Who’s Paying for the Great Delivery Wars?

2020 was an undeniably big year for food delivery. As the pandemic limited access to restaurants and the government dragged — and continues to drag — on providing financial support for small businesses, consumers were given few options outside of takeout and delivery to eat a meal that they didn’t cook themselves. Not only was it convenient, it was also an ethical imperative: If you wanted to see your favorite restaurant survive, you needed to order out.

Benefitting the most from this disruption to an already broken food supply chain are third-party delivery apps, such as UberEats, Grubhub, and DoorDash. The apps offer infrastructure to tackle delivery, while simultaneously employing suspect practices like charging exorbitant fees to the restaurants that use the services. As we enter a new year, pushback against delivery apps and predatory practices is growing — in courtrooms, polling booths, and within restaurants and their customer base. Conversely, the delivery app industry, with billions of dollars in investment, is shaping up to fight every legal challenge thrown its way, and to spend its way to crafting labor legislation in its favor.

When did delivery apps get so powerful?

In the early 2000s, websites and eventually apps began to replace paper delivery menus. Seamless was founded in 1999, Grubhub in 2004, Postmates in 2011, and DoorDash in 2012. Seamless and Grubhub merged in 2014, the same year Uber launched UberEats. Apps allowed restaurants to shift their ordering services from the phone to the internet without having to build their own websites, but soon they also outsourced delivery staff. Now, small restaurants no longer need to hire delivery personnel themselves, with many instead choosing to strike a deal with one of the apps, which in turn would connect the restaurant with an independent contractor to pick up and deliver the food. As you’re probably aware, the model was hugely successful for the apps. Last November, UberEats bought Postmates for $2.65 billion, and in December DoorDash went public with one of the biggest IPOs of the year.

The race was then for market share, as apps attempted to strike exclusivity deals with major chains and ensure they had the most restaurants available to any diner. As of November 2020, DoorDash had 50% of the market’s share of sales, with UberEats and Postmates at a combined 30%, Grubhub at 18%, and all the other services in the last one percent. But as the big hitters grew, so did the complaints against them.

Delivery apps hurt restaurants

Of course, nobody makes a billion dollars without ripping somebody off. Third-party delivery apps often charge processing fees per transaction, as well as commission fees, delivery fees, and subscription fees. They can also offer choice placement on their websites to restaurants that are willing to pay more. In its literature to restaurants, Grubhub says that those who choose “a higher Marketing Commission will get broader access to our diners.” Overall, most restaurants find themselves paying as much as 30% per order in fees.

Costly as these fees may be, they’re all clearly stated in the agreements with the restaurants. Where the apps have really come under fire is the many less than honest methods of competing with each other while squeezing out every possible cent from restaurants. In 2019, Philadelphia restaurant owner Munish Narula filed a class-action lawsuit against Grubhub after he discovered that his business, Tiffin, was being charged order fees anytime a call was received through a phone number provided to customers by the app. As explained by Philadelphia Magazine, “The complaint...alleges that Grubhub has, for years, been charging commissions on those phone calls that are routed through Grubhub, without [Narula’s] knowledge, even if the phone calls don’t result in a customer placing an order.” Grubhub and DoorDash have also been accused of listing ghost kitchens under the names of actual restaurants.

But the biggest issue for many restaurants is the common practice of deliberately listing restaurants without permission and without a partnership in order to appear like the app has a wider selection of restaurants for customers to choose from, and to coerce restaurants into joining the service once orders start coming in without their involvement. In a letter to shareholders from October 2019, Grubhub CEO Matt Maloney said “listing restaurants on platforms without any partnership allowed other players to expand restaurant inventory rapidly,” and that Grubhub would be following suit. Both DoorDash and Postmates have previously gotten in trouble for listing restaurants without permission, but the practice has become the industry standard. Often, it leads to restaurants, some of which never offered delivery in the first place, being inundated with unexpected orders that might be based on outdated menus, and customers complaining when their orders are canceled. In October 2020, two restaurants filed a class-action lawsuit to Grubhub over the practice, saying it caused “significant damage to their hard-earned reputations, loss of control over their customers’ dining experiences, loss of control over their online presence, and reduced consumer demand for their services.”

How some state and city governments are responding

The many lawsuits and increased knowledge of just how much these apps end up costing these businesses have led more restaurants to urge customers to order from them directly. On a state and municipal level, legislatures in Chicago, Massachusetts, Clark County, NV, San Francisco, Los Angeles, Portland, New York City and Washington have all instituted temporary caps on food delivery fees for restaurants, usually around 15 percent. San Francisco and New York are considering permanent caps. California also recently passed legislation banning apps from listing restaurants without their permission, and New York is considering a similar bill.

The laws have caused some apps to pass the extra costs onto diners — DoorDash instated a “Chicago fee” of $1.50 per order in retaliation for the fee cap. It’s also led the delivery industry to back legislation that denies drivers and delivery workers benefits to keep costs low while still benefitting the C-suite. In California, delivery and ride-hailing apps put $224 million into supporting Prop 22, a ballot measure that says they “will not have to provide its drivers with standard employee protections like minimum wage for hours worked, health care benefits, or unemployment insurance.” The measure passed, with many California voters later saying they were misled by marketing efforts from Uber Eats and other apps that implied Prop 22 would be beneficial for workers.

The ballot measure’s passage has already led to layoffs in the state, and with delivery services adding fees that they previously threatened would only happen if Prop 22 didn’t pass. Uber and DoorDash already raised fees. Postmates joined them by raising prices between $.50 and $2.50 across California, all so the cost of driver benefits comes from the customer, not the company. Uber, meanwhile, is preparing for similar legislation in other states and even on a federal level.

What’s next for delivery apps?

With an understanding that the end of restaurants means a big loss for the food delivery business, some apps are giving lip service to supporting the restaurant industry through the COVID-19 crisis. Grubhub recently announced a new set of tools that allows restaurants to receive orders without having to pay marketing fees while still paying processing and delivery fees, and DoorDash partnered with the NYC Hospitality Alliance to provide grants to pay for heated outdoor dining set-ups. And in a few places, independent apps that promise to be better for restaurants have emerged as an option.

Largely, restaurant owners and workers have been urging customers to order and pick up from the restaurants directly, instead of going through third-party services. As Giuseppe Badalamenti of Chicago Pizza Boss said, it’s time to “stop believing you are supporting your community by ordering from a third party delivery company.” The question now is whether apps will change for the better, or if people can be convinced to stop using them altogether.

Correction: January 22, 2021, 3:51 p.m.: This article was corrected to show that no cities have, of yet, instituted permanent fee caps, and to clarify that DoorDash’s “Chicago fee” appears to still be in place.