Effects of restaurant expenses on enhanced profitability: Do Michelin-starred restaurants perform differently?

Abstract

Despite their worldwide popularity, Michelin-starred restaurants often follow unprofitable business models that prize recognition ahead of economic benefit and thus need efficient cost management practices that can ensure their survival. The aim of our study, covering Spain from 2014 to 2019, was thus to examine the primary expenses of Michelin-starred restaurants and how they impact the restaurants’ potential for enhanced profitability depending on firm size compared to fine dining restaurants. To that aim, a sample of 140 Michelin-starred restaurants and 388 restaurants without Michelin-star in Spain were analysed using random-effect panel data models. The results show that although food costs are the main expense for the restaurant industry, personnel costs have a similar weight to food costs for Michelin-starred restaurants. At the same time, results reveal that the most profitable costs for this type of restaurant are food costs and also personnel costs, but in the latter case only for large restaurants. The results also confirm that being a Michelin-starred restaurant contributes to improved profitability regardless of cost management, suggesting that customers are willing to pay higher prices for the fact of being a Michelin-starred restaurant. Finally, the evidence of low profitability of Michelin-starred restaurants and even negative profitability for most of the other fine dining restaurants underscores the need for more efficient cost management practices.