Previous magazine articles 
Raising the steaks
A couple of restaurants on opposite sides of the country - The Kitchin in Leith and Glenapp Castle in Ayrshire - recently joined Scotland's elite club of Michelin-starred restaurants and duly reported an upsurge in business as a direct consequence. At the same time Ballachulish House, south of Fort William, and the Plumed Horse in Castle Douglas, were stripped of their single-star status.
Roy Hudghton examines the impact of winning and losing such a coveted accolade on a restaurant's value…
While some observers might assume that the value of The Kitchin and Glenapp Castle will soar at the same rate the value of The Plumed Horse and Ballachulish House plummets, this is not necessarily the case. A restaurant's value is based on its sustainable profit and is not directly related to the winning or losing of a Michelin star. Such a gain or loss will likely impact on a restaurant's turnover, at least in the short-term, but that is quite a different matter to having a lasting impact on its sustainable profit.
So, providing the restaurants can continue to attract customers while keeping a tight rein on their overheads, there is no reason why their value should be adversely affected. Similarly, although gaining a Michelin star should boost a restaurant's turnover, it is likely that such restaurants will be required to invest in their operations in order to sustain and improve their offerings, and this investment could in turn impact on profitability. If a restaurant's profit level remains the same after winning or losing a Michelin accolade, then its value will also remain the same insofar as prospective purchasers are concerned. Only the identity of the prospective purchaser would change.
Winning an award will certainly add to the marketability of a restaurant at selling time but if it is not an owner/chef operation, then a Michelin-starred chef will likely be more expensive than average for a restaurateur to employ. Should the chef choose to leave after gaining a Michelin star - some are known to be peripatetic - then the restaurateur will be required to seek an equivalent replacement at potentially considerable expense. However, should the celebrated chef remain at the restaurant, then any ambitious restaurateur will likely aspire to win a second, or even a third, Michelin star.
So, while losing a Michelin star could lead to a short-term fall in turnover and may seem the ultimate disappointment for a proprietor and/or chef, such a loss will not necessarily lead to a lasting downturn in sustainable profit. Aside from anything else, a different customer market can be targeted with a different type of food offering, and the Plumed Horse and Ballachulish House should take comfort in that.
Roy Hudghton
Partner
DM Hall Chartered Surveyors
This article has been edited from its original version. For the complete feature please see Catering in Scotland magazine May/June 2007.
To join our database, go to Media Pack on this website and click on Subscribe.
