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Uber offer for Grubhub fans worries over delivery fees charged to restaurants

Stock MarketsMay 14, 2020 07:15AM ET
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© Reuters. FILE PHOTO: Outbreak of the coronavirus disease (COVID-19), in Mexico City

By Hilary Russ and Lisa Baertlein

NEW YORK/LOS ANGELES (Reuters) - The possibility that Uber Technologies Inc (N:UBER), which runs Uber Eats, could acquire Grubhub Inc (N:GRUB) is reigniting some restaurants' worries over the commissions charged to eateries by the third-party delivery companies.

Uber is in negotiations to buy Grubhub Inc (N:GRUB) in an all-stock deal, people familiar with the matter said on Tuesday.

Some small eateries have been vocal about their distaste for the services, which sometimes charge mom and pop restaurants - already operating on thin margins - as much as 15% to 30% commissions on each order while giving discounts breaks to marquee chains like McDonald's Corp (N:MCD).

In March and April, as the coronavirus pandemic hit the United States, Grubhub added as many new partner restaurants to its platform as it did during the entire second half of 2019, Chief Executive Officer Matt Maloney said last week in a letter to shareholders.

It now has about 300,000 U.S. restaurants on its app, while Uber eats has more than 100,000 in the United States and Canada. Their merger would create the nation's largest restaurant delivery company.

In April, daily average orders via Grubhub were 20% higher than the same month last year, Maloney said.

Andrew Rigie, executive director of the New York City Hospitality Alliance, a trade association, said consolidation among third-party delivery firms "poses significant concerns."

"You get nervous when you potentially have a provider that's going to be over 50 percent of the market," said Robert Guarino, chief executive officer of 5 Napkin Burger, which has four sit-down locations in Manhattan. Most of his delivery orders come through Grubhub.

"The big question is, what happens as all these companies are trying to reach profitability, where does it come from," he said.

New York City Council on Wednesday passed an emergency bill to limit fees charged by Grubhub and other big platforms, including Uber, DoorDash and Postmates, while it continues to pursue longer-term regulations it had already been considering.

The rules would expire 90 days after a state of emergency is lifted and will limit fees paid by restaurants to 15% of an order for delivery services and 5% for non-delivery services like marketing.

Grubhub has repeatedly emphasized that it values the local restaurants that make up the vast majority of establishments on its app.

Grubhub is deferring up to $100 million of commission payments for some restaurants to a later date that the company did not disclose.

Uber Eats said it would waive delivery fees for restaurants during the pandemic, while DoorDash and subsidiary Caviar cut commission fees in half through May.

Even so, anger persists.

Chicago pizza restaurant consultant Giuseppe Badalamenti said the that mergers and industry consolidation usually give consumers "less choices and gives the companies too much power."

Two weeks ago, he posted a receipt on Facebook (NASDAQ:FB) showing that one restaurant kept just $376.54 out of $1,042.63 of Grubhub orders - the rest going to the delivery service for promotions, commissions and fees.

"Stop believing you are supporting your community by ordering from a 3rd party delivery company," Badalamenti said in the post, which went viral.

On Tuesday, Chicago enacted new rules requiring the delivery companies to give customers itemized cost breakdowns of each transaction, including commissions and service fees the restaurant pays to the apps.

Uber offer for Grubhub fans worries over delivery fees charged to restaurants
 

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Comments (2)
Kaveh Sun
Kaveh Sun May 14, 2020 9:31AM ET
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The highest Grubhub fee is “promotion”. Delivery fee is not even close. Delivery fee is “deliver commission” charge on restaurant. Basically they charge “commission” on order processing, promotion, delivery, commission on the total, and “buy it now”.
David Knight
David Knight May 14, 2020 8:07AM ET
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uber is china
 
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