Food delivery services including GrubHub and Uber Eats are facing pushback from restaurants against the firm’s service fees.
Reuters reports that a growing number of mid-sized and small food chains are pushing back against what they see as an unfair distribution of profits between them and food delivery services such as GrubHub and Uber Eats. GrubHub stated in a letter to investors last week, shortly before its share price dropped significantly, that its ties with small and medium-sized restaurants were profitable, generating 80 percent of the orders on its platform. “This is a highly lucrative relationship for both parties,” the letter said.
But many of the restaurants that work with GrubHub are not as happy with the relationship as the delivery service is. With delivery services such as Uber Eats, DoorDash Inc. and Postmates Inc. regularly charging delivery commissions of as much as 30 percent, many restaurants are beginning to question how profitable the relationship is.
Ben Gaddis, the president of digital marketing firm T3, which acts as a consultant to restaurants such as Pizza Hut and Schlotzsky’s, stated: “They hate the relationship and they are getting raked over the coals. The smaller they are, the more it impacts their margins.”
The delivery services charge restaurants for having their menu listed on their sites, restaurants also pay higher fees if they want to be listed more prominently. Bareburger Group Chief Executive Euripides Pelekanos, discussed the delivery services stating: “They’ve become this necessary evil.” Bareburger has 46 stores based mainly in the northeast and plans to be rid of all third-party delivery platforms by 2020.
GrubHub shares plummeted by as much as 40 percent last week after the firm reported weak sales and lowered forward guidance, citing competition from rivals as a major issue. GrubHub reportedly acknowledged in a statement to Reuters that its commission rates are negotiable depending on how much service is required. GrubHub stated that it has been “getting more orders with larger overall ticket prices through our platform on a year-over-year basis” since 2014.
“Not only are restaurants getting more orders, but each order is getting bigger as well. This translates into increased incremental revenue that we believe off-sets a negotiated commission,” the company said. But still, many restaurants are building their own apps and investing in alternative delivery operations.
In September of this year, California lawmakers passed a gig employment bill which could dramatically change how companies such as Uber, Lyft, DoorDash, and GrubHub operate. Breitbart News reported at the time:
The legislation, known as Assembly Bill 5 (AB5), would require gig economy workers to be treated as employees rather than contractors.
The bill received a 29 to 11 vote in the California State Senate and now moves to the State Assembly, where it is expected to easily pass.
Gov. Gavin Newsom (D), who also needs to sign off on the bill, has publicly voiced his support for the legislation. “I am proud to be supporting Assembly Bill 5, which extends critical labor protections to more workers by curbing misclassification,” Newsom wrote in a recent Sacramento Bee editorial.
AB5 has the potential to upend numerous Silicon Valley companies that depend primarily on independent contractors.
Companies as diverse as ridesharing services Uber and Lyft, as well as food delivery services like DoorDash, would have to re-classify many of their drivers as employees, potentially adding significant costs such as benefits.
Those costs could be passed onto consumers in the form of higher prices.
The bill is also seen as an important step for labor activists who hope to unionize drivers.