Michelin Case of Study

For the exclusive use of N. Ventura Call, 2021.
SMU923
THE MICHELIN RATING SYSTEM: CRACKING THE CODE OF THE

STARS
I am very honoured for all the distinctions and accolades, but what I am most sensitive to is my
clientele and the fact that they are pleased with my food and my restaurants.
- Joel Robuchon1
Andre Giraud, the owner-chef of Lux, a Michelin-star French restaurant in Hong Kong, walked into
his office, still unclear on how to handle the adversity that had hit him. He was reeling from the
outcomes of demotion of his two-star Michelin rating, which had been awarded just a year back in
2017, to one-star. The impact has been devastating, with a massive drop in restaurant reservations
that left him with only three months of runway. He contemplated closing the doors to his restaurant,
as he had no idea what improvements needed to be made. To make matters even more confusing, the
local food guides and his social media feeds seemed to think he was doing great things in the kitchen,
and these sources could not explain the loss of the Michelin star.
Andre and his business partner, Brandon Chu, struggled to decide what to do next. The consequences
of this demotion could be devastating to their business, as it was widely believed that the demotion
of a restaurant could bring about a reduction of 30% of bookings. Andre wondered: “How true was
this? How could one understand the Michelin rating system?” Depressed, Andre reached out for his
mobile phone and called Pierre E., a long-time friend and a former Michelin inspector, with the hope
to better understand the Michelin process and what he needed to do to earn back the two stars.
Andre Giraud
From the tender age of 15, Andre Giraud had devoted his entire life to cooking, making his way up
the kitchen ranks. After 17 years of working for various top chefs in Europe, he eventually came to
helm the team of a restaurant that won Michelin 2 stars in a little cottage outside of Copenhagen,
serving haute French cuisine with a small Spanish twist. During one eventful discussion over dinner
with a regular client from Hong Kong, Brandon Chu, Andre decided that it was time for him to
relocate to Asia. Brandon, a young and recently graduated business major, wanted to leave the world
of management consulting and pursue his dream of owning a Michelin starred restaurant. He was
also an oenophile and saw himself as the perfect partner to Chef Andre.
1 Xania Woodman, “The Man, The Chef, The Legend: An Interview With Joël Robuchon”, Forbes Travel Guide, August 18, 2015,
https://stories.forbestravelguide.com/the-man-the-chef-the-legend-an-interview-with-joel-robuchon, accessed March 2020.
This case was written by Jonathan Chee and Professor Srinivas Reddy at the Singapore Management University. The case
was prepared solely to provide material for class discussion. The authors do not intend to illustrate either effective or
ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information
to protect confidentiality.
Copyright © 2021, Singapore Management University Version: 2021-01-20
This document is authorized for use only by Núria Ventura Call in 2021 Fall_MSc International Marketing and Business Development_Marketing Research_Lille taught by Burçak ERTIMUR,
Skema Business School from Oct 2021 to Dec 2021.
SMU-20-0048 The Michelin Rating System: Cracking the Code of the Stars
The pair eventually chose Hong Kong to start their first venture. One of Brandon’s university
classmates worked for the Hong Kong Tourism Board, and had informed them that the council was
always on the lookout for innovative and ground-breaking culinary talents who wished to share their
style and offerings to the region, and would offer foreign talents incentives that focused on training
service staff, food safety and supply chain management.
After months of agonising over this decision with his wife, Andre decided to use their life savings to
open Lux, an intimate 35-seater at the heart of the central business district in Hong Kong. Not having
been involved in the business side of running a restaurant, Andre turned to his partner, Brandon, to
evaluate and manage the finance, marketing and operations side of the business.
Within the first year, the pair won numerous accolades and praise from the media and local food
critics. It was not long after that they were awarded their first Michelin star, and two years after that,
their second. Then disaster struck, and while the pair was still basking in the glory of their success,
the news of their demotion came in 2017.
After the initial shock, both Andre and Brandon tried to inquire about the justification for the
demotion. They hired a consultant to run through their operations and found that nothing had changed
in the way they did things from before. In the meantime, sales and bookings started to drop rapidly.
The Michelin Guide
It had been 120 years since Édouard and André Michelin first published a guidebook for French
motorists, informing them where they could repair their vehicles and take rest stops. Updated
annually, the famed Bibendum, known as the Michelin Guide, undoubtedly changed the fates of
chefs and restaurateurs who lived and breathed on the release of its annual results, wondering whether
their establishments would get promoted, retained, or worse, lose their stars. Much controversy had
shrouded the Michelin Guide over the years–from the exposé of a former inspector2, to the highly
publicised suicides of two celebrated chefs, to others who denounced their participation because of
perceived elitism and non-standardised inspection methodology.
Michelin’s policy of not defending its methods only served to perpetuate the fascination and
frustration engendered by the award. Since 1931, the guide had adopted a three-star rating system:
1 Star: A very good restaurant in its category
2 Stars: Excellent cooking, worth a detour
3 Stars: Exceptional cuisine, worth a special journey
Then in 1955, the Guide came up with the Bib Gourmand, which highlighted the food establishments
that best aligned with the budget and taste of the local region. Another addition to the rating system
of the restaurant was the couvert, also known as the knife-and-fork symbol, which was awarded to
the recipient for the level of comfort it afforded the diner. Five couverts meant “luxury in the
traditional style”, while one couvert denoted that the restaurant was “quite comfortable”. Black
couverts denoted a basic level of experience and the red meant a superior one. In 2020, there were
2,144 restaurants with one Michelin Star, 378 restaurants with two Michelin Stars and 104 restaurants
2 Pascal Remy, “L'inspecteur se met a table”, Paris, France: Editions des Equateurs, 2004.
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with three Michelin Stars, bringing the total to 2,626 stars.3
Explained Jean-Luc Naret, Directeur Général of the Michelin Guide, 2009,
Over the years, other publications attempted to challenge Michelin, but without success. To offset
the expense of sending inspectors to restaurants across the country, rival guides were obliged to
accept free meals or to offer favours, like free advertising in the guides’ pages. Michelin’s
inspectors faced no such quid pro quo.
Michelin has grown into one of the most successful multinational corporations in the world, a
company more than three times the size of Goodyear. Michelin’s profits help to defray the costs
of food inspectors’ salaries, travel budgets, and restaurant bills. This independence, coupled with
the jealously guarded anonymity of its inspectors, is what gives Michelin its aura of
incorruptibility.4
As at 2020, Michelin was a French multinational company headquartered in Clermont-Ferrand with

