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I think this could be problematic when someone is refining their local searches or changing the type of business they are searching for.
As the matching in the above example is clearly wrong, assuming searches in a short space of time are closely related, I decided to do some more research.
I tried a variety of searches for differing heading/town combinations, some closely related and others wildly different. There was only one consistent factor, Google showed irrelevant adverts time and time again. Wrong business types were shown, or when I changed the town to somewhere quite far away there were adverts showing that had no connection to the area.
The nature of Local Search means both the business type and location have to be correct for an advert to be relevant, personalisation seems to put this relevance under threat.
Only time will tell if this will be a short-lived problem that gives us, eventually, better results or if Local Search is a step too far for personalisation (on general search engines) at the moment.
this is one of the important reasons amongst others why LS utilities needed to be segmented from general search utilities.
by segmenting results you can segment algos and display-- applying new criteria that in your example is unique/distinct from the that of the challenges of general search algo progression.
Hopefully this will be an opportunity for us to take advantage of. It'll take a while for most people to realise that alternative solutions may better fit their needs. I won't be placing bets on who will be top 5 in local search in 5 years, it's all to play for.