During our time in quarantine many people are relying heavily on delivery services to bring us food. It seems a convenient and effective way to bring in food while supporting our favorite restaurants. But third party food delivery companies like Grubhub charge restaurants a consumer fee that takes out a significant portion of their profits.
According to Grubhub, restaurants can choose how much commission they want to give to the company, starting at 15 percent and going up. Depending on how much a restaurant decides to give will determine how much exposure they’ll receive on the platform. So, the higher the percentage a restaurant forks over, the higher they rank on the Grubhub’s search results.
This business plan worked well until the COVID-19 pandemic struck. Now restaurants have been banned from allowing dine-in services and have to resort to making profits from take-out or delivery services.
The businesses struggling the most during this crisis are small independent restaurants since they depended on the dine-in customers to make most of their profit. To bring in more customers, Grubhub set in motion a new promotion to help restaurants.
Grubhub’s website indicates it launched Supper for Support as a way for people to support more restaurants. When patrons order through Grubhub between 5 p.m. and 9 p.m. at participating restaurants, customers will get $10 off orders of $30 or more. It seems like an enticing offer for the customer, however when you read the fine print the restaurant gets the short end of the stick.
In the terms and conditions for Grubhub’s Supper for Support promotion, it states that participating restaurants must pay a commission for the entire bill plus the $10 promotion. So not only do restaurants have to pay their commission fee, but also the promotion itself.
Grubhub states on its website, “Restaurant acknowledges that Grubhub will not match amounts funded by the Restaurant in connection with the Promotion. Grubhub does not guarantee any level of performance with respect to the Promotion.”
This means that restaurants assume all the risk and Grubhub will assume zero, but they will still receive a commission for every meal sold during the promotion time.
For example, a restaurant using Grubhub decides to give 15 percent of its profits to the delivery service. If a customer purchases a $30 meal and uses the promotion, then the customer will only pay $20 to the restaurant. The restaurant will then have to cover the $10 from the promotion and pay $4.50 for the GrubHub commission. Assuming the restaurant charges four times its actual cost for the meal to cover its overhead costs (e.g., lease, employee wages, repairs, etc.) they are breaking even at $7.50. So, taking into account the $10 promotion plus the $4.40 commission, the restaurant actually takes in $5.50 for the meal ($2 less of their break even amount).
Of course the restaurants have an option to opt out of the promotion, which means small businesses that can’t afford to take the risk will lose the opportunity for more advertisement on the Grubhub site.
When people found out about this promotion, Grubhub faced a lot of backlash and as a public relation gesture they’ve announced that they will delay commission fees of $100 million for small independent businesses that are not a chain.
But the announcement is just a delay meaning that Grubhub will collect the commission sometime in the future.
However, not using the Grubhub app won’t stop the company from gaining profits.
Apps like Yelp are affiliated with Grubhub. When customers order through Yelp, Grubhub will add extra fees to your order.
Recently I ordered from a local restaurant through Yelp. Even though I selected the option to pick up the food myself, I was charged a $2 delivery fee. I didn’t see it on my bill until the restaurant owner warned me about ordering through Yelp and said it would be smarter to order food through the restaurant’s website.
Yelp links restaurants’ websites and phone numbers so there is no need to pay extra money through Grubhub. With quarantine, most restaurants have their own delivery system that won’t add the extra fees that third party companies like Grubhub do. Plus, all of that money goes to supporting that business.