New York City restaurant owner Shivane M. says she was ready to leave GrubHub.
She owns two small locations in Brooklyn and Queens with her husband, where they serve classic American breakfast and lunch—egg sandwiches, burgers, fries. It’s a mom-and-pop shop, and they rely on phone orders for delivery to get through the slow winter months.
Shivane signed up to add both of her restaurants to GrubHub’s online delivery platform several years ago. Its services were promising: It would handle delivery orders and show her menu to new customers in exchange for a commission on each order placed through the platform. It sounds like a great deal. Restaurants can reach customers who want to order online without having to build and manage their own websites, and the platform’s marketing services can replace cumbersome, old-fashioned advertising strategies like hand-delivering take-out menus.
But over time, Shivane says, she slowly watched her profits fall, even as sales held steady. She fell behind on her bills. She just couldn’t figure out why exactly she was losing money: business was the same or better than before, she says, but she wasn’t seeing a boost to her bottom line.
So she reviewed her statements. It was obvious. GrubHub’s commission fees had been inching upward over the years she’d been working with the platform. There was the flat transaction fee, which hovered around 3 or 4 percent. Then there were marketing fees and costs for additional promotions. Shivane says she feels like the platform is increasingly pay to play: Spend more to promote your restaurant, and see your search rankings rise. Cut down on marketing spend, and watch your restaurant fall to the bottom of the page and lose sales. “It’s putting us in a financial hole. Last month, I paid $7,000 to GrubHub. That’s my rent for the month,” Shivane says. The New Food Economy viewed the company’s invoice to Shivane’s restaurant—it was actually $8,000. We agreed to use only her first name and last initial in this story because she still uses the platform and fears the company could retaliate by dropping her restaurant to the bottom of its search rankings.
Frustrated, Shivane started exploring other options. She says she thought about bulking up her restaurant’s web presence and offering orders on her own site through a different service, one that offered a flat monthly rate and no commission fee.
There was just one problem: Someone already owned the web domain that matched her restaurant’s name. She looked up the buyer. It was GrubHub.
The New Food Economy has found that GrubHub has registered more than 23,000 web domains. Its subsidiary, Seamless, has registered thousands. We’ve published the full list here. (Some of these registrations may have since expired.) Most of them appear to correlate with the names of real restaurants. The company’s most recent purchase was in May of this year.
Grubhub purchased three different domains containing versions of Shivane’s restaurant’s name—in 2012, 2013, and 2014. “I never gave them permission to do that,” she says. (Editor’s note: Days after this story published, the L.A. Times reported that GrubHub reserves the right to purchase domain names to set up microsites on behalf of restaurants. During our reporting, we explicitly asked GrubHub whether or not it obtained permission for this practice, and the company did not answer our question.)
Shivane believes GrubHub purchased her restaurant’s web domain to prevent her from building her own online presence. She also believes the company may have had a special interest in owning her name because she processes a high volume of orders. She rattles off a list of names of local restaurants that she suspects may be in the same predicament. I find versions of about half those names on the list of GrubHub-purchased domains.
Additionally, it appears GrubHub has set up several generic, templated pages that look like real restaurant websites but in fact link only to GrubHub. These pages also display phone numbers that GrubHub controls. The calls are forwarded to the restaurant, but the platform records each one and charges the restaurant a commission fee for every order, according to testimony from GrubHub executives at a hearing at New York City Hall on Thursday. This happens on the GrubHub platform itself, too. The phone numbers you see displayed in the app typically aren’t a restaurant’s actual phone number, they’re the numbers that GrubHub uses to make sure it’s getting its commission.
In response to a detailed list of questions, GrubHub emailed the following statement: “Grubhub has never cybersquatted, which is identified by ICANN as ‘generally bad faith registration of another person’s trademark in a domain name.’ As a service to our restaurants, we have created microsites for them as another source of orders and to increase their online brand presence. Additionally, we have registered domains on their behalf, consistent with our restaurant contracts. We no longer provide that service and it has always been our practice to transfer the domain to the restaurant as soon as they request it.”
“You have GrubHub coming in and inserting itself between a restaurant and a customer in a way that, obviously, isn’t chosen by the restaurant and isn’t to the restaurant’s benefit,” says Stacy Mitchell, co-director of the Institute for Local Self Reliance, an advocacy group for local economies. “I just feel like this is a sort of pattern—whether it’s the way in which Uber and Lyft have reoriented the taxi service so they’ve basically positioned themselves as a gatekeeper and compelled everybody to operate in their system, and thereby get to take a large chunk of the revenue when they’re adding very little value compared to how much they take.”
