Grubhub: Why does Getting Food Delivered from Grub Hub Cost More! (March 2022).
March of 2022, Attorney General Karl Racine filed a lawsuit against Grubhub in the superior court of the District of Columbia. The allegations for the lawsuit stem from the belief that Grubhub has been using “deceiving and misleading” (Dive), business practices. These business strategies that are spoken about consist of strategies to optimize Grub hubs’ overall profit margins while convincing shareholders that their common goal as a business was to help them prosper. Attorney Racine states “Grubhub lists more than 1,000 “partner restaurants” available for delivery in D.C. that have no contracts with Grubhub”. (NPR). What Racine and his team are attempting to uncover is the idea that Grubhub has added all these restaurants to their directory without consent. This immediately shows the ambiguous nature of their business model, although the focal issues that proceed from this deceit is the real reason for the lawsuit.
There are repercussions for adding restaurants that have not signed consent. These Non-Partner Restaurants were more likely to have out-of-date or completely incorrect prices, menu offerings, and hours. Of course, this then means that likelihood of orders being incorrect as well as the orders taking longer to get to the customer. In the complaint filed by the District of Columbia (See page 3) we can see that the Grilled Chicken Teriyaki on Grub hub is $18.95, but on Young Chows website it is listed as $15.95. This does not make Grub hub look good, especially after Grub hub denied the claims and stated that all prices are the same. The $3 difference seems small at first but consider if a full family ordered 4 Grilled Chicken Teriyaki’s off Grub hub, the difference in price is now $12 which is almost enough for a whole meal. To make matters worse D.C. officials begin to attack their revenue scheme. Not only are the prices often listed incorrectly on the website which entails that a customer is paying more than the market value for their food, there are extra fees and charges. Grubhub adds a delivery fee, service fee, and small order fee for purchases under ten dollars. There is nothing wrong with applying extra fees, although the accusation in the lawsuit states suspicious facts indicating towards deceit and false advertisement. Grubhub allegedly tell customers that they only have to pay the delivery fee disguising other fees at checkout on the same sign as “taxes”. The D.C. lawsuit states this behavior as “constituting digital ‘dark pattern’ - a design feature that deceives, coerces, or manipulates consumers into making choices that are either not what they intended, or not in their best interest.” (NPR).
Image #2: Grub hub’s Website displaying Grilled Chicken Teriyaki Price
Image #3: Young Chow’s Website displaying Grilled Chicken Teriyaki Price
Image 4: Grubhub charging customers additional fees.
Grub hub’s extreme inflation of success stems from the Covid-19 pandemic. With all restaurants having to close their dining rooms businesses all over the world risked bankruptcy. With a lockdown the businesses were not the only ones to be immediately affected, the consumer had to change their way of living. Fear of leaving your home as well as fear of financial crisis was prominent around the world. Until no-contact delivery became accessible to everyone. Grubhub and other delivery services thrived and were labeled with a hero status. This was until April and May of 2020, they ran a “Supper for Support” promotion. This offered discounts to support the consumer and up sales for restaurants. Unfortunately, the lawsuit alleges that these discounts that were offered were not covered by Grubhub. They altered restaurant prices to “support” society in a time of need yet just lowered profits for an already struggling industry.
This was not the first time that Grubhub have found themselves under scrutiny. July 29th, 2021, Boston Attorney General Maura Healey sued Grubhub for allegedly illegally charging fees to Massachusetts restaurants that exceeded the statutory fee cap in place during the COVID-19 pandemic. The lawsuit is looking for an outcome of “refunds for restaurants that were harmed by Grub hub’s alleged unlawful practices”. (MASS). In more legislative wording, Grubhub have violated Massachusetts economic development legislation. Once again, Grubhub is found hurting the food industry while disguising themselves as heroes. They were found charging fees more than fifteen percent of an order’s listed price. This fee cap was brought into action in 2014 specifically to protect restaurants. This idea is justified when Healey explains what the lawsuit is going to do “We are suing to get money back to these establishments and to hold Grubhub accountable for its unlawful conduct.” (MASS). These accusations against Grubhub are incredibility severe when it comes to the repercussions. The lawsuit requests full refunds to all establishments affected as well as civil penalties of $5000 per violation. This severe request shows the seriousness of the injustice of Grub hub’s business dynamic. In this lawsuit they have said to be partners in the industry while in reality they are thieves. Although this is not the exact same lawsuit as the D.C. lawsuit there are similarities. Of course, both lawsuits are looking for justice for the shareholders and the corruption comes through the deceit of fees to different parties under the regulation of state laws. There is a clear pattern of fraudulent behavior from Grubhub around the nation.
