Yelp Analysis Shows Strong Consumer Preference for Independent Restaurants

Yelp Analysis Shows Strong Consumer Preference for Independent Restaurants

Tuesday, Yelp released the second edition of their Local Economic Outlook, ranking U.S. metro areas by the pace of growth in their local-business population. Using their deep data stores, Yelp analyzed review ratings for chain and independent restaurants in the 50 metro areas included in the outlook.

The research indicates a shift in consumer perceptions of restaurants. Citing the “celebrity-chef” movement, the data shows a tremendous rise in in independent restaurants over the last 5 years.

Comparatively, fast food restaurants have seen a notable decrease in average ratings, about 16% between 2012 and 2017.

While chain restaurants across the country encounter increasingly choosy diners, independent fast-food and fast-casual restaurants have seen a continued increase in average ratings, improving by 7 percent in the last five years. Ratings for casual-dining chain restaurants held up better, unchanged on average, though they lagged behind their independent competitors, which gained a quarter of a rating point between 2012 and 2017.

“Historically, chain growth has outpaced the broader restaurant industry growth, but in the past three years we’ve actually seen independents and smaller operators outperform chains,” said Dave Henkes, Senior Principal at food industry research firm, Technomic. “It’s clear that consumers are voting with their dollars and are rewarding those restaurants that provide a resonating point of difference in the overall experience.”

It’s important to note that while many people might associate the phrases “fast food” and “fast casual” with chain restaurants, many restaurants that provide that type of experience are independent. The data shows that the type of restaurant (fast food, fast-casual, or casual) is much less important than their appearance as either a chain or independant restaurant.

Visit “Yelp” to see how the 50 major U.S. metro areas compare in local-business success throughout 2017 including which business categories are growing fastest, how restaurants compare and how diners in the metro rate chains and independent restaurants.

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Why Are Chain Restaurants Losing Foot Traffic?

Exterior of Pizza Hut 

Exterior of Pizza Hut 

Unfortunately, some major players in the industry have had a tough 2016.

Cosi just filed for bankruptcy and YUM Brands (the parent company of Taco Bell, KFC and Pizza Hut) just announced a sales decline at Pizza Hut.

“The US market was influenced by an unsuccessful promotion and the competitive environment,” said Greg Creed, CEO of YUM Brands.

Sonic drive-in is also not performing as its executives and investors hoped. “The shortfall was largely driven by lower-than-expected traffic, reflecting lower consumer spending in restaurants and continued aggressive competitive activity,” said Cliff Hudson, CEO of Sonic in a press release.

Both of these executives have said their chains are under major pressure from the competitive landscape, meaning other emerging concepts are taking away their customers.

But for some established brands, trying to attract the distracted consumer is the least of their worries. Chipotle, for example, is in full-on recovery mode. The “fresh mex” chain sales have drastically declined due to its food safety crisis, specifically, the brand saw sales decline by 27% for the first half of the year.

So what is costing consumers to not visit these establishments as much? Well, one contributing factor is that commodity prices are down. So eating at home is more appealing to consumers, especially as “food away from home” is on the rise according to this study. Even though lower food costs is also a good thing for restaurants, promotional costs evidently have increase to compete in the market.

The increase in wages has also attributed to the sales decline.

Wage inflation rose by 5% in July, according to William Blair Research. 12 states have increased their minimum wage this year. California, the largest restaurant state experienced a 11% spike in wages from $9 to $10. Read more