Grubhub pricing was 'misleading, eroding trust,' says FTC hefty settelement | Opinion

There are three parties involved in a food delivery transaction – the diner who orders the food, the restaurant it’s ordered from, and the driver who delivers it. Grubhub will pay $25 million to settle charges by the Federal Trade Commission (FTC) and Illinois Attorney General that it misled all three parties.

The FTC Chair said, “Our investigation found that Grubhub tricked its customers, deceived its drivers, and unfairly damaged the reputation and revenues of restaurants that did not partner with Grubhub – all in order to drive scale and accelerate growth.”

In order to drive growth, Grubhub added unaffiliated restaurants to its platform without permission – as many as 325,000, more than half the restaurants listed. When diners searched for these restaurants online, the results would often point to Grubhub, diverting them from ordering directly from the restaurants and using their delivery services.

Former executive calls the delivery services scheme 'a pricing shell game'

Since the restaurants weren’t integrated with Grubhub’s ordering system, drivers placed the orders, including for food the restaurants didn’t sell. They paid using Grubhub credit cards that were sometimes declined, leaving restaurants with food they’d prepared but weren’t paid for. Diners blamed the restaurants when food was delivered late or wasn’t good. Restaurants found it very difficult to be removed from Grubhub’s platform, and in some cases were only successful after threatening legal action.

The regulators further alleged that Grubhub hid the true cost of its delivery services through what a former executive called “a pricing shell game.” Grubhub advertised that diners would pay a single, low-cost fee for the delivery service, but instead tacked on junk fees often labeled as “service fees” or “small order fees,” while their own internal accounting treated them as part of the same delivery fee. An internal message from a former executive said the pricing tactic was “misleading, eroding trust” and “truly more expensive” for consumers. Even consumers who paid for Grubhub’s free delivery subscription service were charged the additional fees.

The complaint also charged that Grubhub regularly blocked diners’ accounts with gift card funds without warning. Diners impacted included new families and people with health challenges who may have received the gift cards for food delivery to help them out.

Finally, the regulators said Grubhub deceived delivery drivers about how much they could earn. For example, ads in Chicago promised earnings of up to $26/hour, but the median was only $11/hour and less than 2% of drivers earned the advertised amount. The FTC warned Grubhub about the deceptive practices earlier but it just continued on.

What else must Grubhub do, according to the FTC settlement?

The settlement includes a monetary judgment of $140 million, with $115 million suspended because of Grubhub’s inability to pay the full amount. Most of the money will go to refunds to consumers harmed by the company’s conduct. Grubhub will also be required to:

• Disclose the true cost of delivery and stop adding junk fees to orders;
• Notify consumers if their account has been blocked, provide a way to appeal that decision, and quickly provide access to funds if the block is removed;
• Provide a simple cancellation mechanism for Grubhub+ subscriptions, and remind consumers about their subscription and how to cancel at least once a year;
• Stop listing unaffiliated restaurants on its platform; and
• Only make driver earnings claims that are not misleading and that it can back up.

Randy Hutchinson is president and CEO of Better Business Bureau of the Mid-South.