The Independents Seem To Be Holding Their Own

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For the record, one of my main objectives in writing these columns is to review major issues that can in some way affect the restaurant industry, be it chain or independent. When that happens I will in many instances quote portions of various articles, giving full credit to the writers and/or publications. In other words, it’s my perspective of the issue at hand. Such is the case in this column.

Fred G. Sampson
Fred G. Sampson

What caught my eye was the heading in a Restaurant Hospitality article of August 22, 2016: “Is Yelp hurting chain restaurant sales?” Recent figures suggest online restaurant reviews may drive more revenue for independent restaurants than for their industry rivals. While the writer of this piece is Bob Krummert, a number of sources are named in the article, such as Black Box, the US Census Bureau, NPD, and Harvard Business School. You may recall, about six or eight months ago we were led to believe that independents would be slowly but surely losing traffic to chains.

“The experts who tell us chain restaurants will inexorably take sales and traffic away from independents better take a closer look at July 2016’s results. Black Box Intelligence numbers show a 1.4-percent drop in chain sales, while the U.S. Census Bureau has the restaurant industry overall—including independents—recording a robust 5-percent gain. Could a 2011 forecast that review sites like Yelp ‘cause demand to shift from chains to independent restaurants’ be coming true?”

The next comment, from Black Box, is really thought provoking: “Black Box thinks it knows what’s behind the recent discrepancy between chain and all-industry sales results. Its conclusion spells trouble for restaurant chains. ‘The uphill battle for sales traction among chains is also somewhat at odds with government data showing overall growth from food and drinking establishments,’ Black Box reports.”

As you continue to read excerpts from this article, you probably will come to the same conclusion I did. The industry has given birth to a number of industry analysis groups which very often are in disagreement with the U.S. Census Bureau.

For example: “Government data doesn’t focus on specific restaurant segments, but one implication is that chains are losing the battle at a local level with independent and/or other food-away-from-home or take-out and delivery services. There is growing evidence that these options are taking share from legacy restaurant brands. If these scenarios play out, it could mean a meaningful shift of the chain restaurant ‘share of stomach.’

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“The Black Box July 2016 Restaurant Industry Snapshot offers some anemic performance numbers from the nearly 25,000 chain units it tracks. Comparable sales were down 1.4 percent year over year while, worse, comp traffic dropped 3.9 percent. ‘July represents the weakest performance for both metrics since December 2013,’ the report notes.

“In contrast, the Census Bureau’s July 2016 eating and drinking place sales numbers show a 5-percent year-over-year gain in sales. Black Box focuses on chains, while the Census Bureau looks at all segments of the restaurant industry. But that alone doesn’t explain the huge disparity in results. That goes double when the overall economic picture is good and is forecast to get slightly better. It all leaves chain operators scratching their heads.”

Based on previous information this year NPD reported that “Total U.S. Restaurant Count Down Slightly from Year Ago; Chain Units Grow and Independent [sic] Decline.” In fact, I wrote a column on the subject. Chain units will grow and independents should decline, the reason being: “Independent restaurants are historically less stable, not having the same resources as chains to get through more difficult times,” said NPD foodservice product management director Greg Starzynski.

In addition, NPD’s Kim McLynn added, “Chains have been heavily investing in advertising and dealing to drive customer traffic these past several years. Independents don’t have the resources to compete.”

While all of this may be true, the era of social media may have created a powerful new resource that levels the playing field for independents: review sites like Yelp.

Michael Luca, a professor at Harvard Business School, did a study in 2011, looking at the effect Yelp reviews had on both independents and chain restaurants.

“He found a significant impact for independent restaurants, but no relationship between Yelp ratings and restaurant revenue for chains.” He went on to say, “Yelp causes demand to shift from chains to independent restaurants.” Luca concluded: “Assuming Yelp measures are a reasonable measure of true quality, then Yelp may help to drive worse restaurants out of business.”

There is no doubt in my mind that social media does now and will continue to be a major player in shaping consumers’ decision-making process. That is another reason why you must have a social media monitoring service. It will help you protect your good name.

Fred G. Sampson is the retired President Emeritus of the New York State Restaurant Association. He began working with NYSRA in 1961. Within the next four years the NYSRA more than tripled its membership and expanded from one regional chapter to eight. Sampson played roles in representing restaurants on issues including paid sick leave, minimum wage, liquor laws, a state-wide alcohol training program and insurance plans. Comments may be sent to fredgsampson@juno.com