Although Grubhub is the company that the D.C. lawsuit is directed towards there is evidence that Grubhub and its’ competitors share a common fraudulent business model. In November of 2021 Grub hubs’ top competitor Door Dash is set to pay $5.325 million for not paying San Francisco Workers Benefits. These allegations date back to 2016. The investigation was launched by the San Francisco Office of Labor Standards Enforcement (SLOE). The investigation stemmed from reports that Door Dash was misclassifying workers, used customer tips as a factor of pay, and failed to provide 4500 workers both sick leave and health care coverage. Many of the issues found are unique to certain geographical areas. In this case San Francisco has a law that a company with more than 20 employees are responsible for spending a minimum amount on health benefits for each employee as well as offer sick leave. A quote from Supervisor Aaron Peskin says, “While the wage theft complaint was filed three years ago, it covers conduct that Door Dash continued during the pandemic, a particularly devastating time for workers and small businesses.” (GLOBE). This quote shows the similarities between the D.C. lawsuit against Grubhub and this SF lawsuit against Door Dash. Both organizations claimed to be beneficial for all parties whether it was consumer, restaurants, or workers. Yet through further investigation they both were there for self-profit while wrongdoing the shareholders. The situation’s intensity increases because of the severity of the pandemic but both companies were practices devious business models for years before. Grubhub was seen as a hero for providing more business for restaurants and more convenience for their customers while they robbed money from their “partner” restaurants and hid fees from the consumer base. Door Dash on the other hand provided easy work before the pandemic and more importantly during the lockdown. Come to find out they used this as a ploy to disguise their lack of worker compensation. One last similarity between both parties was the adamant rejection of doing anything illegal.
Looking at another lawsuit in a different city there is a different story. In September of 2021, Grubhub as well as its top two competitors Door Dash and Uber Eats all filed lawsuits against New York over fee limits that the platforms can charge restaurants. This debate has been in talks for years as restaurants were having to pay fees up to 30 percent. Once again, no real actions against Grubhub and other competitors until the pandemic. Of course, this is when people could truly see how much they were exploiting their partners. Mark Gjonaj, the chairman of the Councils of small business committee and a sponsor of the legislation said, “the law sought to ‘bring fairness to a system that all too often lacks it’”. (TIMES). These platforms arguments are based on the extreme volume of business they bring to NY restaurants and how their prices are justifiable. They speak on the amount of money that they have spent to create this platform and how they gave so much. Although the further people investigate Grubhub and others like it, it becomes more and more clear that they take more than they can give. It is mentioned in the NPR article numerous times how no matter how much evidence D.C., Chicago, New York, San Francisco, and other major cities they have stand behind their business model. They have a system that brings them mass amounts of popularity and profits and they have no intention of giving that up. Grubhub Spokesperson Katie Norris says, “we’ve sought to engage in constructive dialogue with D.C. attorney general’s office to help them understand out business and to see if there were any areas for improvement,” (NPR). Although once asked to fix their deceiving ways of posting fees and such they are quick to fight back. Grubhub knows they are in the wrong and have been caught in multiple cities and scenarios, yet they stand strong and show little remorse to the very culture they work in.