123,000 full-time employees. It was the world’s second-largest tire manufacturer in 2019. In the year
ending 2019, Michelin reported earning annual revenues of €24.13 billion (US$29 billion5) and €3
billion (US$3.6 billion) from segment operating income (refer to Exhibits 1 and 2 for further details
on the financial information). The main segments were “Automotive and related distribution”; “Road
transportation and related distribution”; and “Specialty businesses and related distribution”.
The Michelin Guide and its associated activities were referred to in the annual reports as “Printing
Business” activity and sometimes as “Michelin Experiences” (refer to Exhibit 3 for a reporting note
about the Guide in the group financial report). From 2017 to 2020, there was no significant change
in the percentage of income attributing to the “Automotive and related distribution” segment business.
There was also no increase in full-time staff due to activities relating to the Guide.
The Michelin Inspector
There had always been controversy surrounding the recruitment, roles, and responsibilities,
inspection criteria, and power of the Michelin inspector. Part of the fascination was due to the
tremendous effect it would have not only on the establishment and the restaurant industry, but also
on the economy of the city that the Guide would cover.
Recruitment
Andre managed to find several reflections of past inspectors, who had granted public interviews,
firstly on the recruitment process.
I did not go to any school for inspectors... Obviously there is no such school. An inspector is no
more than a food critic or taster. Taste cannot be taught in an institution. I have patiently trained
3 “The Michelin Guide Online, Restaurant Guides”, downloaded from Michelin website,
https://guide.michelin.com/en?locations=RESTAURANTS, accessed April 13, 2020.
4 John Colapinto, “Lunch with M. Undercover with a Michelin Inspector”, The New Yorker, 23 November 2009,
https://www.newyorker.com/magazine/2009/11/23/lunch-with-m, accessed April 2020.
5 US$1=Euros 0.83 as at February 2021.
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mine day after day, and it takes time to make critical distinctions… The company often advertises
in the press ads that it is looking for "experts in tourism and gastronomy" or "rigorous listeners”
or “cultivated travellers" with a “sense of humour”, observations and contacts. Who, would not,
after reading this, want to become the James Bond of gastronomy?
- Pascal Remy, former Michelin Inspector6
A degree in hospitality, hotel management, or cooking is mandatory for Michelin inspectors.

