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Quantifying Yelp's Impact on the Restaurant Industry

yelp restaurant industry

A recent Harvard Business School study by Michael Luca shed light on the impact of Yelp on restaurants, both individual independent restaurants and members of a chain. Yelp.com has been one of several sites helping to revolutionize not just the restaurant review industry but the restaurant industry as a whole, because it covers far more restaurants than any written publication can. For example, while, as of 2009, in Seattle, about 5% of all restaurants were listed in the Seattle Times, approximately 70% of all restaurants were listed on Yelp.

Luca studied the effects of Yelp ratings on the revenue of restaurants and discovered several interesting findings. Studying the relationships of restaurants' revenues to their Yelp reviews in Seattle over a period from 2003 to 2009, he found a significant relationship between a restaurant’s average rating and revenue. One star’s worth of improvement on Yelp leads, he found, on average to an increase of between 5 and 9 percent in revenue. The average rating is more important than the review, as many Yelp users are overwhelmed by the sheer number of reviews on manyrestaurantpages and find it easier to consult the star rating. Luca also found two features which exacerbate the effect on revenue Yelp has. First, the more reviews a restaurant has, the more impact an increase in its Yelp rating will have on its revenue. Second, the more reviews by Yelp “elite” members, the more impact; “elite” reviews have almost twice as much impact as other reviews.

However, Luca found a far different picture regarding chain restaurants. Chain restaurants are those with multiple locations and common menu items and account for $125 billion of revenue each year, over half of all restaurant spending in the U.S. Unlike independent restaurants, chains showed no relationship between Yelp rating and revenue. Luca theorizes that because the main advantage of these chains over independent restaurants is greater knowledge of what the consumer will receive as well as consistent food and service between locations, the increased knowledge that Yelp provides doesn't impact consumers interest in these restaurants.

Building on these two pieces of knowledge, Luca predicted and confirmed through his research that as Yelp becomes more prevalent in a market, interest in independent restaurants increases, relative to chains. This may indicate that consumers, with the help of more restaurant reviews, are able to close the information divide and find restaurants they prefer more than chains. This may then require chain restaurants to bear down and improve their quality if they want to prevent customers from leaving in droves in the future.

To see the full report by Mr. Luca, click here

Talking with Current Franchise Owners

Reading through a FDD is a key part of your research, but it can’t answer all the potential questions you might have about how it is to actually operate a given franchise. The best way to do this is actually to start talking to current franchisees. The best way is to this is to call or visit a franchisee, don’t just email them. You might need to be a bit persistent, but if you are then you can get all of your questions and concerns answered.

Advice for Women Business Owners: How to Achieve Success and Sanity

Just imagine yourself as a successful female entrepreneur, running the type of business that keeps you fulfilled in life, while you have the freedom to live your dreams. What does this look like to you? Do you spend your days traveling the world with the love of your life? Do you work remotely from home so you can spend more time with your children while they are still young? Are you setting an example for young women who aspire to reach your level of success someday?

Advertising and Promotion Watch: McDonald's Monopoly is Back

This month sees the return of a venerated promotional campaign, McDonald’s Monopoly. The promotion first began in 1987, and in the last decade has become an almost yearly tradition. Each year, certain McDonald’s products come with Monopoly game tokens, each with either a space from the Monopoly board or an instant win prize for items such as a small fries. Larger prizes are won by collecting all of a group of Monopoly properties, usually three, but sometimes two (Illinois Avenue, Indiana Avenue and Kentucky Avenue, for example). Each group of properties have one whose piece is much rarer than the others; for most of the groups, it’s the last alphabetically (Kentucky Avenue for the red properties, Ventnor Avenue for the yellow), but for the dark blue, it’s Boardwalk, as it is the last and most expensive property on the board. More recently, McDonalds developed an online counterpart to its in-store Monopoly game in which customers can roll virtual dice, or more recently pick one of three chance cards for various prizes.