Stakeholders:
The stakeholders in this specific case would include Karl Racine, and Katie Norris. Additional stakeholders include the “partner restaurants”, District of Columbia Grubhub customers, future shareholders, future consumers, delivery service competitors. Karl Racine is the Attorney for the District of Columbia. Karl is fighting Grub hub in court to hopefully eliminate misrepresentations on the Grub Hub app and website. If Karl wins the lawsuit, then the prices and advertising on Grub hub should match the restaurants prices, and fees will not be condensed under the “taxes’ line so customers know what they are paying for. The 2nd stakeholder is Katie Norris, who is the spokesperson for Grub hub. In court Katie Norris will be defending Grub hub by denying that Grub hub participated in any wrongdoing. Katie and Grub hub is looking for a victory to avoid paying any fees or facing civil penalties for every violation. Grub hub’s future success and reputation relies on the actions that they decide to take with the case in D.C. There actions also affect the potential retribution that their “partner restaurants” will receive from the deceiving business model. The D.C. consumers that used Grubhub before the lawsuit was filed will be affected through the actions taken by Grubhub. Considering the lawsuit is asking for fees per violation this will affect how much retribution is served to consumers who fell victim to Grub hub’s hidden fees. Future Shareholders are affected by the decisions of Grubhub because this will affect the future of the company and their overall successes and reputation sense they have been caught in deceitful actions. Future consumers will be affected because the lawsuit will change the way Grubhub works whether that is no more hidden fees or wrongly priced menus and that can change the consumers’ willingness to use the service for better or worse. Grub hub’s competitors will be affected by the actions taken through this case. This is because it will lead to changes in their own business considering many people will be more suspicious of delivery services now on. The stakeholders will be discussed in further detail based on the ethical theory utilitarianism.
Individualism:
One view on Individualism originated from Milton Freidman who was an economist and Noble Prize winner. Freidman’s Individualism States that “The only goal of a Business is to profit, so the only obligation that the businessperson has is to maximize profit for the owner or the stockholders within the law of the land” (Salazar Slide 10). Basically, Individualists believe that at the end of the day profit is the only thing that matters, do everything in your power to maximize it legally. How an Individualist views this case depends on what the result of the lawsuit is. If Grub hub wins the lawsuit and avoids all fees and penalties, then an Individualist would see nothing wrong with this case because everything Grub hub is doing is within the law of the land. An Individualist would see this scenario as permissible because Grub hubs focus is to maximize profit and according to the law, they are doing it in a legal way. Earlier in the paper we saw this with the Grilled Chicken Teriyaki example. The restaurant charged $15.95 for the meal and Grub hub charged $18.95 for the exact same thing, making Grub hub a $3 profit. That’s not even including the delivery fee and other fees Grub hub charges on top of that. Now, if Grub hub lost the lawsuit, then the Individualist would view Grub hubs actions as Impermissible. While Grub hub was aiming to maximize profit, it did so in an illegal manner. From an individualist’s point of view, it is morally required for a businessperson to follow the law of the land. Which is why an Individualist would have an Issue with the 2nd scenario.
Utilitarianism:
A utilitarian would view Grub hub’s way of handling the situation as far from the most ethical path. Under the rules of utilitarianism, a business should take action to seek to maximize the happiness in themselves and others in the short-term as well as the long term (Salazar 17). Grubhub was shown hard evidence of their deceitful nature and chose to deny all these allegations. In a world where a business should be maximizing happiness for every party there is no room for fraudulent behavior. This insists that they have been caught lying for one reason or another. To make matters worse in the D.C. lawsuit they could not deny the allegations but is willing to go to court to avoid paying back the stakeholders who did not receive maximum happiness. The stakeholders’ situations are as follows:
Partner Restaurants: The so called “partner restaurants” will not benefit from this lawsuit as of this point in the case. D.C has strong allegations towards Grubhub and their fraudulent ways although since Grubhub has denied all these allegations to being true the current partner restaurants will not be compensated in anyway. As of right now the dispute has not been settled but with where Grubhub is standing now they fail to believe they have done anything that has broken the laws enforced in D.C. If Grubhub lose the case, then the partner restaurants will be compensated and will most definitely benefit from this case.