Every job that Maxime held, from high school on, had been in the domestic food, wine, or
restaurant industry. She got a master’s from N.Y.U. in food studies and obtained a sommelier’s
certification. Six years ago, she was working in a food and hospitality job in a city far from New
York, when she learned that Michelin was recruiting inspectors to produce a New York City guide.
All candidates are flown to France to take part in the Michelin training program.
- Jean-Luc Naret talks about “Maxime” during an interview with The New Yorker7
Pierre explained to Andre,
In any other organisation, it is accepted that the qualification of a candidate changes with the
times. With education becoming easier to access, an organisation will be able to handpick from
a greater pool of talent. But because two Michelin inspectors said this, the public instantly tried
to poke holes into the believability of the sources. These interviews are already 10 to 15 years
old. With the adoption of technology and the commissioning of mobile platforms, the way the
inspections are coordinated, communicated and the results published is so different from back
then. This also means that the recruitment of a different breed of inspectors is needed. Moreover,
the current generation grew up watching the media celebrate inspectors through documentaries
and movies. This allows the organisation the right to cherry-pick its candidates.
When I was inspecting, I had to drive myself around, which meant that I would be extremely
sparing in the wines I tasted. Though the inspectors are not there to critique the wine, the effects
of effective parings are not to be underestimated. This also means that Michelin needs to get
candidates who are trained in that subject. That is why the collaboration with Robert Parker8 is
no coincidence.
Staying Incognito
The identity of the inspectors was one of the leading causes of controversy. The logic behind the need
for anonymity was to maintain an unbiased standard of inspection. However, many restaurants
maintained that they openly shared databases amongst themselves about the identity of the inspectors.
You know, we have a chat group that is used among ourselves frequently around the world. We
can share the closed-circuit television’s (CCTV) screenshot of every Michelin Guide who
presented his card. So we have a lot of data that we share among the chefs. When they make the
reservations, you kind of ‘know’ it's them because the number is the same even though the name
is different. The corporate credit card is always the same for the user.
6 Pascal Remy, “L'inspecteur se Met a Table”, Paris, France: Editions des Equateurs, 2004, pg. 17.
8 Robert Parker is one of the foremost experts in wine ratings. Based on a 100 point award system, Robert Parker publishes a journal
cataloguing wines and their characteristics and scores.
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- “DM”, a chef from a European 3 Star restaurant9
The role of the inspector was analogous to that of an auditor – to judge a restaurant, one would have
to audit the establishment fully and fairly.
The innkeeper should not have any preconception of who we are. We could be dining in pairs of
different genders, race, age gap and even nationality. For me, I will always wait for my godson’s
birthday to try the kid’s menu. We present ourselves very officially with the famous professional
card in the first hotel. It is not blue-white-red, it is a small black and white card bearing the logo
of the company. The inspectors may sometimes use specific strategies that involve diversion. An
amusing anecdote consists of an inspector… once, he dines with a fair-sized company of six pax,
at the best table. The innkeeper, believing himself to be more cunning than the guide's director,
regulates the choreography in the shadows. Far from the spectacle, a little behind, more precisely
near the bathroom door, two gentlemen were casually observing. Like other customers, no doubt,
they feel a bit neglected. The innkeeper was shocked when the two gentlemen presented their
cards at the end of the dinner. Our director did not operate alone.
- Pascal Remy, former Michelin Inspector10
Echoing this viewpoint was Maxime, “We spend all our time not letting people know who we are,”
she said, but admitted that she had told her husband what she does for a living. “He’s an attorney; he
knows all about confidentiality.” For most others, she keeps her occupation vague. “We try not to
lie.”11
Andre was quick to weigh in his thoughts on this. He could see how this may have been a useful tool
to maintain a neutral and fair assessment. But in 2020, with social media, how could a restaurant get
away with serving one set of standards to the guests and another to the person suspected to be an
inspector? He commented,
The notion that there is a fridge full of goodies that can be pulled out to feed and impress an
inspector is just illogical. Almost all good chefs slave to perfect their craft. They want to please
their guests–every time. The dishes are executed with restraint and discipline, balanced with
unbelievably long hours of experimentation. If the inspector is before a chef, there is nothing he
can do to “tweak” it better. So, there is no need for the cloak and dagger. Unless they just want
to make it seem like they were spying on you from a distance. In reality, there is no way they can
be everywhere and cover all the restaurants that they claim to.
Training and Being on the Job
Commented Tim Zagat, “I’d love to know what their training is. Usually, the experts—for example,
the major critics for the major papers—you know what their background is. But this business of
making a virtue out of not knowing? I question it. How are you supposed to judge their expertise if
you don’t have any idea who they are?”12
9 In discussion with the case authors.

