We see this effect in Chicago regularly, as I'm sure people in NY and LA do as well; there's a biennial ritual of naming the new "best burger" in the city (it's Kuma's! no, now it's Au Cheval! no, Au Cheval is franchising, time for something fancier --- Mott Street! no wait, the Loyalist†). It definitely "ruins" the restaurant, in the sense that it becomes basically impossible to eat there anymore. But it's hard to fault the businesses for going along! They're there to make a living for themselves.
To the commenters saying Stanich should simply raise its prices: there's a price ceiling for that burger. It's not a fancy chef burger; it's a standard burger shop burger executed well. It seems like the only real scaling option Steve Stanich has, if he's not willing to piss off part of his clientele (a reasonable option!) is to partner and franchise.
† I'm particularly irritated about Loyalist because their bar has one of the best amaro collections in Chicago