Star performance

Last week saw the announcement of this year’s list of the World’s Top 100 restaurants. The UK was represented by The Clove Club and Lyle’s, both in London. In an age where experience matters, high-end restaurants are star performers. The quality of the food is of course important, but trips to top venues are driven more by the theatre, the service and the event. So how does this translate to commercial value? The commercial impact of being awarded a Michelin star has been considered in studies, both in Paris and New York, with similar conclusions. The theory is that the star creates an increased willingness to pay on behalf of the customer, which translates to a price premium for their products. The studies assess this premium at ~25-30%. Assuming operational costs are constant, this translates to an economic surplus of the same amount, which could be allocated either to operator profit or rent. More interestingly, one of the studies found that other restaurants in the vicinity of the awarded restaurant also benefitted from a premium of up to 13%. This spillover effect is more systemic and therefore more likely to translate to an improvement of the market rent in the locale rather than accruing to the operators. This is an example of where experience anchors can add value to large scale developments.