Wednesday, October 5, 2011

Chain Restaurants Being Yelped

The following is a working paper showing the impact of on restaurant sales.

September 16, 2011
Reviews, Reputation, and Revenue: The Case of

How do online consumer reviews affect markets for experience goods? Using a novel data set consisting of reviews from the website and revenue data from the Washington State Department of Revenue, I present three key findings: (1) a one-star increase in Yelp rating leads to a 5-9 percent increase in revenue, (2) this effect is driven by independent restaurants; ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in revenue share as Yelp penetration has increased.

Add yet another reason to be cautious of investing in Wall Street's chain restaurants.

On the one hand, McDonald's is now trading very near its all time high. On the other hand, its stock fell 71% from November 12, 1999 to March 12, 2003. Bad things can happen.

Don't even get me started on
Wendy's. I used to like them but the last time I was there I tried a frosty shake. In the past I'd get a frosty, but I generally prefer milkshakes. So what did I think of the new frosty shake? One word: Yuck! It was so bad that it has permanently tainted my opinion of Wendy's. No joke.

Yahoo! Answers: Do you think the wendys milkshake tastes horrible?

Yes! Horrible!

Check out the one and only yelp review for a Wendy's in Steamboat Springs, Colorado. Ouch. 7 people found it useful. 1 person found it funny. 2 people found it cool. Note that I am now sharing it with you.

The Internet can be a cruel mistress.


getyourselfconnected said...

Have a slug of MCD shares from 2004, maybe I should sell them. Dang Yelp!

Stagflationary Mark said...


For what it is worth, McDonald's is still my fast food restaurant of choice.

There is plenty of pressure on the restaurant industry overall though. There may come a time when a falling tide sinks all boats. *shrug shoulders*

dearieme said...

We had a Domino's pizza for the first time a couple of weeks ago. Rubbish!

GawainsGhost said...

I was on the opening staff of the first Wendy's in South Texas. Back then we had fresh ground beef, bread and vegetables delivered every morning, and there was this machine we used to make the square patties.

Yesteryear, the rule was if your order wasn't delivered in 15 seconds, it was free. Fresh meat, fresh bread, fresh vegetables, crispy fries, a tasty frosty or a soda, all gauranteed.

I even made a burger for Big Dave when he came down to inspect the store. A single, fries and a frosty, that's what he ordered. While he ate, five guys with white gloves inspected every inch of that restaurant. And I mean every inch.

It's interesting, but we were the first fast food restaurant to serve jalapenos. We had to get special permission from Big Dave, because jalapenos weren't on the menu. Six months later, every other restaurant was serving jalapenos.

The manager put me on the carry grill for Friday nights. Problem was the restaurant was right down the street from the football stadium. We had to get special permission to stay open late, because cars lined up for miles after the game.

The rule was if your order wasn't ready when you pulled up to the window, it was free. Car after car full of kids ordering triples, doubles, singles, chili, fries, frosties, and cokes. I've flipped thousands of burgers. Then I had to clean the grill to a mirror polish. If the manager couldn't see his reflection on the surface, I had to clean it again. Usually, I didn't get home until 4:00 AM.

That was when service meant service. You got a fresh meal on time. If there was any delay or mistake, you didn't get charged.

The last time I went to a Wendy's, about five years ago, it totally sucked. Not only did I have to wait, but they screwed up my order. And I had to pay for it.

Don't even get me started on KFC.

Stagflationary Mark said...


I knew there was a reason that I haven't eaten a Domino's pizza in the past few decades!

Stagflationary Mark said...


I've shared this before no doubt but I worked at Rax. As far as I am concerned, it all went downhill when they changed their milkshake formula.

I'd have one for lunch each day I worked and the manager knew it. One day she presented me with a free shake. My first reaction was to thank her profusely, which I did.

It tasted like ice milk. I asked her what was in it. She said ice milk. We both sighed.

I think she was really hoping that I would not notice the change. No such luck.

Scott said...

Chiseling food quality eventually leads to pain for restaurants. You can manipulate accounting earnings for awhile, but eventually traffic drops enough to expose the collapse. Happened to Taco Bell about a decade ago.

Stagflationary Mark said...


Happened to Taco Bell about a decade ago.

It's been at least that long since I have eaten at Taco Bell. Go figure.

Wisdom Seeker said...

Just for the record, Yelp sucks and is generally useless if you want an accurate review of anything.

But it's great for shaking down small businesses with threats of bad ratings! :)

I would hope that people are switching away from corporate-chain restaurants because they've woken up. I'd rather have a better meal experience, and keep the money local, than send profits to the rentier overlords. (On the other hand, when on travel I prefer safe well-known foods.)

Stagflationary Mark said...

Wisdom Seeker,

But it's great for shaking down small businesses with threats of bad ratings! :)

Someone should make a site called that deals exclusively with the larger businesses. ;)