One of the things that makes the SMB universe so opportune – and at the same time, challenging for the startups building products to serve it – is its size. And a key component of that size is the number of verticals and business categories, or “headings” as they were called in their alphabetical days.
Another universal truth in the SMB segment is that not all verticals are created equal. Some are much more valuable than others – again from the perspective of adtech and SaaS players that sell things to SMBs. For example, home services is a greater addressable market than travel agents, and so on.
One of the categories at the top of that food chain is arts & entertainment, otherwise known as bars & restaurants. It’s a quickly evolving segment, with dynamics that are defined by tech tools, the economy, and the adaptiveness of digital natives that gradually phase into the ranks of SMB proprietorship.
To put a finger on the pulse of this key category of the local economy, Yelp today released its State of the Restaurant Industry report. Utilizing its first-party data, such as trends in reviews and other signals, Yelp crunched the numbers to reveal what’s happening in restaurants today, and where the vertical is headed.
Domino Effect
So what were the top findings? Unsurprisingly, restaurants are feeling the crunch of macroeconomic factors like inflation. This not only impacts their unit economics, given the domino effect of the supply chain, but also consumer spending. So they’re feeling squeezed on both revenue and expense sides.
The report also finds that new restaurant growth has slowed. New openings are still growing year-over-year, but that growth rate has decelerated from 6 percent to 4 percent. Additional challenges result from staffing shortages, which leave restaurants unable to staff to capacity… and paying more to do so.
Elsewhere, Yelp is seeing a clear trend in what it calls “tipping fatigue.” Customers are tipping less, or at least complaining about tipping more, mostly due to their own economic friction. There’s also a trend towards self-service dining as restaurants look to cut costs and improve margins through automation.
“For local restaurants, especially high-end establishments facing slower growth and more budget-conscious consumers, embracing self-service technologies can be a game-changer,” Yelp’s Head of Restaurants, Alison Lin told Localogy Insider. “Tools like Yelp Kiosk not only help restaurants streamline operations and adapt to economic pressures, but also help businesses meet the evolving expectations of today’s diners.”
Restaurants Highlight Reel
As for other key findings, we’ll leave you with our highlight reel. Many of these points go a few layers deeper than the high-level findings above. See them below and stay tuned for more coverage from the wide world of local restaurants. It will continue to be a high-value category and a moving target.
New Growth
-
New restaurant openings continue to grow – 4% year over year. However, growth has decelerated from the 6% that was reported last year.
-
Pop-up shops also continue to grow – up 155% year-over-year. This is the fastest-growing category as SMBs look to de-risk larger investments by test-marketing concepts.
-
Sweet shops are also growing, including dessert shops (52%), shaved ice (44%), pancakes (38%), waffles (32%), creperies (29%), ice cream and frozen yogurt (22%), and donuts (17%).
-
Restaurant categories that typically sit on the higher end are down, due to softer consumer spending. That includes New American (down 46%), Teppanyaki (down 40%), and Modern European (down 36%)
Cutting Costs and the Rise of Self-Serve Dining
-
Consumers notice the increase in self-service options and mention it in reviews. That includes terms like “iPad checkout” (up 291%), “ordering kiosk” (up 238%), and “self-checkout” (up 235%).
-
This trend is even occurring at higher-end restaurants, where there were increases in mentions of “self-service” – up 159% for $$$ restaurants and 29% for $$$$.
-
There’s also a clear trend towards cost-cutting measures that replace table service. For example, mentions of “counter service” are up 203%.
Tipping Fatigue
-
There’s an increase in Yelp reviews that mention “tip screen” (up 811%), “gratuity” (up 111%), and “tipping” (up 81%).
-
Consumers include tipping in their overall experience, with increased mentions of “tip was included” (up 91%), “no tip” (up 71%), and “didn’t tip” (up 63%).
-
Review mentions of “gratuity” are rising more rapidly at lower price point establishments (140% for $ restaurants and 103% for $$ restaurants) compared to higher-end restaurants (58% for $$$ restaurants and 26% for $$$$ restaurants).
-
Nearly every state saw an increase in gratuity-related mentions, led by South Dakota (up 34%), Alaska (up 31%), Delaware (up 26%), New Mexico (up 25%), Hawaii (up 24%), Washington, DC (23%), and Georgia (20%).
-
“Tipflation,” a phrase that emerged when inflation began inflecting in 2022, has even made its way onto Yelp reviews with mentions up 399%.
For all of the above figures, data was aggregated from Yelp reviews in the U.S., between May 2023 – April 2024. And for data points that compare to a previous period, the past study being referenced was similarly completed using Yelp reviews in the U.S., between May 2023 – April 2024.
