How Yelp Disrupted Restaurants

Five months ago, my girlfriend was eager to introduce me to a new type of cuisine. We placed a big order and then waited in hungry, excited anticipation. When only half of the items in our order showed up 45 minutes later, anticipation turned to confusion. Then, when the restaurant’s phone lines were busy for the next 15 minutes, confusion shifted to anger. Then, after finally reaching someone only to be dismissed and instructed to take up our issue with Uber Eats, we both reached full throttle hanger.

Quickly, we both submitted 1-star reviews online. Five minutes later, we both had replies from the restaurant owner. Five minutes after that, we were on speaker phone with him as he offered to remedy the experience by catering an upcoming birthday dinner. In this moment, I realized two things. One, restaurant owners are absolutely terrified of 1-star reviews. Two, Yelp provides individuals with a dangerous amount of power over restaurants that can easily be abused, which the effects of are only amplified by the ongoing pandemic.

With more than 178 million unique monthly visitors, Yelp has reached an elite level of prominence as a source for dining-related information. On top of that, 45% of customers are likely to check Yelp reviews before visiting a business. Basically, if you want to be a successful restaurant, what Yelp says about you matters a whole lot. But as a platform-based business, Yelp is challenged with the task of ensuring its information is accurate, fair, and reliable. As all of this has been playing out and unfolding, there are three major ways I can see how Yelp has disrupted the restaurant industry.

1. Customers now have an ungodly amount of power (and aren’t afraid to use it)

We’ve all heard the cliché, “The customer is always right…” However, never has this policy rang truer than it does today due to the amendment Yelp has added: “…or else you will get blasted by the customer on Yelp.” This lopsided dynamic plays out in all kinds of cruel and unfortunate ways, including one particular episode that has claimed its place in Boston restaurant lore and gave birth to #wedontnegotiatewithyelpers.

At Alden & Harlow, an upscale subterranean restaurant in Harvard Square, two women seated themselves without a reservation. After being asked to leave, and even after having their drinks taken from them, they threatened a negative Yelp review and in the process managed to keep their table. Michael Scelfo, the restaurant’s chef, lamented on Instagram after the fact:

We tried to have them leave, they refused. Taking their drink away and being forceful is not hospitable. So in lieu of calling the police (only other recourse imo) which seemed too strong a response, we opted to kill them with kindness until they left. We as a team endured a ton of abuse but ultimately chose the high road. My choice to post this is not to slander on them per say but to call attention to a major flaw in the current ‘online review system & entitled mentality.’ Ultimately, it’s about protecting the integrity of our (well documented) humble and gracious staff.

While it’s unfortunate that diners are able to get away with stunts like this one, restaurants have their hands tied. According to The Economic Journal, an extra half‐star rating causes restaurants to sell out 19 percentage points (49%) more frequently. Other platforms like Uber, Lyft, and Airbnb allow service providers to rate their customers, a move that could help restaurants even the playing field with their diners and avoid such abuse as this in the future.

2. Local restaurants have gained on chain restaurants

Chain restaurants thrive on their consistency. A Chick-fil-A Sandwich in Atlanta will taste exactly the same as a Chick-fil-A Sandwich in Detroit. Historically, customers have appreciated chain restaurants because they know what they can expect. On a personal level, when I’ve traveled alone for work, I’ve tended to go through the same thought process each time: I could get my favorite meal at Chain XYZ or I could try out this local place where God knows what I should expect. And about 75% of the time I shy away from the risk of the unknown and stick with what I know (I never regret it, but I also will never know what I missed!).

Yelp has been cutting into this competitive advantage that chain restaurants have enjoyed by adding transparency into local restaurant scenes across the country. Prospective diners can read through reviews and be encouraged to branch out and try new places with confidence rather than fall back on what is familiar.

In the process of researching this topic, I stumbled across a Harvard Business School regression analysis with restaurant data that proves this point. The author explains that “chains have experienced a decline in revenue relative to independent restaurants in the post-Yelp period. Higher Yelp penetration leads to an increase in revenue for independent restaurants, but a decrease in revenue for chain restaurants.”

Black Box Intelligence numbers also show a 1.4-percent drop in chain sales, while the U.S. Census Bureau has the restaurant industry overall — including independently run restaurants — recording a robust 5-percent gain that roughly coincides with the emergence of Yelp.

3. The overall quality of dining experiences has continued going up (while leaving Yelp behind)

This increased level of transparency, and corresponding accountability, has also lifted the overall quality of dining experiences for restaurant goers. Yelp opens up a continuous feedback loop for restaurants to consistently find feedback on what is working and what isn’t. While restaurants may take short-term hits from negative reviews, they are also given opportunities to improve and avoid similar mishaps in the future.

