Grubhub sued for adding restaurants to its delivery platform without permission

Class-action suit accuses Grubhub of using “bad” delivery experience to pressure restaurants to sign up; the tactic is widely practiced in the delivery sector by rivals, including market leader DoorDash

By: Nancy Luna | restaurant-hospitality.com

A year ago this week, delivery operator Grubhub abandoned its legacy policy of never listing non-partner restaurants on its platform — a strategy rivals like DoorDash have used for years to gain market share, even if it means upsetting a potential restaurant client.

The tactic has led to Grubhub adding more than 150,000 non-partner restaurants to its site. But now, the Chicago-based company faces a class-action lawsuit for the behavior. The Farmer’s Wife in Northern California and Antonia’s Restaurant in North Carolina sued the company Wednesday, accusing Grubhub of misleading both consumers and restaurant operators by adding dining establishments on their delivery marketplace without consent.

When adding non-partner restaurants, Grubhub routinely scrapes logos and menus from websites and places them on their platform. Sometimes the menu is outdated. In other cases, Grubhub promotes dishes that don’t even exist, the suit states.

Grubhub drivers are also told not to wear any branded uniforms to maintain secrecy about the delivery transaction. The suit maintains that these practices often lead to longer delivery wait times and order mistakes, which are routinely blamed on the restaurant.

“Even when food orders are successfully placed, pickup and delivery are not as well coordinated as they are when the restaurant is a willing participant,” according to the suit. “Drivers may be late to pick up the food, if they show up at all, and customers’ food is more likely to be cold or otherwise unsatisfactory when it is eventually delivered.”

Grubhub, the suit states, then uses this “bad” experience to pressure restaurants to sign up for delivery service.

“Grubhub is intentionally harming restaurants’ local reputations and then offering them a partnership to make the harm stop — a partnership where Grubhub will keep 30% or more from each order,” the suit states.

Grubhub, which releases its earnings later today, declined to comment on pending litigation.

TJ Schier, a consultant for restaurants who want to improve off-premise sales, said it’s great to see operators “fighting” against “deceptive” delivery practices such as unauthorized use of their logos and menus.

“Collectively, if everyone pulls together to fight against issues like this one, the industry gains a ton of leverage. Individually, it’s a very tough to fight against these massive companies,” said Schier, a 35-year industry veteran and founder of Off-Premise Domination consulting.

Schier, who is also a Which Wich franchisee, said a suit likes this is especially helpful to independent operators.

“Many are fighting to preserve their margins as well as their rights to own their company data. If they do choose to work with third parties, the operator’s permission is vital,” he said.

Grubhub began shoring up its platform last year after experiencing a slowdown in order growth.  With consumers growing more ‘promiscuous’ with delivery apps, CEO Matt Maloney told investors in October 2019 that Grubhub would start beefing up its restaurant inventory by adding establishments without permission.

The company said it would do this even though it was expensive and the “wrong long-term answer for diners.”

At the time, Grubhub acknowledged that the tactic  typically results in higher fees.

Market-share data suggest that Grubhub continues to lose ground despite these new tactics. Still, during the pandemic, European delivery operator Just Eat Takeway said it would buy the operator to gain a foothold in the U.S., especially New York City, where Grubhub is the dominant delivery player.

According to the latest data from e-commerce research firm Edison Trends, DoorDash continues to dominate market share in the U.S. delivery space.

The company’s market share in October, based on millions of anonymized transactions, was 48%. That’s up from 34% in October 2019. It’s also well ahead of its main competitors:  Uber Eats (28%), Grubhub (15%) and Postmates (7%). Note: Uber Eats plans to buy Postmates, which would give them a combined market share of 35% when the deal closes, according to Edison Trends.

Contact Nancy Luna at nancy.luna@informa.com

Follow her on Twitter: @fastfoodmaven