Yelp’s Impact on Chain Restaurants

Much like how video killed the radio star, it seems that User-generated review websites are killing big chain restaurants. Okay I could be less dramatic in my phrasing, but there is evidence to suggest that it may be happening.

As Yelp has grown, the overall market share of Big Chain restaurants has declined according to Harvard Business School student Michael Luca. Luca suggests that this trend may indicate that Yelp reviews are substituting for traditional forms of reputation. He also goes on to state that a one star increase in Yelp restaurant reviews are equivalent to a 5% to 9% increase in restaurant revenue. This is only true for smaller independent restaurants, however. Stellar Yelp reviews appear to do little to alter the revenues of the big guys in the food industry.

Despite Luca’s assertions, most of the total amount of restaurant spending still goes to chain restaurants (approximately 50% in 2007). It is, however, hard to deny that the public’s food sensibilities are geared more toward independent restaurants.

(THX and Photo Credit to Race Talk Blog)

(Via Wonkblog)