In light of our recent assignment to review a restaurant, a blog post on the Washington Post's website caught my eye.
Michael Luca, a Harvard Business School student, wrote a paper on the effect the reviewing site Yelp is having on small restaurants and larger chain restaurants. According to Luca's paper, larger restaurants like McDonald's and Applebee's have always had an advantage over smaller, local businesses because it is much less of a risk, Luca wrote; people go to these chain restaurants because they know what they are going to get. But, with the help of Yelp, smaller businesses are actually detracting from larger chains' dominance.For his study, Luca concentrated on the city of Seattle. "For Seattle alone, the website [Yelp] had over 60,000 restaurant reviews covering 70 percent of all operational restaurants as of 2009. By comparison, the Seattle Times has reviewed roughly 5 percent of operational Seattle restaurants."
Yelp is changing the world of restaurants. Since Yelp's popularity has increased, the profit share for chain restaurants on the whole has decreased. People want to go to restaurants that receive great reviews and to places where they know what to expect: Yelp is providing that service to the public. Yelp reviews have a massive impact on local restaurants. Luca wrote, "a one-star increase leads to a 5-9 percent increase in revenue for independent restaurants." Comparatively, a larger chain's reviews/star level on Yelp has little to no impact on the chain's revenue.
This study gives me hope for the future of local businesses. We are always hearing the negative about local businesses going under, and it is refreshing to hear something positive. Since Yelp has grown, the profit share for the larger chains has decreased. Not that large chain restaurants should go away, but small restaurants should stick around too. There is nothing I love more than McDonald's fries, but I also love walking into my favorite, local pizza shop and having them address me by name, and know exactly what I want. Yelp is facilitating in keeping smaller businesses in business - a great service to the public.
This is a really interesting find. I just used Yelp this weekend when I went to Kansas City, so I can say it was actually pretty helpful. It's nice that people get to comment on whether or not they liked the place. I think that since newspapers obviously have limited resources when it comes to restaurant reviews, websites like this can definitely give the business edge to smaller businesses who aren't well known.
ReplyDeleteThis is really interesting considering the murmurs I hear about online restaurant rating websites usually concerns sites like Zagat. I'm surprised to learn that independent restaurants have that big of a revenue increase for just gaining a star in the review.
ReplyDeleteUsing a website like Yelp is helpful because it allows for a lot of different point-of-views. Being a picky eater, it's hard for me to trust just one voice from a food critic in either a newspaper or magazine, so having multiple opinions published in one cohesive space is nice.