10 Pascal Remy, “L'inspecteur se Met a Table”, Paris, France: Editions des Equateurs, 2004, pg. 55.
12 Ibid.
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To have already made it through the interview process meant that the candidate had an above-average
knowledge of culinary methods and possessed a keen sense of taste. However, this was insufficient,
because in order to be a great inspector, one had to undergo a rigorous training regime. The training
was arduous, during which they learned the art of observation and compartmentalising information
quickly and neatly.
Though the area of coverage and the number of establishments was predetermined for the inspectors,
the planning of the routes was their prerogative, and they had to be resourceful and careful with the
budget they had, as there was limited time before they had to head to the next destination. All of the
dining costs and disbursements were paid for by Michelin. The inspector had to eat two meals a day
for 200 days in a year. This regime was the best form of training. After eating at so many destinations,
their senses became acutely developed to taste the nuances of what worked and what did not.
During the traineeship, the candidates had to pair up with a senior inspector to observe and learn from.
Where possible, the pairings would be diverse as it ensured cross-training and a wider spread of
knowledge sharing. When their training was done in France, the candidates had to go through another
round in another European country. The average training period lasted for a minimum of five years.
Simple arithmetic showed that the inspector would have, by the end of his training, dined 2,000 times
at various locations. Reporter John Colapinto explained,
…begin filling out her report, which is made in the form of entries in a classification form
supplied to all Michelin inspectors. She would list every ingredient in everything she ate, and the
specifics of every preparation. She would rate these according to several criteria, including
quality of the products, mastery in the cooking, technical accuracy, balance of flavours, and
creativity of the chef. Then she would fill out the section that deals with setting, comfort, and
service—and that determines the number of couverts the restaurant will earn. “I’ll talk about the
service, the crowd, the décor, the ambience, the wine list, the sake list—whatever is applicable,”
Maxime said. “The salt, the glasses, everything about the experience you had from the second
you made the phone call to book the reservation, to when you walked in the door when the hostess
greeted you—or didn’t greet you—to whatever little goodies you have at the end of the meal.” 13
Pierre E gave Brandon and Andre an analogy about the training that the inspectors received,
The job is like being a fighter pilot or concert pianist. You use a checklist to fly a plane or note
sheets to play a concert piece. Initially, you may follow the checklist or sheets to a tee. But after
flying 2,000 missions or playing the piece for the 2,000th time, you do it instinctually. Sure there
are times when mistakes are made, but it will not be too far off. Ultimately, while the inspectors
perform the audit, the actual awards are decided by a committee.
Judging Criteria
Controversies
The two one-star hawker stalls–Hill Street Tai Hwa Pork Noodle and Liao Fan Hong Kong Soya
Sauce Chicken Rice & Noodle–still stick out like sore thumbs among the restaurants that are also
https://www.newyorker.com/magazine/2009/11/23/lunch-with-m, accessed April 2020..
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given a star. How do they get grouped in the same category as restaurants such as Corner House
or Imperial Treasure Fine Teochew Cuisine? How do they meet Michelin's criterion of quality
ingredients when the vinegar used for the pork noodles comes from a commercial bottle used
widely by hawkers? And is the pork a special breed?14
In yet another controversy, in a 2020 civil case between the flamboyant chef Marc Veyrat and
Michelin, Veyrat was upset that the review by the Inspector had some flaws in the assessment. The
inspector had averred that the restaurant used cheddar cheese instead of the local premium variant.
As a result, the restaurant, La Maison des Bois Guide (refer to Exhibit 4 for details of the case) was
demoted to 2 stars. Marc was the only chef in the modern Gault&Millau management to have scored
a perfect score of 20/2015, and demanded to see the notes of the review. Uncharacteristically, instead
of seeking to mediate the dispute in a closed-door session to clarify the chef’s doubt, the Guide chose
to spend its resources to vilify the chef.
Andre commented,
Keeping the judging criteria a secret makes very little sense. Awarding a Michelin star is not a
zero-sum game. They would not take away one to give to another. Furthering on that logic,
imagine if there was a guideline published for public review–then theoretically in an efficient
market, everyone would create and maintain their establishments following these very high
standards. This would result in the overall improvement of dining experience worldwide.
Graduation scales would ideally be Good/Better/Best instead of Everything-
Else/Subjective/Undeniable. If Michelin democratises this framework, it would defeat every
competitive guide. So why would it not do so?
Possible variables for success
There had been many hypotheses about what makes a restaurant worthy of a Michelin star(s) award.
Michelin had openly stated that the Stars were given for the food served, and not the service and the
ambience. Critics of the Guide had taken this criterion to be implausible because the environment
where the food was served and consumed would affect the diners’ senses and mood (refer Exhibit 5
for details). Commented reporter Magnus Bennett,
Michelin keeps much of its approach under wraps, but does outline five main criteria for inclusion
in the guide–quality of the products; mastery of flavour and cooking techniques; the personality
of the chef in his cuisine; value for money; and consistency between visits.16
Michael Ellis, when he was the Michelin Guide Director in 2019, mentioned “general emotions”
being important when describing how certain hawker stalls in Singapore received their stars,
14 Wong Ah Yoke, “Wong Ah Yoke v Michelin: The Singapore Restaurants that Should be on the List”, The Straits Times, 28 July
2018, https://www.straitstimes.com/opinion/wong-ah-yoke-gives-out-stars-to-singapore-restaurants, accessed April 2020.
15 The Gault&Millau international scoring standard was based on a total of 20 points. Each restaurant could be awarded up to 15 points
for food. A group of experts assessed the quality of ingredients, seasonings, creativity, presenting techniques of dishes, harmony, and the
wow factor that set a dish apart. An additional 5 points can be earned for service, ambience, and overall experience of the restaurant.
From 2010, restaurants are scored with "chefs toques", where the maximum is five toques. For getting to the list of Gault&Millau
restaurants and gastronomic guide earning of 10 points is required. Gault&Millau, https://fr.gaultmillau.com/, accessed February 2021.
16 Magnus Bennett, “Star Quality: What Does it Take to Win the Michelin Award?”, BBC Scotland news website, 3 October 2017,
https://www.bbc.com/news/uk-scotland-scotland-business-...visits, accessed February 2021.
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…it signifies that these hawkers have managed to hit the ball out of the park... In terms of the
