NYC Council Investigating Food Delivery Services

Restauranteurs say high, uncontrolled fees blast their margins.

October 01, 2019

NEW YORK CITY—The New York City Council’s small business committee is investigating widespread complaints about high fees that Grubhub and other third-party delivery services are charging local restaurant owners.

According to The New York Times, restaurant owners say that Grubhub charges them fees for phone calls that don’t result in food orders, and the service has faced criticism for its recently discontinued practice of creating web domains for the restaurants on its platform.

In response, Grubhub has started a website to help restaurants reclaim their web domains and has promised to let owners listen to the recordings of some phone calls that generated disputed fees. Grubhub plans to hold the first in a series of “restaurant roundtables” in New York to let business owners air their concerns.

“I would love for Grubhub to do the right thing and do more,” said Mark Gjonaj, chair of the City Council’s small business committee. “If they don’t, we’re going to be looking at serious legislation as we move forward that will make this a much more fair playing field.”

New York is one of Grubhub’s top markets, but the impact of delivery apps is being felt far beyond the Big Apple. As third-party delivery services become faster and more convenient, they also grow increasingly popular with consumers. And that is changing what it means to operate a restaurant. From the U.S. to India, owners of small, independent restaurants charge that the per-order commissions charged by third-party services cut into their already-thin profit margins.

Defending their fees, the delivery companies argue that apps expose restaurants to new customers, allowing small businesses to tap into tens of millions of online users. Owners of small businesses say that may be true, but it hasn’t been profitable.

The third-party delivery apps vary in their approaches to calculating commissions, which usually range from 15 to 30%. While Uber Eats levies a flat rate, Grubhub charges restaurants higher commissions in exchange for better visibility on the platform. That system could change in New York, because the small business committee is considering legislation to regulate commission rates. Last month, the New York State Liquor Authority proposed a policy that could cap commissions charged to restaurants with liquor licenses.

As Grubhub and other delivery apps gain popularity, few restaurants can afford to opt out. “Grubhub has such huge market share that to say no, a lot of them feel like they’d be missing out on a lot of business,” said Melissa Autilio Fleischut, president of the New York State Restaurant Association.

Sales officials at Grubhub’s headquarters in Chicago reportedly yelled at owners who called with complaints, said two Seamless employees. Another practice raised concerns: Grubhub’s system for determining whether a phone call made through the app has generated an order. Most delivery customers place orders by tapping their smartphone screens, but Grubhub lets users make phone calls through the app, and Yelp listings often include a Grubhub phone number alongside the restaurant’s own number.

In December, Tiffin, a chain of Indian Philadelphia restaurants, sued Grubhub, claiming that for at least seven years the company had charged restaurants for phone calls that never resulted in orders.

Marco Chirico, who runs an Italian eatery in Brooklyn, discovered that in two months Grubhub had charged him hundreds for phone calls during which customers simply inquired about a menu item or requested a reservation. He received a refund from Grubhub, but only for the phone calls whose recordings he had reviewed.

“Now I have to take my time or pay someone extra to go through all the transactions and phone calls to see whether they were orders or reservations,” Chirico said. “It can hurt you at the end of the month.”

In August, Grubhub announced that it would double the time it gives restaurants to review phone calls, from 60 to 120 days, and would refund inaccurate charges. But that extension won’t ensure that restaurants recover their losses.

This summer, restaurant owners also began questioning another Grubhub practice: purchasing the internet domain names of thousands of restaurants so that customers searching for them online would be directed to place orders through the delivery service. Restaurant owners said they didn’t realize that joining Grubhub essentially meant signing away rights to their online identities. To reclaim control over their digital profiles, some owners are working with ChowNow, a California-based company that helps businesses create their own apps and charges a monthly subscription fee rather than a per-order commission.

“Restaurants are waking up and saying, ‘I need to own my website, I need to own my customers, I need to own my identity online,’” said Chris Webb of ChowNow.