D.C Grubhub Customers: The past D.C. Grubhub customers will be in a very similar situation as the “partner restaurants”. Since Grubhub has denied all allegations being sent towards them in the lawsuit as of right now there will be no action taken in reimbursing any extra charges, they have been tricked into paying. If Grubhub loses the case D.C. plans to look at every single violation in which these past customers would be paid a certain amount for the deceitful ways of charging fees.
Future Shareholders: Considering the overall decision to deny and neglect the facts that have been posed against Grubhub this will not benefit the future shareholders. Grubhub is making themselves look very selfish especially for a company that relies on the positive relationships and trust between the business model of connection from “manufacturer” and “consumer”. Even if they are to win the case and not have to pay and fees and civil charges D.C. have uncovered many ugly truths about the deceitful nature of their delivery fees and the way their app is ran.
Future Consumers: In terms of future Grubhub customers it is a collection of positives and negatives. There are positives sense this case has spread awareness of the deceitful ways of Grubhub so they can be more aware of the dangers of using the service. On the other hand, since Grubhub is denying all claims there is still the prominent fear of overpaying or being given incorrect advertisement.
Delivery Competitors: Stated in this case are very similar cases that have been placed in attempt to exploit organizations like Grubhub. This case will affect how people look at these competitors which can be a negative for these companies considering they all have very similar business models. When one company becomes most popular through deceitful practices it forces the hand of competitors. In other words, the competitors have a good chance to running into further legal trouble since more attention is being shine on them from this case.
It was very clear that throughout this case Grub hub’s actions were not ethical in a utilitarian’s view and that they were acting in ways to strictly benefit themselves while leading people to believe they were a company for the people and community. This is not the first time Grubhub has been caught in this negative light and it will not be last. They contribute to deny all these allegations to avoid the repercussions to their horrible actions. There actions were opposite to a utilitarian view.
Kantianism:
A Kantian would view Grub hub’s list of allegations and deceptive practices against them as not ethical at all. The basic principles of Kantianism are “act rationally - don’t act inconsistently in your own actions or consider yourself exempt from the rules. Respect people, their autonomy, and individual needs and differences.” (Salazar). In business ethics terms Kantianism implies an obligation for businesses to treat all persons with respect regardless of what one’s goals and missions are (MacDonald). This theory would judge what occurred in this case because everything mentioned was unethical.
In Grub hub’s case everything they did acted as if they were exempt from the rules or in this case laws. They affected their own company negatively towards companies, consumers, and even the government by having so many deceptive practices that were pinpointed and alleged. If they followed the rules and acted as any other company should, none of these allegations would have been made and their company would most likely be a lot more successful. The company also did not respect people and their individual needs and differences. They did not do so because they scammed their “partner restaurants” out of money which are companies that individuals own and need to make a living. They also scammed their consumers by having them pay unnecessary fees just so they could increase their profit. The company had multiple allegations and lawsuits against them from multiple sources and different districts. This goes to show they have no way of backing up their lawsuits and they have already lost one so clearly, they know what they are doing is unethical and are struggling to find ways to prove what they are doing is fair. All these practices would be looked at as unethical and impermissible from a Kantian’s point of view.
Virtue Theory:
Virtue theory is based on Aristotlelian functionalism. This theory assesses people instead of actions and it thinks of what kinds of characteristics are necessary for people to flourish in a certain circumstance. Virtue theory also figures out what something’s purpose is and then determines if that thing is good at meeting its purpose (Business Ethics and Virtue, Salazar slide 3). A virtue theorist would view D.C. 's way of handling the Grubhub case as the most ethical beneficial. And would view Grubhub as not ethically beneficial. As stated in the virtue theory, a thing needs to have a certain purpose. Grub hub’s purpose is to provide consumers with an easy and cheaper alternative in receiving their food. But Grubhub fails the virtue theory since it does not fulfill its purpose by increasing their prices tremendously. And as a business it’s important to be trustworthy and to give your customers the best service. But Grubhub does not pass the virtue theory. By raising their prices with deceptive tactics to manipulate their customers into spending more money, they are not good at meeting their purpose. People, like myself, use food delivery services frequently. It’s advertised as being an easy alternative rather than going to a restaurant. The four cardinal virtues in the virtue theory are courage, temperance/ self-control, justice/fairness, and honesty. Grubhub does not meet the virtue of fairness as it is deceptive of their prices and manipulates customers into spending more money than they should. This perfectly ties into honestly and how Grubhub also fails this virtue. The function of Grubhub is to make ordering food painless, cheaper, and overall, an easy experience, but by lying to their customers, they do not pass the virtue theory.
