App-based Delivery Services: Grubhub Inc. Subject to NYC Council

Will New Laws Emerge for Delivery Services Practices?

Today many people use app-based delivery services for ordering food. After all, the convenience of apps on cell phones and other devices makes ordering easier. However, restaurant owners have growing concerns.

According to a recent Bloomberg article, New York City Council members warned Grubhub Inc., a popular app-based delivery system, that they might soon be subject to regulations.

Profit Issues for Restaurants with App-based Delivery Services

Companies with app-based delivery services are charging as high as 33% per order. This creates a problem because many New York restaurants have profit margins of 10% or less.

Councilman Mark Gjonaj believes that online ordering may be a contributing reason for the fact that 80% of the city’s restaurants fail within five years.

Online Delivery Service Is Growing

Yet, app-based orders are growing. By 2020, they may comprise 40% of restaurant sales. In fact, over the next 10 years, predictions are that online food ordering will reach $365 billion.

Restaurant owners complain that Grubhub sometimes has charged commissions when no food was even ordered. It has also created its own phone numbers so calls go directly to Grubhub. In an effort to appease the pressure from the NYC Council, the company provided restaurants with 120 days to appeal such erroneous orders. Council members said the company should put no time limit on refunds and should hire independent auditors to evaluate the orders in dispute.

Control Over the Restaurant’s Market

The Grubhub CEO says that the company puts money into marketing a restaurant’s menu and has a large database that lists customer’s phones, emails, credit cards and favorite foods to promote sales. They also up-sell the food item. For example, they ask whether the customer wants cheese or avocado added to a hamburger, etc.

Councilman Gjonaj argues that with the extent of customer control Grubhub has, if the restaurant decided to not use them, Grubhub could actually take business away from the restaurant. It could promote other restaurants to the customers.

As this change in business model runs into challenges, it is likely that new laws will emerge to resolve issues.

Stephen Hans & Associates has extensive experience working with restaurant owners to resolve disputes involving employment and labor law.

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