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Chicago Claims DoorDash and Grubhub Misled Customers on Fees

September 3, 2021 - Posted in News Posted by:

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The pandemic has been a boon to food-delivery apps, as many restaurants closed their dining rooms while diners were wary of going out. Lawsuits filed by the city of Chicago claim that DoorDash and Grubhub exploited the pandemic to mislead restaurants and diners, charge unfairly high commissions, and bypass emergency provisions meant to bolster the struggling hospitality industry. The apps used “unfair and deceptive tactics,” mayor Lori Lightfoot said in a press release.

The separate suits levy multiple charges against the companies, but the charges center around allegedly deceptive practices in the early stages of the pandemic when lockdowns shuttered many restaurants.

The suits allege that the companies took steps to avoid the city’s emergency fee cap, which limited the commissions on most orders to 15 percent. The suits claim Grubhub continued collecting fees larger than 15 percent, while DoorDash imposed an arbitrary “Chicago fee” to boost its revenue.

In separate statements, the companies called the suits “baseless” and said they plan to fight them in court.

The Grubhub suit claims the company used the pandemic to market a “save local restaurants” campaign that ultimately hurt struggling restaurants. The “Supper for Support” promotion offered $10 off orders from local restaurants of $30 or more; the suit describes it as a “losing deal for restaurants.”

The $10 was subtracted from the bill, but restaurants still had to pay a commission of up to 30 percent on the full price of the order; the campaign began months before Chicago capped commission fees. As a result, the suit says, a $30 order would net only $11 in revenue for a restaurant. The suit alleges that if diners knew how much went to the platforms, as opposed to the restaurants, they wouldn’t use them to order.

“We never gave them permission to put us on their sites.”

Ron Prokaski, owner, Mom’s Place

A Grubhub spokesperson said participating restaurants agreed to join the promotion and were aware of the terms before they signed. Participating restaurants were told they would be promoted as part of the campaign; restaurants that declined would miss out on the extra promotion offered to their competitors.

“That’s just spin,” says Pat Doerr, managing director of the Hospitality Business Association of Chicago. He says he’s heard from multiple owners who say they weren’t helped by pandemic-related marketing. “Those apps have spent millions of dollars telling customers they are the best way to order food online, an expense ultimately defrayed by locally owned bars and restaurants, who are not in position to bear that cost.”

Grubhub owns the Seamless and MenuPages platforms, while DoorDash also operates Caviar. All the platforms were named in the suit.

Chicago is among several cities limiting how much apps such as DoorDash and Grubhub could charge restaurants. Generally, when a diner uses an app to order food, platforms charge the restaurant up to 30 percent of the order as a commission. This hurt many restaurants during the pandemic, when many of their orders came through online platforms.

In November, Chicago limited the commission to 15 percent for most orders, a move that Grubhub maintains was unconstitutional. The city’s suit claims that Grubhub’s other fees—marketing, delivery, order processing—exceeded 15 percent despite the law.

A month after the cap went into effect, DoorDash enacted a “Chicago fee,” a flat $1.50 charge on all orders in the city. The complaint alleges that this fee, which ended in July, misled customers into thinking the charge was instituted by the city, not DoorDash itself. This also pushed DoorDash’s commission above 15 percent. Moreover, the suit alleges DoorDash added the fee to orders from chain restaurants such as McDonald’s and Taco Bell, even though the 15 percent cap did not apply to them.

The suits also claim that the apps include restaurants in their services without the restaurants’ permission. The complaints say DoorDash “misappropriates [a restaurant’s] name, menus, and other information to create listings without permission,” while Grubhub’s “unauthorized listings convey a business affiliation … that does not exist.”