New research conducted at Cornell University suggests that online ratings platforms, such as Yelp and TripAdvisor, wield significant influence over upscale restaurants in New York City that cater to tourists. However, these platforms have a lesser impact on eateries frequented by local residents outside tourist hotspots.
Jason Greenberg, an associate professor at the Peter and Stephanie Nolan School of Hotel Administration in the Cornell SC Johnson College of Business, co-authored a paper titled “Rating Systems and Increased Heterogeneity in Firm Performance: Evidence From the New York City Restaurant Industry, 1994-2013,” along with Gino Cattani and Joe Porac from New York University Stern School of Business, and Daniel Sands from University College London. The paper was published in Strategic Management Journal on August 28th.
According to Greenberg, neighborhoods primarily visited by locals do not experience significant fluctuations in restaurant sales due to the presence and growth of internet-based rating platforms, despite their widespread use. This is because local residents possess firsthand knowledge of the restaurants in their area, allowing them to discern the subtle differences between offerings without relying heavily on rating platforms. In contrast, tourists lack this local knowledge and rely more on these platforms to guide their dining choices, especially when seeking high-end or special dining experiences.
Greenberg and his research team gathered continuous ratings data from both before and after the proliferation of digital rating platforms, as well as performance metrics for thousands of privately-owned businesses. They gained access to restricted government data containing private companies’ sales information and digitized paper copies of Zagat guides to create a continuous time-series of ratings dating back to 1994, before the advent and expansion of online rating platforms.
This research has important implications for restaurant owners and managers, as it identifies tourists and patrons of upscale restaurants as the key consumers who seek and are influenced by rating platforms. It underscores the need for these establishments to pay attention to the nuanced information sought by these consumers to remain competitive in a fragmented and competitive market.
Greenberg emphasized that ratings play a pivotal role in helping consumers make dining choices and can significantly affect the performance of businesses, impacting all stakeholders involved. As the late food writer and critic Anthony Bourdain once stated, “Food is everything we are,” highlighting the importance of understanding the factors that shape business competition and performance in the restaurant industry.
Source: Cornell University