides?

Back in 1900 France, when the Michelin brothers had recently started selling tyres for a living, only 3000 cars were present on French roads. Folks were not so keen on owning a private vehicle or using it so often that it would need a tyre change

So, Michelin not only had to

1. convince the existing car owners to buy their tyres

2. but, also had to work on expanding the market

To help with this they created the Michelin Guides. Michelin guides were, basically, travel guidebooks that included all the information about repair shops, maintenance guidelines, nearby mechanics, etc.

These guides also included maps to encourage people to visit more places. The first guidebook was published in 1900 and it immediately sold 35000 copies.

Now, given the fact that only rich and wealthy people could afford to buy a car back then. And, these folks would obviously fancy visiting high-quality restaurants in their car, Michelin decided to add independently reviewed restaurants in their guides.

The guides encouraged more people to consider buying a car and travel to 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 Machine behind the Michelin Stars 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 their guide.

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"

Michelin Guide is only present in select cities of very select countries. When the Guide enters a country, it's considered a big affair.

But, is giving out stars good for business?

Well, yes and no! The Michelin Guide mostly makes money by selling its guidebooks.

All in all, the business is an unprofitable marketing expense for the parent company. But, it is an expense Michelin easily justifies. How?

Well, let's take the example of the year 2007 when Michelin first released its Tokyo guide and entered Japan.

1. Number of guides sold in 2007 = 1.2 Mn

2. Average cost of 1 guide = $20

3. Michelin made = $20.4 Mn in revenue

4. According to a report, they lose $15 Mn on Michelin Guides every year.Loss = Expenses - Revenue → Expenses = Revenue + LossSo, in total all their expenses amount to => $20.4 Mn + $15 Mn => $35.4 Mn

5. Total Marketing spend in 2007 = $1915 MnSo, Michelin guide expense accounts for = $35.4 Mn/ $1915 Mn x 100 = 1.8%

Considering the cultural cache and influence the Michelin guides have, just spending 1.8% of the total marketing on running these guides seems entirely justified.

Additionally, an internal study suggests that the presence of the Michelin Guide in a country means people are up to 3% more likely to buy Michelin tyres.

Chefs' love and hate for Michelin!

Now, the Michelin Stars business might be a loss-making affair for the tyre company, but for restaurants, it’s always good for business.

According to the late Michelin star chef, Joel Robuchon,

1. One Michelin star => 20% more business

2. Two Michelin stars => 40% more business

3. Three Michelin stars => 100% more business

Now, receiving a star is not always a good thing. The star comes with added pressure to continue delivering high-quality food. And, if the standards are not consistently met, restaurants can lose their Michelin stars which is incredibly harmful to their business.

Closing thoughts

It's strange how a tyre company holds the fate of food-industry players in its palm. Especially in the era where very few people take long car drives to visit a restaurant. Today, most people will have to hop on a plane to visit a Michelin-star restaurant in Kyoto or Paris.

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.

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Peeyush and Mohit

Disclaimer: The views, thoughts, and opinions expressed in the text belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.