### Yelp and Merchandise Forensics

If you travel, you know that Yelp and those who compete with Yelp are particularly helpful.

Yelp shifts demand.

Let's say that you visit a town with 30 restaurants, all earning an average of \$750,000 in sales per year, all generating \$75,000 pre-tax profit (this is being done for illustrative purposes, no claims for accuracy other than a few simple Google searches). Let's say that 5% of the traffic is tourist traffic that is impacted by Yelp. In other words, \$37,500 of demand per store is up for grabs, steered by Yelp and similar apps.

Let's say that your expense structure looks something like this:
• 35% of costs are for food.
• 35% of costs are for salaries (essentially fixed).
• 20% of costs are for overhead (essentially fixed).
The pre-Yelp profit and loss statement looks like this:
• Demand/Sales = \$750,000.
• Variable Costs (food/drink) = \$262,500.
• Labor = \$262,500.
• Profit = \$75,000.
In a Yelp-fueled environment (shifting 5% of total market demand to establishments favored by Yelp), the top 10 rated restaurants capture \$37,500 * 30 / 10 = \$112,500 per store. The bottom 20 rated restaurants all lose \$37,500 each.

Yelp-fueled restaurants:
• Demand/Sales = \$862,500.
• Variable Costs (food/drink) = \$301,875.
• Labor = \$262,500 (though you could make a case you need more staff).
• Profit = \$148,125 ... 17% of sales.
Yelp-penalized restaurants:

• Demand/Sales = \$712,500.
• Variable Costs (food/drink) = \$249,375.
• Labor = \$262,500 (though you could make a case you need fewer staff).