Three major US restaurant delivery companies, Grubhub, Just Eat and its subsidiary Postmates are facing a class action lawsuit from former clients accusing them of forcing their prices up due to unfair contracts. The suit was originally filed in 2020 but a federal judge refused to dismiss the case last week.
The three companies face an accusation that they are not allowed to sell their food cheaper elsewhere, even from their physical restaurants. This has forced their prices up to accommodate the delivery companies fees.
“Defendants charge restaurants fees ranging from 13.5 percent to 40 percent of revenues, even though the average restaurant’s profits range from 3 percent to 9 percent of revenues,” Frank LLP, the law firm handling the suit, wrote on their website. “All of this harms consumers and restaurants alike. Restaurants have to charge consumers supra-competitive prices to those who do not buy their meals through the delivery apps, so consumers are driven to purchase meals through the apps. But because of defendants’ unjustifiably high fees, meals sold through the apps are more expensive than they should be.”
The three delivery companies had asked for the class action suit to be dismissed but U.S. District Judge Lewis Kaplan in Manhattan denied the application. He wrote the lawsuit “alleges plausibly that restaurants cannot feasibly avoid doing business” with these delivery companies and “that restaurants—being foreclosed from lowering prices in the direct markets to attract sales—have had no choice but to raise prices in both the platform and direct markets.”
In a comment sent to Bloomberg, a Grubhhub spokesperson stated that the company is “disappointed in the decision and we will continue to defend our business and the services we offer restaurants and diners.”
This doesn’t come at a good time for Grubhub, which has been reported to be aggressively cutting costs in recent weeks as it struggles to achieve profitability. Just Eat and Postmates are also known to be struggling to achieve profitability.