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Yelp Helps Independent Restaurants Cut Chains’ Market Share

Like it or not, Yelp does have a formidable influence on the restaurant market today.

Sure, our most sought after accolade is the Michelin (remember how we discussed the way the Michelin guide works and how it is deemed as every restaurateur’s Holy Grail?), and Zagat survey, maybe, but truth remains that Yelp yields a somewhat commanding impact on our diners, and we’re left without much choice but face that fact.

Majority of restaurant customers these days do not check out the Michelin guide before they decide where to eat, nor would they look for a Zagat Survey. Customers Yelp first before they try out a new restaurant to dine in.

But take heart; there are two upsides to this: one is that Yelp does create new business for companies who have been well-reviewed; and second, it cuts a chunk of market share from large restaurant chains.

Harvard Business School researcher Michael Luca evaluated Yelp’s online database and the Washington State Department of Revenue to find out how the popular review site affects Seattle restaurants. A series of interesting findings came out, among them the fact that Yelp was able to rate 70% of all Seattle’s active restaurants in 2009; while the city’s biggest newspaper was only able to review 5% of them.

The other findings include:

“An additional one-star to a Yelp rating often translates to a 5-9% revenue increase,” Luca discovered. Customers trust the opinions of other customers, and this greatly affects the way they decide.

“Yelp ratings affect independent restaurants; chain restaurants are almost unaffected by user reviews.” And the idea does make sense—chain restaurants communicate to their consumers through branding and their power of advertising: the way Burger King’s chefs in elegant chef apparel makes their Whopper Burgers pretty much the same, after all. Customers do not really pay much attention to whatever differences restaurant chains have—the Wendy’s they see right down their block is no different from the other one they can find ten blocks away. Independent restaurants stand more to gain, as Yelp’s information about them keeps new customers coming, balancing the playing field.

“The more that Yelp’s popularity increases, the lesser the market share of chain restaurants goes.” Small businesses are actually being saved, Luca says. The information advantages that popular brands enjoy are balanced by happy consumers’ reviews of smaller restaurants.

What does this mean for us? This means that we can actually get to advertise our businesses for a lesser cost—inexpensive, effective and fast ads when done properly. All that independent operators have to do is to make sure to that their chefs in superior chef apparel provide exemplary food and their servers render infallible service. They should encourage their satisfied customers to submit rave reviews at Yelp, and be alert for any detrimental appraisals that come out. Again, when done properly, these reviews will do more help than damage to the business—it keeps us on our toes, helps us attract new customers to the business, and allows us to hit a higher bottom line.