Grubhub Collected Record Fees From Restaurants Struggling To Stay Alive During The Pandemic
Restaurants expect to lose $240 billion by the end of the year, but for Grubhub, “COVID-19 is a net tailwind” for now.
As empty restaurants around the country struggle against an uncertain future and perhaps unrealistic guidelines for reopening during the coronavirus pandemic, takeout-ordering company Grubhub reported record revenues of $363 million from January through March, up 12% from the same quarter a year ago.
Restaurant owners have long complained that fees charged by ordering platforms like Grubhub, often ranging from 15% to 30%, make orders less profitable, and sometimes unprofitable — but businesses have no choice but to use them if they want to retain customers. They also discovered Grubhub was secretly buying up thousands of restaurant domain names and using them to build shadow websites that competed with pages operated by restaurants. Now, with dining rooms closed and lockdowns still in effect, takeout orders facilitated by platforms like Gruhub have become a crucial source of business.
“I can’t believe that we have to legislate over a company whose gross food sales are in the billions in order for them to give local restaurants a break."
New York City lawmakers have proposed capping delivery service fees at 10% and banning advertising or processing fees when a state of emergency has been declared. Meanwhile, consumers filed a lawsuit against Grubhub, Uber Eats, DoorDash, and Postmates last month, accusing them of using their monopoly power to charge restaurants high fees that are passed on to customers during a financially catastrophic pandemic. The companies’ “fees are shocking when one considers how little value Defendants provide to restaurants and consumers,” their complaint stated.
“I can’t believe that we have to legislate over a company whose gross food sales are in the billions in order for them to give local restaurants a break of a few hundred dollars per month!” New York City Councilmember Justin Brannan said to BuzzFeed News.
Grubhub’s record quarter included about two weeks at the end of March that were negatively impacted by coronavirus closures, but its business quickly rebounded. The company reported the number of daily average orders in April increased by 20% compared to a year ago, and “all of our non-New York markets are experiencing a growth surge with many over 100% year-over-year.”
“For now, COVID-19 is a net tailwind for our growth metrics,” Grubhub noted in its earnings release. Executives told investors on Thursday that while business is up significantly, the company is merely breaking even, that it will invest nearly all profits in the second quarter to helping restaurants boost their orders, and that it has deferred $100 million in commissions to help restaurants (although restaurant owners say the fine print on the deferral program makes it far less helpful than waiving or reducing fees).
Critics say such measures are not enough. “If Grubhub and other delivery apps truly want to support the local restaurants they depend on for their billions, they don’t need to come up with creative schemes. Just cap the commission so the local restaurants can survive this crisis,” said Brannan.
In its call with investors, Grubhub executives called fee caps ineffective and harmful, reiterating claims it made in an April letter to New York lawmakers: “This arbitrary cap would limit how restaurants, and especially small and independent establishments, can market themselves and therefore severely limits how many customers and orders we can bring to these restaurants.”