Food Fight! Online Ordering Services Charge Restaurants Huge Fees

Most ordering apps charge restaurants steep commissions and fees, typically totaling 20 percent, and sometimes 40 percent or more. These fees force many restaurants to raise their menu prices.

Note: We updated this article on October 8, 2020 after receiving additional feedback from Grubhub regarding how it orders restaurants in search results.

When placing a restaurant order via DoorDash, Grubhub, Uber Eats, and many other food-order-and-delivery services, customers typically see “delivery fees” of only a dollar or two, or even free, implying that they charge little—or nothing at all—to ferry food to your place.

But although you might only pay a small amount for delivery, these middlemen are charging restaurants far more than that: Their cut often totals 20 percent to 40 percent or more of the price of each order.

The online-ordering companies’ base commissions are typically 15 to 30 percent (less if restaurants have their own delivery staff). But these hungry ventures push restaurants to pay even more. For example, if an eatery agrees to pay Grubhub a higher commission, it has a better chance of getting listed at the top of app users' search results. If restaurants opt to pay lower commissions, it pushes their businesses lower down the lists, making them seem less appetizing than higher listings. Restaurants also pay commissions when customers call in orders using numbers set up and listed by Grubhub.

The fees add up fast. For example, of 46 takeout orders totaling $1,043 at one restaurant in March, Grubhub charged $666 in commissions, delivery commissions, processing fees, promotions, and adjustments, according to a statement posted on Facebook by Giuseppe Badalamenti, a pizzeria consultant and operator of the Chicago Pizza Boss food truck. That means orders placed via Grubhub gobbled up 64 percent of the restaurant’s revenue.

We found that Uber Eats, DoorDash, and other similar websites also charge large commissions and fees.

That the ordering services get such steep cuts is surprising. These companies do little work, acting as mere booking agents for restaurants. After all, restaurants source and buy all the ingredients, pay their staff to cook them, and then shell out for rent, gas, electricity, salaries, insurance, taxes, licensing, and other bills. But for the restaurant cited by Badalamenti, Grubhub dished out a mere 36 percent share to it—leftovers—for comparably very little work.

Before the pandemic, many restaurants complained these fees were outrageous, but pre Covid-19, delivery and carryout for most full-service restaurants was a side hustle. Now, thanks to spring and summer lockdowns, continued restrictions on indoor dining, and dramatic growth in online takeout orders, these fees loom much larger.

“If you’re a small mom-and-pop restaurant and you depend on apps, that’s now 20 to 30 percent of 80 percent of your business,” said the manager of one Chicago area restaurant who spoke to Checkbook only if we agreed not to publish his name. (Most restauranteurs who spoke to us did so on the condition of anonymity.) “The fees that apps charge are absuuuuurrrrrd!” this manager said.

Many restaurants complain that they pay the ordering services “as a necessity, because that’s the way people have gotten used to shopping for takeout,” said one manager.

Three big companies now dominate after consolidating their market shares by buying up rivals. DoorDash acquired Caviar. Uber Eats, after unsuccessfully trying to buy Grubhub, is now acquiring Postmates. Since 2013, Grubhub merged with Seamless and acquired Tapingo, LevelUp, Eat24, Foodler, and OrderUp, and is now itself being acquired, by Just Eat Takeaway, a European giant.

Ultimately, consumers get served these overpriced fees—even diners who don’t use the apps—via higher menu prices, said Gregory Frank, a New York City attorney. He’s lead counsel in a class action lawsuit alleging that online ordering services force restaurants to raise their dine-in menu prices to cover the additional costs to serve customers using ordering apps.

“Restaurants are like all other businesses. They have overhead costs—including app fees—and the menu prices must be high enough to cover those costs,” said Frank.

And while the online-ordering companies are busily eliminating their competition, they squeeze their own restaurant clients by paying big money to Google and other internet search engines to steer customers to place their orders via their apps and websites, instead of the restaurants’.

Search Google for your favorite restaurant, and you may spot an attractive blue “Order Delivery” button, which leads to the food-ordering outfit that bought that link. Google usually also displays similar ads in other eye-catching spots, such as a local map with a list of that restaurant’s locations around town and prominent “order” links, which may lead to whichever delivery app bought it. By paying more than restaurants do for top placement in search results, food-ordering companies boost their chances of capturing their big portions of transactions.

And the wording of some ads suggests that the restaurants have picked Grubhub or other third parties as their official order-and-delivery service, even though many sign up with several services—or have their own online ordering to avoid paying commissions.