quality of the ingredients, in terms of the flavours, in terms of the cooking techniques, in terms of
just the general emotions, that they are able to put in their dishes. And that is something that I
think is really unique to Singapore.17
External Pressures
In October 2017, Song Ki-seok, a local official from the National Assembly of Education, Culture,
Sports, and Tourism Committee, publicly criticised the state-run Korean Tourism Organization
for agreeing to pay Michelin approximately two billion won (roughly $1.8 million USD) to bring
the Seoul guide to the country. The KTO’s initial payment of 100 million won went out in 2015.
Over the next four years, starting in 2016, according to the contract, roughly 400 million won a
year would change hands to support the continued publishing of the guide. What the tourism
board received for that hefty sum of public money was a Seoul guide riddled with errors. 18
In the same vein, Claire Dorland Clauzel, former executive vice president for Michelin guides, told
the Washington Post in 2017, “Some countries and some governments that want to… attract tourism,
they are very interested in having a guide, and so they sponsor a guide to have the ability to
communicate around their gastronomic landscape.”19
These comments also fed the suspicions of Michelin’s detractors that the inconsistencies in the
Guide’s methods were only found generally in the first 2 star categories. Remy suggested that the 3
stars were ‘untouchables’ because their very quality was beyond doubt and they were not likely to be
affected by ratings. In a sense, Michelin would not be able to use vague informational asymmetry to
justify potential demotions. Remy also rubbished the detractors by saying that Loiseau case, however
sad, were anomalies and not to be blamed on the Guide (refer to Exhibit 6, an article on the Bernard
Loiseau & Benoit Violier incident).20
Competition
There were several global restaurant rating guides (refer to Exhibit 7). One of the most vocal
competitors of Michelin had been the Zagat Survey. Unlike the Michelin, Zagat used a different
method of offering recommendations. Tim Zagat, the founder, explained,
We really started with the view that if you had thousands of people voting on restaurants, you
would be more accurate than any one person could be. You can also break out a lot of numbers
that are important. We both more or less agree on the very top places, but food, service, cost and
decor all have different weights depending on what you are doing. Most of the time, you are not
looking for that very top restaurant. If you are taking young children out, you may want minimal
17 David Leveille and Nadia Spock, “Singapore Gets the World's First Michelin Star for a Food Stall”, wjct, 22 July 2016,
https://news.wjct.org/post/singapore-gets-worlds-first-michelin-star-food-stall, accessed February 2021.
18 Brenna Houck, “The High Price of a Michelin Guide”, Eater, 18 July 2018, https://www.eater.com/2018/7/18/17540672/michelin-
guides-restaurants-tourism-bangkok-thailand-south-korea-singapore-funding, accessed April 2020.
19 Maura Judkis, “South Korea Paid Big Money to Commission its Michelin Guide. Does that Mean U.S. Cities could do the Same?”,
The Washington Post, 25 October 2017, https://www.washingtonpost.com/news/food/wp/2017/10/24/south-korea-paid-big-money-to-
commission-its-michelin-guide-does-that-mean-u-s-cities-could-do-the-same/, accessed April 2020.
20 Michael Steinberger, “Michelin and the Deaths of Two French Chefs”, The New York Times, 5 February 2016,
https://www.newyorker.com/culture/culture-desk/michelin-and-the-deaths-of-two-french-chefs, accessed April 2020.
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decor and low cost, whereas if you are going to the movies, you want the right location and speed
of service.21
Michelin’s common retort to such statements had also been to assert its incorruptibility because of its
deep pockets; “One curious thing to remember about Michelin Guides is that the whole rationale
behind them is not to make money, but to promote the name of Michelin as a tire company.”22 It
seemed to work, as Mr Bulmer (former head, Michelin UK) said, “The turnover of the maps and
guide division of Michelin is less than 1% of its business, but it generates half of Michelin's overall
publicity—and that's not just among foodies.” 23
Michelin had signed strategic alliances with TripAdvisor and Robert Parker. TripAdvisor was a
public peer sharing site that aggregated opinions from democratic inputs. Why would Michelin need
to rely on peer reviews? Andre and Brandon became concerned about what they had gathered so far.
Andre ruminated,
If Michelin valued hearing what the mass public had to say, why were they not accepting that a
peer review format was better than having one mysterious inspector with no visible criteria or
credentials? There was nothing in the Michelin group’s financials that suggested that there was
a clandestine organisation capable of funding the level of enterprise that was currently claimed.
Perhaps the silence was a defence mechanism that protected them from ever explaining the ‘who,
why and how’? And the mystery was the multiplier effect for the performance of a restaurant.
Making a decision
Said Joel Robuchon, “With one Michelin star, you get about 20 percent more business. Two stars,
you do about 40 percent more business, and with three stars, you’ll do about 100 percent more
business. So from a business point... you can see the influence of the Michelin guide.”24
Andre and Brandon listed the points that they had discussed and started to form their analysis. The
financial statements of the Michelin group in 2019 revealed that the tire production by tonnes had
dropped 3.8%, which also matched the market segment reduction of the automotive business from
57% to 49%. The operating income had stayed about the same for the years 2017-2020. The firm also
took on a relatively large size debt, €3 billion (US$3.6 billion), but the majority of that was to acquire
farming tire speciality firms Fenner and Camso at €2.7 billion (US$3.25 billion). The remainder was
share buybacks and dividends. This acquisition could account for the increase in headcount ex-post.
From 2017 to 2020, it hired 20,000 more full-time employees. Therefore, there did not seem to be an
extraordinary budget for any of the meals and inspections that Naret averred to possess to stay
insulated from agency issues.
The pair needed to weigh all the information gathered and decide if they should trust that the Michelin
21 Bruce Palling, “Battle of the Red Books, With Zagat Gaining Ground, is Michelin still the No. 1 Guide?”, The Wall Street Journal, 8
October 2010, https://www.wsj.com/articles/SB10001424052748703726404575533571998555854, accessed February 2021.
22 Ibid.
23 Ibid.
24 Hillary Eaton, “Here’s How Michelin Stars Actually Affect the Restaurant Business”, Food & Wine, 5 October 2017,
https://www.foodandwine.com/chefs/heres-how-michelin-stars-actually-affect-restaurant-business, accessed April 2020.
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rating system was accurate and consistent, and try to improve on the performance their hypothesised
variables to strive for a promotion. Or, should they consider closing their restaurant due to financial
limitations?
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EXHIBIT 1: MICHELIN ANNUAL REPORT 2019
Source: The Michelin Group, 2019 Annual Report, p. 9, https://www.michelin.com/en/documents/2019-annual-

