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D.C. sues Grubhub, alleging it took advantage of suffering restaurants

A delivery worker for Grubhub bikes in New York City in April 2021. (Mark Lennihan/AP)

Ebony Fox remembers when Grubhub rolled out its Supper for Support program, right around the time D.C. restaurants were closed for indoor dining and relying on third-party delivery services for survival during the early days of the pandemic. Grubhub marketed the program to consumers as a way to help save struggling restaurants. But Fox, an assistant manager at Bub and Pop’s in downtown Washington, recalls reading the fine print and realizing the sandwich shop, not Grubhub, would have to fund the program’s discounts.

Far from being a boon to restaurants during a difficult time, Fox understood what Supper for Support would really mean for operators: handing over even more money to Grubhub for its services, given that restaurants would have to cover the $10 discount awarded diners for every order over $30. Restaurants would also have to pay Grubhub’s commission based on the full price, not the discounted price, of the meal.

Fox declined to enroll Bub and Pop’s in the program.

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The Supper for Support initiative is history, but in a lawsuit filed this week, D.C. Attorney General Karl A. Racine listed the program as one of eight deceptive practices that Grubhub has allegedly employed while delivering food during the pandemic. In the District alone, the lawsuit claims, diners redeemed more than 10,000 Supper for Support discounts, translating into “tens of thousands of dollars in additional revenue” for Grubhub.

In the complaint, Racine also alleges that Grubhub listed more than 1,000 restaurants on its platforms without a contract with those businesses. What’s more, he claims that Grubhub obscured some of its fees and that the company often charged more for items that could be purchased cheaper at the restaurant, without disclosing such information to consumers.

Grubhub “took advantage of local restaurants to boost its own profits, even as District consumers and small businesses struggled,” Racine said in a news release.

“Grubhub charged hidden fees and used bait-and-switch advertising tactics — which are illegal,” the attorney general added. “On top of that, the company deceived users with a promotion that claimed to support local restaurants during the heart of the pandemic. But in reality, this program cut into struggling restaurants’ profit margins while padding Grubhub’s bottom line.”

In a statement to The Washington Post, Grubhub spokeswoman Liza Dee said the company had already abandoned a number of the practices mentioned in the lawsuit, including the Supper for Support program, and that the company would update its platforms to make sure its fees are clear on the checkout page while letting customers know that “prices may be lower in store.” Dee said all of Grubhub’s fees are laid out in the terms of use, to which every diner must agree before using the service.

But Dee also said that Grubhub would aggressively defend its business in court.

“During the past year, we’ve sought to engage in a constructive dialogue with the DC Attorney General’s office to help them understand our business and to see if there were any areas for improvement,” Dee said in the statement. “We are disappointed they have moved forward with this lawsuit because our practices have always complied with DC law.”

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Racine previously negotiated a $2.5 million settlement with DoorDash after the attorney general sued the company, claiming it was using consumer tips to cover labor costs. Last year, Racine and Pennsylvania’s attorney general also hammered out an agreement to require Uber Eats to clearly disclose that food purchased on its app may be more expensive than the same item at the restaurant.

The D.C. suit is just the latest targeting Grubhub. Last year, Chicago filed a complaint against Grubhub and DoorDash for “deceptive and unfair business practices that harm restaurants and mislead consumers.” The case listed many of the same practices as Racine’s complaint, including misleading fees and deceptive campaigns to “save restaurants” during the pandemic. Grubhub filed a motion to dismiss the case in January, but Kristen Cabanban, a spokeswoman for Chicago’s legal department, said the lawsuit remains ongoing.

In Grubhub’s statement, Dee said, “We are deeply disappointed by [Chicago] Mayor [Lori E.] Lightfoot’s decision to file this baseless lawsuit. Every single allegation is categorically wrong. We look forward to responding in court and are confident we will prevail.”

In 2020, two class-action suits were filed against Grubhub and the way the company handles “non-partner” restaurants, those establishments that have not signed an agreement to be on the delivery service’s app or website.

One class action, filed in federal court in Colorado, argues that Grubhub was listing non-partner restaurants on its platforms, then claiming these places were not accepting online orders and redirecting diners to partner restaurants. The second class action, filed in federal court in Illinois, argues that Grubhub added more than 150,000 restaurants to its platforms without their permission, leading to confusion and problematic orders for customers. In the latter case, the plaintiffs claim that Grubhub started adding non-partner restaurants to gain market share, after a drop in earnings and share value in 2019.

At the time, Grubhub sent a statement to Eater saying that the company started adding non-partner businesses “so we will not be at a restaurant disadvantage compared to any other food delivery platform.” A spokeswoman also told Eater, “We want customers to find the most restaurants when they land on Grubhub. When others in the space are doing this it’s creating a gap, and we’re closing the gap.”

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The plaintiffs in the Colorado case have worked with Grubhub on a proposed settlement, which they are trying to expand to include claims made in the Illinois class-action suit. But the attorneys in the Illinois case are objecting to the settlement, claiming Grubhub would not have to pay anything to the 150,000 non-partner restaurants that have allegedly increased the delivery company’s value by $4 billion when they were added to the platform.

“The proposed settlement would also permit Grubhub to continue using restaurants’ trademarks on its platform without first obtaining authorization and would prohibit restaurants from ever suing to stop Grubhub’s ongoing trademark infringement,” the objection claims.

Grubhub’s Dee said the company believes the settlement would make it easier for restaurants to “be removed from our platform if they wish to do so.” She also said all non-partner restaurants that filed declarations in the Illinois case have been removed from Grubhub.

Both sides are waiting on the federal court in Colorado to rule on the settlement.

In the months since those class-action suits were filed, Grubhub has been acquired by JustEatTakeaway.com, a giant Amsterdam-based food delivery company, in an all-stock deal valued at $7.3 billion. The acquisition gives JET a foothold in the U.S. market, but the newly merged company is already facing pressure to sell off Grubhub as JET’s stock continues to tumble on the Amsterdam stock exchange. The company decided this year to stop publicly trading its stock in the United States.

Grubhub faces stiff competition for diners’ dollars in the United States, where meal-delivery companies enjoyed massive, three-digit growth during the pandemic (but are dealing with inflationary pressures now). Grubhub lags well behind market leader DoorDash, which, according to one source, accounted for 58 percent of U.S. meal delivery sales in February. Uber Eats was second with 24 percent. Grubhub grabbed 14 percent of sales.

Delivery orders at Bub and Pop’s, the sandwich shop in Washington, don’t follow the exact same pattern, but they have one thing in common: Grubhub lags behind the competition, says Fox, the assistant manager. On a recent day in March, she says, Bub and Pop’s had about $150 in sales from Uber Eats and another $60 to $75 from DoorDash. The shop had only a single order from Grubhub, for $16.

Then again, Grubhub may be looking toward a different strategy to grow sales. On Tuesday, McDonald’s and JustEatTakeaway.com announced a long-term global partnership that would help grow the fast-food chain’s McDelivery business. The partnership includes Grubhub in the United States.

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