For example, when we searched Google for Wildfire in Chicago, the first result was “Wildfire – Now Delivered by Grubhub,” linked to an ordering page at Grubhub.com. The number two result went to Wildfire’s own online ordering system, powered by commission-free ChowNow. Why? Because Grubhub paid Google more to get on top.

Even the largest chains have trouble competing on search results with third parties. When we searched for Panda Express, the first listing from Google was also “Panda Express – Now Delivered by Grubhub,” linking to Grubhub.com, supplanting the chain’s own website and online ordering feature.

The online-ordering companies also drive up their revenues by pitting restaurants against one another. As we've mentioned, by paying Grubhub higher commissions, restaurants can improve their positions in customers' search results. DoorDash encourages restaurants to pay extra to participate in its “Try Me Free” promo, which might be 15 percent off the food tab, a $5 discount for tagging the restaurant on social media, a free appetizer, or free delivery of their first order. If a restaurant doesn’t pay to participate in promo offers, their listings aren’t as attractive as those that do. “The apps turn the restaurant’s customers into their own customers to compete against you,” says Badalamenti.

In email responses, the three largest food-ordering-app companies said they increased restaurants’ business before and during the pandemic and provided hundreds of millions in temporarily reduced, waived, or deferred commissions and other help.

As for the leaked statement from the Chicago restaurant, Jenna DeMarco, a Grubhub spokesperson, said in emailed comments to Checkbook that, “This invoice is an extreme outlier,” and added that the average split is the other way around, with just 25 percent for Grubhub and 75 percent for its partner restaurants. “This restaurant picked their own promotions using our self-service tools without contacting Grubhub through our website or over the phone. They tested a series of messages and promotions, turning them off and on at their own discretion,” said DeMarco.

To calculate the real cost of food delivery apps, our undercover shoppers assembled meals from eight restaurants within a mile or so of an address in Chicago’s Old Town neighborhood using ChowNow, DoorDash, Grubhub, Uber Eats, and the restaurants’ own websites or apps, if available. We selected a variety of restaurant types and meals for one, two, and a family of four. The table below indicates how much the ordering apps collected. Costs shown do not include tips, which go to delivery personnel.

We focused on Chicago because in May 2020 its Business Affairs and Consumer Protection (BACP) department enacted rules requiring that food-ordering services disclose to consumers the commissions that restaurants pay to them for each order.

Our findings:

• The leading apps take a huge bite out of each order. On average, across all our orders, we estimate that fees charged by the largest three apps—DoorDash, Grubhub, and Uber Eats—ate $32 of our $85 food bill, or 38 percent.
• ChowNow is a bargain for restaurants, compared to the other apps. ChowNow charges them no per-order commissions; but it does charge a flat $99 to $149 a month fee, depending on the plan. Based on ChowNow’s most popular $119 a month plan, we estimate that works out to a restaurant cost of $.09 per order. In our comparisons, total fees and delivery costs took only eight percent, on average, of our food bill. ChowNow also sells mobile food ordering apps branded with restaurants’ names, so the smaller operations can offer slick apps and websites like the big chains have. The three restaurants in our comparison that set up their own ChowNow ordering apps, total delivery and app fees also took only eight percent of our average food bill.
• Avoiding the middlemen maximized restaurant revenue. Obviously, one way to help your favorite restaurants avoid paying an outside ordering service is to use a restaurant’s own website or to call in your order (but see below).

A number of cities—including the District of Columbia, Los Angeles, New York, Philadelphia, San Francisco, and Seattle—have temporarily capped delivery fees at 15 percent, with some also setting a five percent cap on fees for other things and barring the apps from cutting the pay of delivery personnel or garnishing their tips. As of late September, Boston was considering a similar measure.

We found that, unfortunately, Chicago’s disclosure rule isn’t ironclad. In late June, the city issued citations to five companies that had not taken any steps to comply: ChowNow, EatStreet, ezCater, Grubhub, and Postmates. As of mid-September, “DoorDash and Beyond Menu have proven to BACP that they are substantially compliant,” said Isaac Reichman, the department’s spokesperson.