results-guide/, accessed April 2020.
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EXHIBIT 2: MICHELIN FINANCIAL INFORMATION ON OPERATING COSTS

In € millions 2019 2018* 2017 2016 2015 2014 2013 2012 2011 2010
Sales 24,135 22,028 21,960 20,907 21,199 19,553 20,247 21,474 20,719 17,891
% change +9.6% +0.3% +5.0% -1.4% +8.4% -3.4% -5.7% +3.6% +15.8% +20.8%
Total employee benefit costs 6,365 6,038 5,871 5,542 5,785 5,292 5,292 5,377 5,021 4,836
as a % of sales 26.4% 27.4% 26.7% 26.5% 27.3% 27.1% 26.1% 25.0% 24.2% 27.0%
Number of employees (full time equivalent) 121,300 111,100 107,800 105,700 105,800 106,700 105,700 107,300 108,300 105,100
Research and development expenses 687 648 641 718 689 656 643 622 592 545
as a % of sales 2.8% 2.9% 2.9% 3.4% 3.3% 3.4% 3.2% 2.9% 2.9% 3.0%
(1)
Segment EBITDA 4,763 4,119 4,087 4,084 3,934 3,286 3,285 3,445 2,878 2,660
Segments operating income 3,009 2,775 2,742 2,692 2,577 2,170 2,234 2,423 1,945 1,695
Segments operating margin 12.5% 12.6% 12.5% 12.9% 12.2% 11.1% 11.0% 11.3% 9.4% 9.5%
Operating income 2,691 2,550 2,631 2,791 2,207 1,991 1,974 2,469 1,945 1,945
Operating margin 11.1% 11.6% 12.0% 13.3% 10.4% 10.2% 9.7% 11.5% 9.4% 9.5%
Cost of net debt 330 200 176 203 130 94 155 206 236
Other financial income and expenses (5) 16 (0) 20 (30) (43) (15) (22) 236 10
Income before taxes 2,236 2,230 2,354 2,464 1,869 1,651 1,702 2,307 1,996 1,498
Income tax 506 570 661 797 706 620 575 736 534 449
Effective tax rate 22.6% 25.6% 28.1% 32.3% 37.8% 37.5% 33.8% 31.9% 26.8% 30.0%
Net income 1,730 1,660 1,693 1,667 1,163 1,031 1,127 1,571 1,462 1,049
as a % of sales 7.2% 7.5% 7.7% 8.0% 5.5% 5.3% 5.6% 7.3% 7.1% 5.9%
(2)
Dividends 666 637 585 522 463 464 438 378 314 147
Cash flows from operating activities 3,321 2,831 2,741 2,764 2,695 2,522 3,089 2,926 1,196 1,322
as a % of sales 13.8% 12.9% 12.5% 13.2% 12.7% 12.9% 15.3% 13.6% 5.8% 7.4%
Gross purchases of intangible assets and PP&E 1,801 1,669 1,771 1,811 1,804 1,883 1,980 1,996 1,711 1,100
as a % of sales 7.5% 7.6% 8.1% 8.7% 8.5% 9.6% 9.8% 9.3% 8.3% 6.1%
Net debt (3) 5,184 4,056 716 944 1,008 707 142 1,053 1,814 1,629
Equity 13,229 12,181 11,261 10,646 9,542 9,523 9,256 8,501 8,101 8,127
Gearing 39% 33% 6% 9% 11% 7% 2% 12% 22% 20%
Net debt (3) / EBITDA (1) 1.09 0.98 0.18 0.23 0.26 0.22 4.00 31.00 63.00 61.00
10.1 (4)
Operating income before non-recurring items / Net interest charge 13.3 15.9 13.3 12.8 16.0 157.0 142.0 92.0 91.0
Free cash flow (5) 1,142 (1,985) 662 1,024 653 322 1,154 1,075 (19) 426
ROE (6) 13.1% 13.6% 15.0% 15.7% 12.2% 10.8% 12.2% 18.5% 18.1% 12.9%
ROCE (7) - - 11.9% 12.1% 12.2% 11.1% 11.9% 12.8% 10.9% 10.5%
Operating ROCE (8) 13.7% 14.0% 13.0% - - - - - - -
Per share data (in €)
Net assets per share (9) 74.1 67.8 62.7 59.1 52.5 51.3 49.8 46.6 45.9 46.0
Basic earnings per share 9.69 9.30 9.39 9.21 6.28 5.52 6.08 8.62 8.14 6.78
Diluted earnings per share 9.66 9.25 9.34 9.03 6.19 5.45 5.98 8.41 7.97 6.64
Price-earnings ratio (10) 11.3 9.3 12.7 11.5 14.0 13.6 12.7 8.3 5.6 7.9
(11)
Dividend for the year 2.00 3.70 3.55 3.25 2.85 2.50 2.50 2.40 2.10 1.78
Pay-out ratio (12) (11) 19.5% 36.4% 36.0% 36.5% 37.0% 40.6% 35.0% 28.7% 30.0% 30.0%
Yield (13) (11) 1.8% 4.3% 3.0% 3.1% 3.2% 3.3% 3.2% 3.4% 4.6% 3.3%
Share turnover rate (14) 82% 92% 71% 78% 99% 91% 99% 129% 180% 188%
12/18

