Michelin expands restaurant guides as part of Asian growth push

MICHELIN, facing fierce competition from lower-cost Chinese tire makers as it expands in Asia, is counting on a little luxury splash from haute cuisine to boost its brand image.

The French company is introducing its eponymous restaurant guide for Bangkok in December as part of a broader effort to increase the brand’s appeal in Asia. In July it bought a 40% stake in the US-based Robert Parker wine guide, which hosts tasting events on the continent, including in Singapore, Hong Kong, and Macau, where Michelin already has food guides.

While selling tires may seem to have little to with finding a tasty coq au vin at a fancy restaurant, Michelin sees the unprofitable guides as helping to position its brand as high quality as it goes up against China’s Shandon g Linglong Tyre Co. and Aeolus Tyre Co. The company also is moving upscale thanks to high-tech connected tires such as its airless prototype resembling coral, or light tires designed for electric vehicles.

“The guide is part and parcel of our brand image in mature countries,” Chief Financial Officer Marc Henry said in an interview. “In emerging countries where more and more people are buying a car for the first time, we see that we can recreate a bit of this brand attraction.”

Expanding in Asia will help reduce the Clermont Ferrand, France-based company’s dependence on Europe and US, which together account for more than three-quarters of its sales. Cie Gener ale des Etablissements Michelin, as the company is formally known, also is diversifying into services such as fleet management and insurance.

The so-called red guide was created in 1900 by Andre and Edouard Michelin. At a time when cars weren’t popular yet, it became a tool to encourage people to drive for longer distances and to stop at restaurants and hotels.

INDUSTRY BENCHMARK

The company’s reviewers award stars based on creativity, quality and service. Three stars means the cuisine is akin to art and “worth a special journey,” two mean excellence and talent that are “worth a detour,” and one means that the restaurant is good in its category, with top ingredients and flavors.

The guide is still a benchmark in the industry, said Pierre-Yves Chupin, in charge of rival publication named Lebey. Restaurants can as much as double their revenue when they receive their first rating from Michelin, according to the company.

Getting or losing a star can result in widely publicized controversies for chefs: Sebastien Bras, who about 10 years ago set up a timekeeper in his kitchen to make sure his aides didn’t work longer than the mandatory 35-hour work week, recently asked Michelin to withdraw the 3-star rating of his Le Suquet restaurant in southern France, because of the pressure it entailed. Bookings are still sold out, with menus between €143 and €227, according to an aide.

“It’s hard to quantify, but it’s a fact that the Michelin brand is known worldwide thanks to the guide,” said Michael Foundoukidis, a Natixis analyst. “Michelin has a premium image in almost every country, contrary to most of its European competitors.” According to a YouGov poll, Michelin ranks fifth among the French’s most favorite brands.

US MARKET

Michelin also is eyeing the US market, where it already has guides for New York, San Francisco, Chicago, and Washington DC’s restaurant scenes. Michelin’s red book is available in 26 countries and is bound to expand as the company aims to double revenues from services by 2020, from €1 billion in 2016. Michelin had total sales of €20.9 billion ($24.3 billion) last year.

The French company is investing in the guides even as it cuts costs amid fierce competition in the tire market, leading it to plan for some 2,000 job cuts by 2021, mostly in France. Chief Executive Officer JeanDominique Senard aims to make the guide and mapping unit, known as Michelin Travel Partner, profitable. He moved its headquarters from Paris to a close suburb and reduced headcount. Michelin doesn’t disclose sales for the business, though it said in a filing that revenue rose sharply last year.

Rating apps such as Yelp or TripAdvisor aren’t a threat to the guide, because the Michelin inspectors who review restaurants are independent, anonymous, and pay for their food, said Claire Dorland Clauzel, the Michelin executive vice-president who oversees the guides.

BRAND QUALITY

“In a world full of fake reviews, we realize that the reassuring nature, the seriousness and the quality of the brand does matter,” she said in an interview. The company has expanded to online reservations, including with the purchase of UK-based Booka Table and Spain-based Restaurantes last year, and is considering other acquisitions.

The company also hosts gourmet food and wine tastings. Dorland Clauzel declined to provide any figures for the business, but said the paid events should help the guide become profitable within a few years.

In any case, the guide is a cheap marketing investment and doesn’t weigh on the share price, said senior Bloomberg Intelligence analyst Michael Dean. Michelin shares have returned 30% in the past year including dividends, outpacing the 26% return for the Stoxx 600 Automobiles & Parts Index.

“The guide is an extraordinary tool for our brand,” said Dorland Clauzel. “It’s in our DNA — as much as tires are.” —