Reichman didn’t elaborate or respond to our follow-up questions, but we found several loopholes on our own:

• Although the rules seem to require that companies disclose specific dollar or percentage amounts, DoorDash disclosed less-specific commissions of “up to” 30 percent. “We’re in full compliance,” said DoorDash spokesperson Taylor Bennett via email. Our calculations use the cited specific number.
• The rules require “conspicuous” disclosure, but Grubhub hid its 10 percent delivery commissions on an easily ignored “about” page that’s separate from the food order invoice total, where DoorDash and Uber Eats show them. “We believe we are in compliance with the city’s rules,” said Grubhub’s DeMarco.
• ChowNow, which collects a flat monthly fee rather than a commission, did not disclose any commissions, even though that fee seems to qualify as a “commission” under Chicago’s rules. So we estimated the pro-rated per-order cost of that monthly fee—$.09 cents—and applied it to our calculations to fairly compare its costs to the others.

Want to avoid enabling the food-ordering service shakedowns, help restaurants, and keep menu prices lower? Here’s what you can do:

• Order directly with the restaurant. By using a restaurant’s own website or app, or calling in your order, all your money goes to the eatery. Some restaurants levy delivery fees (in our tests, four of the five restaurants that operated their online-ordering systems charged from $3 to $5.48 extra to deliver our orders; one charged nothing). But we also found that some restaurants had lower menu prices for direct orders vs. what they list with the big-name apps.
• If you call in an order, make sure to use the restaurant’s real phone number, not one set up by Grubhub. To avoid losing its commission when online searchers call in their orders directly to restaurants, Grubhub displays different phone numbers it creates that forward to restaurants. If you call one of these fake phone numbers, you’ll still speak directly to someone at the restaurant, but Grubhub will get to charge it a “phone order commission,” equal to the marketing commission it negotiated with the restaurant. Check restaurants’ own websites to find their real phone numbers.
• If you want to order via an app, ChowNow charges restaurants low fees. Although its fee structure is far more generous to restaurants than its competitors, it works with far fewer chow houses: nationally, about 19,000 vs. 300,000 on each of DoorDash and Grubhub, for example.
• Don’t be fooled by cheap or “free” delivery. To tantalize first timers, DoorDash eliminates its regular $3.99 delivery fee. But the restaurant still pays DoorDash $4.99 if you order using that promo. And if restaurants want to offer free or discounted delivery fees on Grubhub, they have to pay the company the difference between its regular delivery fee and the discounted one.

Detailed Results on Fees Paid by Restaurants for Our Sample Orders

Joe’s Seafood, Prime Steak, and Stone Crab
Grilled seafood platter; seafood pasta; seared sea scallops; large Florida stone crab claws (five per order); blistered green beans; steamed asparagus; four-cheese mac and cheese; Joe’s grilled tomatoes; two baked sweet potatoes; two baked potatoes. Food total: $300.40 for DoorDash, Grubhub, and Uber Eats; $288.40 for ChowNow.

Chipotle
Chicken bowl with extra chicken, lettuce, cheese, mild, salsa, guacamole, and sour cream; two barbacoa burritos with guacamole, sour cream, cheese, brown rice, and black beans; one order of three carnitas crispy tacos with guacamole, tomato salsa, sour cream, cheese, and lettuce. Food total: $44.75 for DoorDash and Grubhub; $32.65 for Uber Eats.

Maple & Ash
Ricotta agnolotti; 22-oz 28-day dry-aged bone-in ribeye; broccolini; hand-cut fries; whipped-and-buttered potatoes; mac and cheese; and two pieces of chocolate cake. Food total: $166 food for all of the apps.

5411 Empanadas
Four Malbec beef empanadas; two bacon, date, and goat cheese empanadas; and one mac and cheese empanada. Food total: $20.93 for all of the apps.

* This restaurant uses its own delivery people and does not pay Grubhub’s 10 percent delivery commission.

Panda Express
Bigger plate (one full side and three entrees) with super greens, orange chicken, honey walnut shrimp, and black pepper Angus steak; a large order of chicken egg rolls. Food total: $27.75 for DoorDash; $27.90 for Grubhub; $22.26 for Uber Eats.

Kamehachi
Sashimi Zen. Food total: $27.00 for all of the apps.

* This restaurant uses its own delivery people and does not pay Grubhub’s 10 percent delivery commission.

Jets Pizza
Two large deep-dish crust Jet 10 pizzas with garlic crust. Food total: $66.68 for all of the apps.

Wildfire
Thick Prime Angus Burger (well done, with a side of fresh-cut fries); lump crab cake sandwich (with a side of fresh-cut fries). Food total: $35.90 for DoorDash, Grubhub, and Uber Eats; $33.90 for ChowNow.