October 21, 2020

County Office of Consumer Protection Alerts Consumers and Restaurant Owners to the Large Fees Charged by Online Food-Delivery Services

Montgomery County’s Office of Consumer Protection (OCP) is alerting consumers and restaurant owners about the confusing and costly fees charged by third-party online food ordering-and-delivery services. 

Although these companies often advertise free or low delivery fees, the commissions they charge restaurants are far higher, typically totaling 20 to 40 percent or more of each order. Many patrons are unaware of these high costs, and therefore do not know to seek more sustainable ways to support their favorite eateries.

A recent report in Washington Consumers’ Checkbook provided details on the impact the fees have on restaurants and patrons. The report can be found linked from the OCP website at montgomerycountymd.gov/ocp or directly from the Consumers’ Checkbook site at https://tinyurl.com/y6geenfg.

During the COVID-19 health crisis, consumers are increasingly placing food delivery orders, and many restaurants must rely upon companies such as Grubhub, Uber Eats and DoorDash. Those companies have bought up many of their competitors and now dominate their industry. Restaurants have turned to delivery companies to compensate for the loss of dine-in revenue.

However, the fees imposed by the major ordering services may result in restaurants losing substantial portions of any revenue these companies might provide.

“Our restaurants and food establishments have been hit hard by the COVID-19 pandemic; necessary efforts to protect the public health have been difficult for restaurants,” said Montgomery County Executive Marc Elrich. “Many residents have been eager to support their local restaurants by getting take-out and delivery. I don’t think they realize how much some of these delivery services charge the restaurants, and I think that this is an important step—to let customers know that the restaurants may be paying way too much to these companies. Numerous states and local governments continue to craft creative legislation to address nationwide issues related to food delivery apps. While we explore legislative remedies, I believe Montgomery County is best served by full disclosure and knowledge.”

The Consumers’ Checkbook report describes how the big food-ordering services are dominating the industry and causing major financial problems for restaurants. Checkbook reports that even consumers who never use these apps stand to be affected as restaurants raise their menu prices to account for large commissions paid to these websites and apps.

The report sheds light on this complicated issue and provides guidance for consumers and restaurant owners. For example:
  • Checkbook created illustrative orders for eight restaurants using a variety of delivery services and found the three largest services—Grubhub, DoorDash and Uber Eats—took a huge cut of each order. On average, Checkbook estimates that fees charged by these three companies were 38 percent of total order costs.
  • Restaurants may be required to pay extra fees to receive better placement in companies’ search results.
  • Consumers wishing to support their favorite restaurants should order directly from the restaurants. By using a restaurant’s own phone number, website or app, people can ensure their money goes to the eatery. But Checkbook says to make sure to use the restaurant’s real phone number: Grubhub sets up proxy phone numbers for restaurants so that it can capture its commission even for phone orders.
  • If you want to order via an app, ChowNow charges restaurants low fees, compared with the other services Checkbook referenced.
  • Do not be fooled by cheap or “free” delivery. To tantalize first timers, apps often offer deals. But those consumer savings often are charged back to the restaurant.
Checkbook’s report also notes that these middlemen squeeze their own restaurant clients by paying big money to Google and other Internet search engines to steer customers to place orders via their apps and websites, instead of those of the restaurants.

“Food delivery apps come with a side order of confusion and lack of transparency,” said OCP Director Eric Friedman. “Small restaurants may feel forced to pay steep fees and commissions in order to stay in business. Full disclosure is essential to ensure integrity in the marketplace.”