As the above video explains, Yelp soared out of the gates as a new type of service but has been victimized by the complexities of managing a crowd, along with a slew of copy cat services following close behind in its wake, including from Google and Facebook. While these difficulties have sent Yelp’s stock price back down to Earth, its impact on the dining industry has only been further solidified. In fact, a study at UC Davis found that online review sites as a whole have generated $2.50 per month of welfare for each restaurant goer.

9 comments

  1. I really liked your post Scott. We really need to be careful how much power the individual yelper has. I think that Yelp should try to bring in more features beyond 1 star, perhaps have the ability for the 1star to go directly to the owner and have a 1 week grace period for the owner to reach out to the customer so that these types of issues can be resolved instead of going directly to the site.

  2. Admittedly the two only times I have posted on yelp were to complain about a disastrous experience when I was younger. So I have contributed to this problem and have a better appreciation now of how impactful reviews can be. I think this goes beyond just restaurants as well. I’m looking for new apartment buildings I could be interested in and I always check the google reviews to see what current residents think. I also love craft beers and use an rating app called Untapped to get an idea if I would like the beer before buying it. I contribute to the app by giving my rating, which also helps me to keep track of the beers I’ve had before. I think reviews in general will continue to be important as time goes along.

  3. conoreiremba · ·

    “Hanger”, what a great word and such an underestimated human emotion. Your experience really emphasizes the power of a publically made complaint, and somehow I doubt that a strongly worded email or letter would have done the trick. Companies will only take accountability for their actions when their credibility is questioned in the public domain.
    My friend runs a restaurant in Ireland and Trip Advisor (the European Yelp) is critical in driving traffic. He knows that you cannot please everybody and there will always be bad reviews, some of which were the “fake reviews” that your video mentioned, and some are even coming from competitors using fake usernames. However, he works off the principle of “controlling the controllables” and aims to use quality customer service to ensure that any negative reviews are overpowered by the positives, although not quite as far as “killing with kindness”.
    Excellent post again Scott and I agree with everything you said, although I am definitely closer to 50% on sticking with the tried and trusted chain restaurant. I am more willing to take the risk of the unknown because I always seem to get much better service at one-off local joints. Good service can make up for a bad meal in my view, but a good meal can never make up for bad service.

  4. ritellryan · ·

    I agree with your post Scott. Since I play baseball Sunday mornings in random cities across Eastern MA, we use Yelp all the time to figure out where to eat. That said I typically look for amount of reviews and then aggregate score. If I have more time I would actually read a sample of reviews. I try to filter out in my head overly negative ones since, like Michael said, that is when people tend to make commentary. If enough people are willing to post positive reviews (and conversely, there are not a lot of negative ones) then they must do a decent job. Obviously, the system is flawed from an owner’s perspective, but I would like to think whatever job you are doing (good or bad) it will eventually come through in aggregate reviews.

  5. Great, thoughtful post. I have a friend in the restaurant business in ATL, who complains that Yelp is basically and old-style protection racket. You need to advertise with them to make sure the negative reviews don’t eat you alive. That said, I rely heavily on Yelp and Trip Advisor when choosing any restaurant.

  6. olivia_levy8 · ·

    Great post Scott! This post immediately caught my eye as I am a big Yelper. One of the issues I have that I would be curious to see data behind is how it seems that people only take to yelp for an overly great experience or a terrible experience. I am also curious as I have seen more reservation opportunities on Yelp if they can become a wholistic platform and compete with OpenTable. Something I also do to try and not be swayed by one or two bad reviews is look at the sample size and if a place has 2 stars average from 2 reviews, that is obviously not as representative. Overall, awesome post, I am curious to see if Yelp can survive.

  7. alexcarey94 · ·

    I agree with some of the posters above that yelp only incentives people to either write in if they had a really great or a really bad time. I think the way that other apps like uber, lyft and open table have the feedback feature embedded in so it pops up at the end of your trip or dining experience. I even think if somehow restaurants sent people a follow up text after their reservation was done that somehow directed you to the yelp rating more people would be likely to provide reviews (and more may fall in the middle). I wonder if this is something we will see in the future.

  8. lourdessanfeliu · ·

    I really liked your post. I love to try new restaurants and explore new cuisines both in Boston and while traveling. Yelp has definitely been a big part of my selection process when making the decision of what restaurants and bars to go to. It is so sad how people take advantage of the power a bad review has. I think adding a two way rating (rating both the restaurant and the customer) would reduce this in the future. Overall really nice post!

  9. Jie Zhao · ·

    It is unfortunate that some customers are taking advantage of the structure and using a bad yelp review to act unreasonably. I am actually pleasantly surprised that Yelp has helped local businesses as I thought before smaller businesses wouldn’t have the resources to monitor their Yelp reputation and/or respond to individual reviews. As I do with other online reviews, I always read with a grain of salt knowing they can be written by bots, competitors, biased customers, etc. I wonder if Yelp has considered adding a two-way rating feature like Uber where the owner/employee can rate the customers, although that’s probably way harder to track esp for big/crowded restaurants. Thanks for the post!

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