Restaurants Are Pushing Back. Delivery Players Are Listening

Posted: Sep 25, 2019

Grubhub opens door to shared data, Yelp ups transparency and DoorDash changes tip policy

When the tech-fueled third-party delivery providers came onto the scene a few years back, it seemed a potential dream come true for the restaurant industry. Here were a group of well-funded companies offering teams of gig workers standing at the ready to deliver food at the click of an app to convenience-hungry consumers willing to pay the price.

For a restaurant industry eager to find new ways to generate revenue, it was a solution. And use of third-party delivery quickly became the norm.

Quickly, the seemingly perfect relationship between restaurant operators and their delivery providers began to fray. Over the past few months things have gotten more heated.

First came the grumblings about the unequal playing field. Companies like Grubhub, Uber Eats, and DoorDash promised incremental sales, but these orders often seem to cannibalize restaurants' dine-in traffic. In addition, the costs of working with delivery services have increased, and restaurants have been left footing most of the bill.

Quitting these services altogether isn't really an option. Consumers have been sold on the benefits of an on-demand economy and popping open an app to order dinner has become second nature to many.

But a look back on the last few months of drama - including lawsuits, public scrutiny and even threats of government intervention - indicate that the somewhat stormy restaurant/delivery partner relationship is continuing to evolve.

The lawsuit

Grubhub, which is part of the same company as Seamless, has seen the brunt of the negative attention.

It began in late 2018 when the owner of Tiffin Indian Cuisine, a chain in Philadelphia and New Jersey, filed a lawsuit claiming that Grubhub charges commissions on phone orders "without verifying whether the calls generated actual food orders and has instead relied solely on the length of the call to justify its withholding of revenues and profits that belong to the restaurants ? not GrubHub."

And Tiffin wasn't alone in reporting such "false" fees. A handful of restaurants in New York City also spoke out and The New York Post jumped on the story. The New York State Restaurant Association sent out a notice to their members detailing how to find out if a restaurant was being incorrectly charged by Grubhub. Finally, the New York City Council took notice, calling for an oversight hearing in June to better understand the impact of food delivery apps on the restaurant industry.

"There's a concern that it could be a system where restaurant owners are trapped in an unstable, unsuitable business model that not only doesn't add to their bottom line but could eat away at their profits and their ability to keep their doors open," said City Councilmember Mark Gjonaj, during an oversight hearing in June.

During the hearing, representatives from Grubhub and Uber Eats were grilled by council members, restaurant owners and industry groups. Restaurant operators shared their conundrum: Their profit margins range from 6% to 10% on menu items, but the third-party providers were collecting commissions on delivery that could range between 10% and 30%.

In light of these numbers, Grubhub representatives stressed the benefits of their robust marketing efforts and ability to draw in new diners who use their apps. "These are just incremental orders," said Kevin Kearns, a Grubhub senior vice president, at the hearing.

Those fees also came under scrutiny from the State Liquor Association of New York. The association is reviewing a proposal that would increase regulation of third-party delivery services that take more than a 10% cut of a licensee's profits.

In addition, Grubhub also faced accusations of creating copycat restaurant websites to boost its online order commissions. An exposé from the publication New Food Economy included operators who had lost control over their online presence and blamed Grubhub.

By Gloria Dawson
September 18, 2019
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