Discovering a great restaurant it’s exciting, especially before it really starts. It’s nice to find a cool place, realize the food is great, and then keep it a secret while you can. That hidden gem on the quiet road is yours. However, for restaurants, “hidden gem” status is not always ideal. The industry is extremely tough and margins are tight. And so, when a country explodes – because it receives an award or ends up on the list of the best or goes viral on TikTok – overall it’s good news. Longtime customers may not like sharing their favorite spot with a bunch of newbies, but restaurants need butts in seats.
Besides, success can sometimes come back to bite the business. Getting well is one thing. Getting big is another, and not every operation is up to the task.
Daniel Sands, a researcher at University College London’s School of Management, took a look recently into the fortunes of New York City’s most promising restaurants over two decades to track how reviews from outside parties—in this case, the Michelin Guide—influenced the businesses’ behaviors. His findings: The brightest stars of the food world tend to burn out the fastest. It tracked newly opened restaurants from 2000 to 2014 that received a starred review from The New York Times, an early sign of critical success. He then looked at the various fortunes of those restaurants that received a Michelin star – an indicator of excellence in the industry. However, the prize proved to be a poisoned chalice for many winners. By 2019, Sands found that restaurants awarded a Michelin star were more likely to close. The implosion changed things so much for some restaurants that it hurt as much as, or more than, it helped.
“Michelin stars are not themselves creating new pressures. What they seem to be doing is exacerbating existing challenges,” Sands told me. “And so the kinds of things that you would probably deal with at a slow, steady pace throughout your life now seem to happen more quickly.”
The publicity generated around an award such as a Michelin star drives interest. Google searches for the restaurant increase and new customers start arriving, including tourists. This is generally a good thing – restaurants make money by serving people – but it can also be a challenge as consumer expectations become high.
“To meet these expectations, we would see restaurants engaging in various types of behavior, anything from updating decor and service in ways that may not increase revenue to a history of possibly displacing some of their regular customers.” which are a very important part of this business”, said Sands.
The owner obviously sees that you are doing crazy business and they want a piece of that.
Once a restaurant gains notoriety, other businesses it works with take notice. Suppliers think they can pay more, landlords raise rent, and cooks and workers demand better pay. More money may be coming in the door, but it’s leaving just as fast.
“It can be a challenge to maintain your prices, to be able to maintain your quality, to not lose your staff that helped make it successful,” said Darren Tristano, founder and CEO of Foodservice Results, a consultancy in the food industry. .
Joe Carroll, a New York restaurateur who owns the barbecue place Fette Sau and steakhouses Saint Anselm in Brooklyn, told me that his relationships with suppliers haven’t changed much as his restaurants have become more popular. But rent is a different story. The owner of one of his restaurants runs a mechanic shop next door and they see the lines down the street. “The owner obviously sees you’re doing crazy business and they want a piece of that,” he said. Its rent has quadrupled over the past decade. In some respects, Carroll doesn’t blame them, but he admits that for some restaurants, it can be a death knell.
“What’s happening is everybody gets a little greedy and it doesn’t work anymore,” he said. “Restaurants operate on a small margin of success, and if you go beyond that, it becomes impossible to really succeed and maintain business.”
In 2014 New York Times op-ed, New York restaurateur Danny Meyer lamented having to move his award-winning Union Square cafe from its original location because of a steep rent hike. “It’s hard to fathom the notion that our success has contributed in part to our inability to stay in our neighborhood,” he wrote.
Restaurants close for many complicated reasons.
Of course, there is no straight line from success to disaster in restaurants. In general, being crowded is preferable to having empty seats, and figuring out how to adapt to new success is a good problem to have.
Ryan Sutton, a food critic based in New York at LO Timesacknowledged that a Michelin star can increase a restaurant’s costs – especially if it seeks more stars – as it tries to serve the same dishes over and over again or hopes to hire more expensive chefs. But he emphasized that if they ultimately failedthe Michelin restaurants that were shortlisted in the Sands search generally fared fairly well. “Restaurants close for so many complicated reasons,” he said. Internal factors tend to be overweight external factors. If the country cannot overcome the increased pressure, it is at least partly a management issue because the owners or the people running the country cannot hold it together.
Not to be a navel-gazing New Yorker here, but the city has its quirks that may not translate to other parts of the country. There is a lot of tourism, a lot of business people and gatherings with big expense accounts and the prices are extremely high. It is also one of the city’s most Michelin-starred restaurants in the world. As John Gordon, a restaurant analyst in San Diego, told me, New York City is a “niche market” and the rent is “just astronomical.”
Carroll had a Michelin-starred restaurant, Semilla, which indeed closed. He did “killer business” for about a year and a half after receiving the award and then fell off. However, he doesn’t think the star was really the problem. Semilla offered a 10-course menu that didn’t necessarily attract repeat business. “Everyone who needed to go went and not many people were coming back,” he said. The “greedy” chef overseeing the restaurant was also tough.
When a successful restaurant goes under, there is usually some underlying problem.
In many ways, “what to do about growth” is a classic question in any business, including restaurants and hospitality. Do you build another country? Are you moving to a new, larger space? How do you manage supply chains, employee growth demands and rising rental costs? How do you evolve enough to meet the moment without changing what made things work in the first place?
“When a successful restaurant goes down, there’s usually some underlying problem,” Carroll said. It could be mismanagement, or the owner or operator has a personal problem, such as drug addiction, or there is a conflict with the landlord. Some of them are under the control of a restaurant, but some of them are not. And even if it’s under local control, it’s a tough business — there’s no guarantee that a second location in Philadelphia will do as well as the original in Manhattan.
On the consumer side of things, the experience can also be frustrating. People want their favorite places to survive and thrive – your favorite restaurant isn’t good for you if it closes. But they also want to be able to keep going to the places they like—your favorite restaurant is no good to you if you can no longer make a reservation. And just because a place is hot for a minute doesn’t mean it will stay that way forever. A place needs regulars for a rainy Tuesday in February when tourists wouldn’t dare go outside.
It’s understandable to want “the best.” This is why people spend hours curating their vacations to ensure they have the optimal trip. But if we all seek the best collectively and come to the same conclusions, we make each other a little miserable. Lots of Instagram-inspired and Instagram-optimized travel I finish sucking. There’s only so much room in the top, and sometimes, the car ends up eating a great thing.
On a more local level, if and when your regular hangout gets a Michelin star, or takes off with the TikTok crowd, or lands on the best-of list, know that it could be a minute before you can get a table. But you probably want to get yourself on the list, even if your reservation is six months from now, because the venue’s landlord is looking at the rent and wondering how soon they can start charging more.
Emily Stewart is a senior correspondent at Business Insider, writing about business and the economy.