Pixel Envy

Written by Nick Heer.

In Yelp Partnership, Grubhub Is Taking Extortionate Commission Fees from Restaurants by Substituting Phone Numbers Without Their Knowledge

In a new episode of the Underunderstood podcast, Adrianne Jeffries investigated the partnership of Yelp and Grubhub. From the transcript:

So I noticed recently, when I went to order from my favorite sushi place, for some reason — I don’t remember what it was, maybe I was thinking I would just call the restaurant and order with them directly. Whatever reason, I ended up clicking on the phone number for the restaurant and it popped up a little box that said, do you want to call for takeout or delivery, or do you want to call with general questions?

And I was like, huh, weird. I clicked on takeout or delivery and then the phone started ringing and this perky recording said, “this call may be recorded to ensure awesomeness.”

[…]

I think that means it’s the Grubhub number. And the other number is the real number. And if you can find the restaurants actual website, the number that is the real number is the number listed for general questions. So even though it is possible to call most of these restaurants directly and order food with the person who picks up, Yelp is kind of trying to make you think that it’s not. At least that’s my theory.

Jeffries also wrote a companion piece for Vice:

Robert Guarino, CEO of the Manhattan restaurant group 5 Napkin Burger and a board member at the New York City Hospitality Alliance, was also not aware that Grubhub numbers were showing up in Yelp for two of his four restaurants.

“We’re working with these companies to help generate orders, but so many times, we’re put in a position where we need to compete against them to get access to our customers,” he said. “So many of these practices make it hard to trust the companies. To not have all the practices clearly spoken about and understood by the businesses is really scary in my eyes.”

Grubhub offers a “marketing” service to restaurants, which includes being listed on the Grubhub platform, for between 15 percent and 20 percent of each order total. It also offers a physical delivery service, which costs restaurants another 10 percent. Grubhub says it provides phone numbers for restaurants that sign up for marketing but not delivery in order to capture all orders that could be eligible for its fees.

I used the word “extortionate” in the title of this post for two reasons. First, because it’s synonymous with exorbitant, which it is: the profit margin for restaurants is notoriously slim. Across Canada, margins are between –1% and less than 8%, and data from Aswath Damodaran of NYU records a profit margin of about 12%. At a minimum of 15%, Grubhub’s marketing service eliminates a restaurant’s profits on a single meal; at the high end of the marketing service and with its delivery service, Grubhub wants to take financial credit for a full third of an order’s value. Not only can a restaurant not expect any profit on orders made through Grubhub, it can anticipate losing twice what it would have made had that order been placed in its restaurant.

The second reason I wrote “extortionate” is because this practice feels somewhat usurious, in that many restaurants can’t afford not to be listed in delivery apps. I’ve seen a few people on Twitter suggesting, in response to this article, that people order from the restaurant directly instead of going through a delivery app. I’ve tried to do that ever since I found out about the egregious fees these apps take and, occasionally, I’ll be told I must place the order through an app. It’s easy to see why — while pizza chains are known for delivery and can afford to have their own system and drivers, your local sushi joint or donair place probably can’t. Delivery apps like Grubhub provide a useful service to fill this void, of course. But it won’t all be worth it if they continue to charge high fees that threaten to put restaurants out of business, and reroute phone numbers to take a commission — in some cases, even charging restaurants when no order was placed — without telling restaurateurs.