Is Yelp Killing Chain Restaurants?

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The owner of Chevys declared bankruptcy this week.

For decades, Americans have turned to the cookie-cutter menus at reliable chain restaurants like Friendly's, Chili's, and Applebee's to get their mozzarella stick/nacho/grilled cheese fix, knowing that the app sampler they get in Topeka is going to be pretty much the same as the app sampler they get in Honolulu. But now that Yelp has spread its citizen reviews around the country, allowing loyal fans to talk up the virtues of little neighborhood gems — and to bad-mouth the service, or the cold-in-the-middle mozzarella sticks, at their local Applebee's — are chain restaurants starting to feel the heat? That's the theory put forward in a paper from Harvard Business School, which tracks the rise of Yelp alongside the decline in business for the nation's chain restaurants.

The chains themselves seem to think that paying lip service to healthy-eating trends will save them, adding healthier menu items and calorie counts to appease a fat-conscious populace — many of whom just go ahead and order cheeseburgers anyway. But Harvard researcher Michael Luca makes an interesting point that "online consumer reviews [might now] substitute for more traditional forms of reputation."

In other words, whereas everyone used to choose Applebee's over Humperdink's Diner as they were passing through Nowheresville, U.S.A., they might now be turning to Humperdink's more often because they can just call up Yelp on their iPhones and find out it's got four and a half stars from the locals. Perhaps, Luca suggests, knowing what you're going to get at a chain doesn't count for as much anymore. Of course if Yelp keeps (allegedly) extorting mom-and-pop businesses to make them advertise with the site, that won't help their bottom line.

This week's announcements of bankruptcies at Friendly's and Chevys might help bolster the argument here, to say nothing of the recent financial struggles at Ruby Tuesday, Quizno's, and Marie Callender's and Perkins.

How Yelp Is Killing Chain Restaurants [Wonkblog/WP]
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