13/18
EXHIBIT 3: ‘MICHELIN EXPERIENCES’
Michelin parks the Guide’s income and expenses in their financials as ‘Michelin Experiences’. This
is reported under one of three of the income groups–Automotive and related distribution.
“Michelin Experiences’ sales performance was shaped by strong growth in B2B revenue, led by the
monetization of Michelin Guide launches in an ever-widening array of destinations, and by an
increase in digital revenue thanks more effective content monetization. On December 3, Michelin
signed an agreement with TripAdvisor that included the sale of BookaTable to online restaurant
booking platform TheFork, as well as a licensing partnership with TheFork aimed at improving
access to about 4,000 restaurants selected by Michelin Guide inspectors in Europe. In addition, on
December 10, Michelin Travel Partner (MTP) and Media Participation announced their plans to
create a joint venture, with MTP contributing its B2C Print operations and taking a 40% minority
stake in the operation. In its ongoing commitment to offering every customer an outstanding mobility
experience, Michelin Experiences is strategically focusing on its unrivaled expertise in curating a
unique selection of restaurants, hotels and travel services.
In all, sales in the Automotive and related distribution reporting segment rose by 4.6% to €11,851
million, from €11,332 million in 2018. The decline in volumes was more than offset by steady
enhancement of the product mix, led by the sustained success of the MICHELIN Primacy 4, Cross
Climate+, X Ice North 4 and PilotSport 4 SUV lines on the one hand, and strong growth in the 18-
inch and larger segment on the other, as well as a disciplined pricing policy pursued throughout the
year.”

14/18
EXHIBIT 4: MARC VEYRAT’S CASE AGAINST MICHELIN
An excerpt of the article by Monica Burton, “French Chef Loses Lawsuit over Michelin Downgrade”,
published in Eater on 2 January 2020.
“The verdict is in: although putting cheddar in a French souffle may be a punishable offense to some,
mistakenly accusing a fine dining restaurant of making that error is not—at least in the eyes of a
French court. On Tuesday, French chef Marc Veyrat lost the lawsuit he filed against Michelin after
the dining guide downgraded his restaurant La Maison des Bois from three to two stars, The New
York Times reports.
In September, Veyrat sued Michelin for falsely claiming that his restaurant’s souffle contained
cheddar cheese in its two-star entry in the Michelin guide to France. (The previous year, Veyrat’s
restaurant earned the guide’s highest rating: three stars.) According to Veyrat, the error raised
doubts about the competence of Michelin’s inspectors and questions around whether an inspector
visited his restaurant at all. Michelin denied both the error and Veyrat’s accusations.
The primary goal of the lawsuit was to force Michelin to produce documents, like restaurant receipts
and critic notes, to prove that an inspector had dined at La Maison des Bois and “to clarify the exact
reasons” behind Michelin’s two-star rating, the Guardian reported. Veyrat was seeking just one euro
in damages.”
Source: Monica Burton, “French Chef Loses Lawsuit over Michelin Downgrade”, Eater, 2 January 2020,
https://www.eater.com/2020/1/2/21046667/french-chef-marc-veyrat-michelin-lawsuit-loss, accessed April 2020.
15/18
EXHIBIT 5: AN EXCERPT TRANSLATED FROM ‘L’INSPECTEUR SE MET A TABLE’ ABOUT

