Why independent restaurant owners are fighting third-party delivery platforms like Grubhub and Uber Eats
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- Third-party delivery platforms like Grubhub and Doordash claim to be helping restaurants through the pandemic, but restaurant owners say they're doing the opposite.
- Most delivery platforms charge restaurants a roughly 30% commission on every order, and restaurant owners say platforms have been slow to offer support and even pay what they owe.
- On Monday, Doordash announced it would slash fees by 50% through the end of May, but Grubhub is fighting a similar order in San Francisco.
- Business Insider spoke to restaurant data and marketing entrepreneur Abhinav Kapur, who said, "If there was ever a time to prove that you were a partner to the industry, now it would be the time to do it."
- Visit Business Insider's homepage for more stories.
Third-party delivery platforms like Grubhub and Doordash present themselves as allies of the restaurant industry, claiming to support small businesses by encouraging delivery.
But restaurant owners and advocates say that third-party delivery services have done just the opposite.
On Monday, a proposed class-action lawsuit was filed against Grubhub, Doordash, Postmates, and Uber Eats for overcharging restaurants to process delivery orders. The lawsuit, filed by three consumers, claimed that by giving customers discounts and forcing restaurants to pay the cost, third-party services have driven up menu prices.
Spokespeople for Doordash and Grubhub declined to comment on the lawsuit. A spokesperson for Uber Eats did not immediately return Business Insider's request for comment.
Grubhub in particular has come under fire recently for its "Supper for Support" promotion, which offers discounts to customers in the purported interest of supporting restaurants. However, in order for a restaurant to participate in the promotion, it must first sign a contract stating the restaurant will pay the total cost for the discount, and pay Grubhub a pre-discount processing fee for orders.
Grubhub has also asked its customers to oppose an order by San Francisco mayor London Breed that mandates delivery services to slash their fees in half. The email Grubhub sent out to consumers is titled "Do your part to save local restaurants." But restaurants have been begging for reduced fees from Grubhub and its competitors long before the pandemic began.
A Grubhub spokesperson told Business Insider, "We're committed to helping restaurants, drivers, and diners through this challenging time and investing in programs that directly drive more business to our restaurant partners. There was some initial confusion about Supper for Support, an entirely optional initiative to drive more business to restaurants, and we made changes to the promotion more than a week ago to fund $30 million - $250 per restaurant - that we expect will stimulate $100M in food sales for restaurants."
The restaurant industry has been one of the hardest hit by the pandemic, and experts predict that one in five restaurants might not make it through to the other side. And sky-high processing fees for businesses that already operate on razor-thin profit margins are just another nail in the coffin.
"It's one thing when you're paying the 20 to 30% on a delivery order to Grubhub or Doordash when delivery is only 30% of your business," Abhinav Kapur, the co-founder and CEO of Bikky, a data-driven marketing startup for restaurants, told Business Insider. "But when everybody's forced to stay home and delivery becomes 100% of your business and you're paying somebody 20 to 30% on pretty much every dollar you make, most of your revenue has disappeared overnight."
For restaurants that had no in-house delivery service prior to the pandemic, third-party delivery platforms have been a necessary evil. Since third-party platforms have such a command on the delivery market, it's almost mandatory for restaurants to sign up for their services if they want to be visible to consumers.
"You can't have food delivery without the food"
Irene Jiang/Business Insider
Smokin J's is a Poway, California barbeque restaurant that opened in December 2019, just three months before the shutdowns began. The owners, brothers Josh and Jeremy George, said that signing up for delivery services enabled them to continue making a profit.
"Before they even shut the restaurants down, we kind of saw that we needed to convert quickly," Jeremy told Business Insider. The brothers scrambled to sign up for every delivery service imaginable and set up their own online ordering system through their website. As a result, business is decent, and Smokin J's has even been able to hire new employees during the crisis.
Even though the brothers still manage to turn a profit, the services they're working with haven't been making it easy.
"They're taking roughly 30% off of all of our sales," said Jeremy. "Some of them take a little more than 30%, and then we also average about 10 to 15% tips, which we don't get when we use those ordering systems. So it's almost as if we lose 45% in each of those transactions."
Jeremy said that the services also haven't paid the brothers on time. "We're trying to get Grubhub to pay us. They owe us for an entire month that they haven't paid us for. And we still can't get a hold of anyone to get our direct payments set up with them."
Grubhub still owes Smokin J's about a thousand dollars, Jeremy said. "Most restaurants don't like selling food for free," said Jeremy. "I try to give them the benefit of the doubt. Maybe they don't deserve it, but I know they are scrambling a little bit too with the influx of new customers."
A spokesperson for Grubhub said that a check for the owed amount was sent to the restaurant earlier this month. The George brothers say that they still have not received anything, but they finally got in touch with a Grubhub service representative.
Eric Chan, the owner of Seattle dim sum mainstay Jade Garden, says he's grateful for what Doordash has done to accommodate his restaurant's situation.
"They take a lot from us but we're selling in high volumes and quantity so that kind of offsets a little bit," said Chan. "But we're pretty thankful for Doordash. They've been making it easy on us, but customer support is kind of hard. Their hours are shorter and so reaching them when we have technical difficulties or customers have technical difficulties has kind of stalled."
A Doordash spokesperson told Business Insider that when the pandemic hit, the company experienced a shortage of support agents due to shelter-in-place restrictions. The company temporarily rescinded their call center support but continued to offer in-app merchant support, the spokesperson said, and phone support was turned back on over a week ago.
Doordash and its subsidiary, Caviar, announced on Monday it would slash fees for restaurants by 50% through the end of May. But while Kapur thinks that Doordash's move is a step in the right direction, he said it's too little, too late. "The tough thing to stomach is that it's happening a month into the crisis and not a few days into the crisis."
"If there was ever a time to prove that you were a partner to the industry, now it would be the time to do it," said Kapur. "You can't have food delivery without the food. And they have built their business models and shareholder value on the backs of this industry."
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