Restaurants Raise Prices on Delivery Apps

Fees passed on to restaurants from third party delivery companies have become too expensive, and restaurants are responding. No one can blame them. With Yelp-listed restaurants reporting that 60% of temporary closures have become permanent, restaurants need every last cent.

In April, restaurants seeking class action status filed a lawsuit in the U.S. District Court of the Southern District of New York, Davitashvili v GrubHub Inc. They claimed that food delivery apps charge “exorbitant fees” that range from 13% to 40% of revenue. (Grubhub and its subsidiaries Seamless and Eat24 command 52% of the NYC food delivery market.)

In order to understand why fees range from 13% to 40%, a bit of math is required. As we reported in our food delivery app investigation, fees vary widely by company. For example, GrubHub charges restaurant owners a base commission rate for food orders of 10% plus a processing fee of 3.05% + $0.30. In addition, most restaurants pay an extra 20% in “marketing commission” to make their listing more prominent within GrubHub’s app. This marketing commission is ostensibly optional, but often akin to a lifeline for many restaurants struggling with today’s 57% YoY decline in seated diners. Moreover, the typical restaurant rents hardware like tablets and printers from GrubHub for an extra $119/month. Finally, the restaurant often splits the delivery fee with the customer, paying up to an additional 4% of order total.

The average restaurant’s profit ranges from 3% to 9% of revenue, making delivery meals for eateries more expensive than direct orders. Moreover, restaurants are facing rolling re-closures and re-shutdowns. Just this week in Hong Kong, sit-down dining is now restricted to no more than two people, except families. In the U.S., there are at least 32 states with statewide mask-wearing restrictions.

Gordon Haskett analyst Jeff Farmer estimates that on average, franchise locations of Panera and Noodles & Co. have already raised their food prices 12.6% higher on delivery apps versus in-store prices. Chick-fil-A’s delivery app prices are 29.8% higher than in-store; Starbucks’ delivery app prices are 20.3% higher; McDonald’s delivery app prices are 19.6% higher.

The pandemic continues to accelerate. The U.S. Centers for Disease Control reports 564 deaths from COVID-19 since yesterday, bringing total deaths to 146,546. The COVID Tracking Project at The Atlantic reports 59,023 patients currently hospitalized, just 917 short of April’s all-time high. In Miami, the COVID-19 test positivity rate is a staggering 18.5%.

Photo by Andrea Davis on Unsplash

Leave a Reply

Your email address will not be published. Required fields are marked *