INSPECTION CRITERIA FOR SUCCESS
“So what will it take for you to win the star?
First thing, the chef must be present. He must be there to lead his teams. Even if he's not the one
making the sauce, he has to watch her when she goes into the dining room. He must be one with his
plate, always taste it (sauces, seasonings). And, in each serving, several elements are taken into
account: the quality of the products. If the price is disproportionate, it loses points, if the selling
prices become absurd. Then the chef must be close to his customers. It is not a matter of going to
shake their hands at each arrival and each departure, but to be attentive to them. To be attentive to
what they want while showing your character, and to suggest discoveries to them.
Another thing, he must live with the times, open his mind to creations, new techniques. Modernism in
this area continues to evolve. If you immerse a probe in a fish or meat to increase the temperature
and to cook successfully, it allows you to control the success of a dish better.
On your behaviour, above all, be welcoming, smiling. If you knew how much a meal experience could
change at the reception! If the plate is remarkable and the service sad, sincerely we can say that the
address is not frankly recommendable.
Another essential detail is cleanliness. Between stainless steel and silverware cutlery, an embroidered
tablecloth and a banal tablecloth, there is no need to make a distinction. The plate takes precedence.
Other elements are taken into account even if they are not decisive and recorded by the survey forms.
These are big pretentious cocky guys–nothing annoys as much as them.”
Source: Pascal Remy, “L'inspecteur se met a table”, Paris, France: Editions des Equateurs, 2004, pg. 43.
16/18
EXHIBIT 6: AN ARTICLE ON THE LOISEAU & VIOLIER INCIDENT
An excerpt of the article by Michael Steinberger, “Michelin and the Deaths of Two French Chefs”,
published in The New York Times, on February 5, 2016.
On Monday, the 2016 Michelin guide to France was released, was also the funeral of Benoît Violier,
the French-born chef of Restaurant de l’Hôtel de Ville, which boasts Michelin’s highest rating, three
stars, who died in an apparent suicide.
“Pierre-Marcel Favre, a Swiss editor who worked with Violier on a thousand-page opus on game
birds that the chef authored, told the French daily Libération that Violier’s suicide was a total shock
to friends and colleagues. It has been suggested that perhaps Violier’s grief over Rochat’s death25,
and also the death, last year, of his father, led him to take his own life. But most of the speculation
has centered on the stresses of his work, and the possibility that Violier may have buckled under the
pressure of trying to maintain his restaurant’s lofty standards.
Violier’s suicide invites comparison to that of Bernard Loiseau, the celebrated French chef who killed
himself in 2003. At the time, there were rumors that Loiseau’s restaurant, La Côte d’Or, located in
Saulieu, a village in Burgundy, was in danger of losing its third star, and it was widely believed that
the possibility of a demotion drove Loiseau to suicide. In the wake of Loiseau’s death, Michelin denied
that it had warned the fifty-two-year-old chef that his third star was in jeopardy. That claim was not
exactly true: a few years ago, in the course of researching a book about French food culture, I
obtained the minutes of a meeting that Michelin officials had with Loiseau, in the fall of 2002. They
told him that they were concerned about the quality of his restaurant’s cooking, and the document
described Loiseau as “visibly shocked” by their comments. I also obtained a follow-up letter that
Loiseau’s wife had sent to Michelin, in which she said that the guide’s warning (the word “warning”
was underlined) would be heeded and that her husband would dedicate himself to improving the
performance of his kitchen. Instead, he killed himself.”
Source: Michael Steinberger, “Michelin and the Deaths of Two French Chefs”, The New York Times, February
05, 2016, https://www.newyorker.com/culture/culture-desk/michelin-and-the-deaths-of-two-french-chefs, accessed
April 2020.
25 Philippe Rochat had been the one to turn over the restaurant to Violier in 2012.
17/18
EXHIBIT 7: WELL-KNOWN GLOBAL RESTAURANT RATING GUIDES
Guide Name Region of Coverage Rating System Methodology

AAA employees hired
American Automobile Association United States 1 to 5 diamonds specifically to rate hotels
Automobile Association United Kingdom 1 to 5 rosettes Professional inspectors

Professionals, consumers, and self-
Forbes Travel Guide United States & Canada 1 to 5 stars reporting by restaurants
Gault Millau Europe 1 to 20 points Inspectors of local agents
Harden's United Kingdom Rating out of 5 Annual survey
La Liste Worldwide Ranking Proprietary algorithm
Michelin Guide Worldwide 1 to 3 stars Professional inspectors
The Good Food Guide United Kingdom Rating out of 10 Inspections by correspondents
Consensus poll by restauranteurs;
The World's 50 Best Restaurants Worldwide Ranking chef and critics
Zagat United States 30 point scale Public reviews
Source: Authors, from multiple sources
18/18

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THE MICHELIN RATING SYSTEM: CRACKING THE CODE OF THE

Copyright © 2021, Singapore Management University Version: 2021-01-20

The Michelin Guide

with three Michelin Stars, bringing the total to 2,626 stars.3

Explained Jean-Luc Naret, Directeur Général of the Michelin Guide, 2009,

As at 2020, Michelin was a French multinational company headquartered in Clermont-Ferrand with

The Michelin Inspector

A degree in hospitality, hotel management, or cooking is mandatory for Michelin inspectors.

Pierre explained to Andre,

- “DM”, a chef from a European 3 Star restaurant9

Training and Being on the Job

9 In discussion with the case authors.

Possible variables for success

EXHIBIT 1: MICHELIN ANNUAL REPORT 2019

Source: The Michelin Group, 2019 Annual Report, p. 9, https://www.michelin.com/en/documents/2019-annual-

EXHIBIT 2: MICHELIN FINANCIAL INFORMATION ON OPERATING COSTS

Source: The Michelin Group, 2019 Annual Report, p. 110, https://www.michelin.com/en/documents/2019-annual-

EXHIBIT 3: ‘MICHELIN EXPERIENCES’

Source: The Michelin Group, 2019 Annual Report, p. 93, https://www.michelin.com/en/documents/2019-annual-

EXHIBIT 4: MARC VEYRAT’S CASE AGAINST MICHELIN

EXHIBIT 5: AN EXCERPT TRANSLATED FROM ‘L’INSPECTEUR SE MET A TABLE’ ABOUT

“So what will it take for you to win the star?

EXHIBIT 6: AN ARTICLE ON THE LOISEAU & VIOLIER INCIDENT

EXHIBIT 7: WELL-KNOWN GLOBAL RESTAURANT RATING GUIDES

Guide Name Region of Coverage Rating System Methodology

Automobile Association United Kingdom 1 to 5 rosettes Professional inspectors

Gault Millau Europe 1 to 20 points Inspectors of local agents

Harden's United Kingdom Rating out of 5 Annual survey

La Liste Worldwide Ranking Proprietary algorithm

Michelin Guide Worldwide 1 to 3 stars Professional inspectors

Zagat United States 30 point scale Public reviews

Source: Authors, from multiple sources

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