We know that online crowd-sourcing can launch revolutions in the Middle East. But can it help determine where customers go and whether restaurants succeed or fail? Yes indeed, says a new Harvard Business School study of the Seattle restaurant business and the consumer review site Yelp.com.
Harvard researcher Michael Luca tracked the revenues of Seattle restaurants from 2003 through 2009, as reported by the state Department of Revenue, against the reviews those restaurants received on Yelp (chosen at least in part because of the number of reviews it has). He found that a one-star increase in average ratings brought 5 to 9 percent more business to independent restaurants. This effect was higher for restaurants with many reviews, which means it may grow as the review bank grows. As of 2009, Yelp had posted 60,000 reviews covering 70 percent of Seattle’s restaurants. The Seattle Times by contrast had reviewed just 5 percent, Luca said, and according to another study Zagat covered just 5 percent of Los Angeles eateries.
Not all reviews had equal impact. As when using traditional media, consumers discriminate between critics; reviews by prolific contributors, tagged “elite” by Yelp, influenced their choices more. But readers don’t seem to heed reviews at all when choosing chain restaurants, which absorb more than half of U.S. dining dollars; Yelp reviews had a “statistically insignificant” effect on how they fared relative to each other.
No surprise there; you don’t need a reviewer to tell you how greasy Mickey D’s French fries are. What’s notable is that growth in consumer-supplied information seems to drive business toward the sector where that information is most useful: The advent of Yelp, which two college roommates launched in 2004 before they could even write code, correlates with a change in general dining habits: “There is a shift in revenue share toward independent restaurants and away from chains as Yelp penetrates a market,” concludes Luca.
So even restaurateurs stung by bad consumer reviews can take some consolation. Your sliver of the independent restaurant market may shrink. But it’s part of a growing slice.