But Grubhub could likely argue that these not-quite-real web pages can only help restaurants (not hurt them) because they ultimately drive orders to the kitchen. Does it really matter if an order is coming through a built-by-GrubHub shadow page or a restaurant’s actual website, as long as the order is made?
For the customer, the experience is the same. But for the restaurant, it couldn’t be more different. If a customer calls a restaurant on its actual listed phone number, GrubHub never gets involved. The company doesn’t get a commission, and the restaurant makes more money—about 30 percent more, if it’s lunch at Shivane’s.
GrubHub’s fee structure is based on its marketing services. If a customer finds out about a restaurant in the platform’s app or through a GrubHub-run promotion, the platform can charge the restaurant a higher commission, because it’s bringing in new business. Likewise, if a customer navigates from a restaurant’s real web page to GrubHub’s ordering system to place their order, GrubHub’s commission is smaller than it would be if the customer “discovered” the restaurant on the platform, because the customer clearly already knew about the restaurant and is simply using GrubHub’s services to place an order. The shadow pages complicate this equation: If a customer Googles a restaurant’s name and lands on a GrubHub-purchased site that looks like a real restaurant’s site, who should get the commission? And is it fair if GrubHub can outrank its own restaurants on search engines?
Here’s where things get hairy. It appears that some of GrubHub’s shadow pages are competing directly with restaurants’ real websites. Take, for instance, Molly Hatchet’s Sub Shop in Daytona Beach, Florida. The real Molly Hatchet’s can be found at www.mollyhatchetssubshop.com. GrubHub’s page, purchased in December of 2018, is available at www.mollyhatchetssubshopdaytonabeach.com. The real Molly Hatchet’s has its own online ordering system that has nothing to do with GrubHub. The GrubHub shadow page for the shop displays a different phone number (because commission) and links only to GrubHub.
“Buying the URLs and positioning yourself in that way so that even in transactions in which the customer would want to go straight to the business, or the business has the opportunity to compete, to have a direct relationship with the customer—it’s predatory to do that,” Mitchell says.
In a hearing at New York’s City Hall on Thursday, company executives estimated that GrubHub made about $30 million in phone commissions last year. And those commissions are under increasing scrutiny of late. The company uses an algorithm to determine whether or not a phone call has resulted in an order, a system that results in mistakes. GrubHub has said it expects restaurants to log into its back end and listen to all phone recordings to make sure they aren’t being charged for calls that didn’t yield orders. A Philadelphia restaurant recently sued the company over its practices. (More here.) Shivane says she just learned about this, and estimates she’s owed about $30,000 in overcharges from the company.
I caught up with a restaurant owner whose shadow page I found. Steve Warwick owns Mezze in Columbus, Ohio, and he has a nice website of his own. He told me he was in talks with GrubHub a little more than a year ago to start using the platform for delivery. In March of 2018, GrubHub purchased a site matching Warwick’s restaurant name. At some point, the company added his restaurant’s address and links back to GrubHub. Since Warwick does not currently work with the platform, the links lead to GrubHub’s home page.
Warwick didn’t know about the site before I reached him, but said he didn’t see a problem with it. He thought the extra web presence might help drive traffic to his business. “This might be their way of attempting to originate business at a higher commission level,” he said.
Then again, Warwick’s business model is completely different from Shivane’s. He doesn’t employ his own delivery drivers, so GrubHub would have handled that part of the equation, which might have made the business arrangement more worthwhile to him. He’s also in Columbus, where commercial rent is a little lower than in notoriously high-priced New York City. He didn’t seem worried that GrubHub’s shadow page might trick his customers or lead to unfair commissions for the platform. Of course, he’s also never worked with GrubHub.
Mitchell thinks it’s time for lawmakers to step in and regulate platforms like GrubHub. “Policymakers have been incredibly slow to recognize that the web, which was supposed to be this wide open space where everyone can compete on this equal playing field— it has become an arena where a few monopoly-minded corporations are increasingly controlling access.”
As for Shivane, she says she hopes to start educating customers about what she sees as GrubHub’s predatory business practices. She wants people to start calling her direct line again, like they used to. And she thinks her customers will be happy to help her as soon as they learn more about what’s going on. She adds, “I don’t think a lot of people realize how shady GrubHub is.”
Update 6/30/2018: We have changed the language from GrubHub “owns” to GrubHub “has purchased” these domains. Some registrations may have been allowed to expire.