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

For Immediate Release: Tuesday, October 20, 2020

Washington Consumers’ Checkbook, a Nonprofit Organization, Releases Report Detailing Impact on Restaurants and Patrons

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 https://www.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 compared.
  • 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.

Kevin Brasler, Checkbook’s executive editor, said that it is surprising that the three largest online-ordering companies can demand such high fees and commissions.

“These businesses do little work, acting as mere booking agents for restaurants,” he said.  “Consumers need to know that huge portions of their orders are going to well-financed Internet giants, not to the restaurants that pay workers’ salaries and for ingredients, rent, utilities, taxes, licensing and other costs. I think that if most consumers were aware so much of their money were going to these apps, they wouldn’t use them.”

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 their orders via their apps and websites, instead of those of the restaurants.

Montgomery County organized several working groups to respond to the COVID-19 health crisis. Issues related to food delivery apps were discussed and debated during several meetings of the Restaurant and Retail Workgroup.

OCP is gathering and posting information on its website regarding the different legislative approaches that states and local governments have introduced or enacted since the onset of the COVID-19 pandemic. For example:

  • Washington D.C. enacted C. Code §48-641 which requires, during a declared public health emergency, the registration of the third-party delivery platform, caps commission fees to restaurants at 15 percent, forbids reducing driver compensation to comply with the cap and requires clear and conspicuous disclosures of the commission, fee or payment structure charged to consumers.
  • Chicago enacted a Rule titled “Third-Party Food Delivery Services” that requires clear and conspicuous disclosures to consumers of the pricing, commissions and fees, before the transaction and afterwards on the receipt. The Rule is not limited to a declared state of emergency.
  • New York City enacted two laws applicable during the declared state of emergency. The first prevents third-party delivery platforms from charging restaurants for telephone orders that did not result in a transaction. The second law capped the amount of commission a third-party delivery service is allowed to charge at 15 percent per order for delivery and 5 percent order for all other types of charges.

“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.”

Consumers’ Checkbook is a nonprofit organization with a mission to help consumers get the best service and lowest prices. It is supported by consumers and takes no money from the service providers it evaluates.

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Release ID: 20-615
Media Contact: Eric Friedman 240-777-3719