Action Plan:
Unethical business practices only benefit the business in the short term and harms the customers and the businesses reputation in the long term. For any business the goal is to grow and remain profitable over time. A business cannot grow without new and current loyal customers, so maintaining a good brand image is critical. As discussed above there is a substantial amount of evidence that can be used against Grubhub by the District of Columbia. One example includes the meal prices on Grubhub and the restaurant's website being inconsistent. The image 2 and image 3 on page 3 is clear evidence to back this up. Grilled Chicken Teriyaki on Grub hub is listed on the website costing $18.95, but on Young Chows website it is only listed as $15.95. Another example is Grubhub charging customers additional fees and hiding/including them in taxes, despite the company stating that customers only need to pay for a delivery fee. Image 4 on page 4 is clear evidence to back this up. The image shows Grubhub charging this customer a $2.00 small order fee and $1.28 service fee. Grubhub may need some guidance on how to resolve this problem that they find themselves in. A mission statement is helpful to show management and employees what the company is aiming for in the future. A new mission statement for Grubhub could be that the company is pushing to be more customer focused going forward. To help accomplish this mission statement the company should have core values set in place. One value could be creativity, if Grubhub needs to earn more money to be profitable then find another way to instead of hiding fees in the tax charge. Another value could be honesty, if the company cannot find another way to be more profitable then be honest with the customer and say that fees other than delivery will be included at checkout. Instead of saying that delivery is the only fee but still sneaking in additional fees without the customers knowledge. The last value could be consistency, Grubhub should only partner with companies that agree to be on their website so inconsistent prices are not an issue for customers. To make sure this controversy does not happen again management should have discussions with current employees and revise the training procedure to be more in line with this new mission statement. Employees should be hired that demonstrate the ability to follow Grub hub’s mission statement and employees should be fired that violate the mission statement. To get the trust of the customer back Grubhub needs to clean up their image by taking this mission statement and marketing it to the public. The company needs to admit they were in the wrong and offer new and existing customers one free meal for example to make up for the damages. While this may cost the company money in the short term, in the long term it could make them more profitable than if they were just to do nothing. This is because customers could switch over to Door Dash due to their bad experience and lack of trust with Grubhub. Offering a free meal to make up for the damages could keep customers around. The plan to be more customer focused could only benefit Grubhub and make the company more profitable in the end. This is because it’s still the same service that everyone knows and enjoys, except now the company is doing everything in their power to put the customer as the number one priority. The action plan adheres to the mission statement of being customer focused as Grubhub will admit they were in the wrong in exchange for customer trust. Grub hub’s purpose is to provide consumers with an easy and cheaper alternative in receiving their food. But Grubhub fails the virtue theory since it does not fulfill its purpose by increasing their prices tremendously. The core values also relate to the action plan because all of them are being applied to improve the customers experience with Grubhub. This plan will ensure good ethics because it benefits Grubhub and the customers equally. As mentioned before for any business the goal is to grow and remain profitable over time. A business cannot grow without new and current loyal customers.
Eric Plantier
Evan Lee
Emma Karamian
Payton Barry
References:
“Ag Healey Sues Grubhub for Charging Restaurants Illegally High Fees during COVID-19 Public Health Emergency.” Mass.gov, https://www.mass.gov/news/ag-healey-sues-grubhub-for-charging-restaurants-illegally-high-fees-during-covid-19-public-health-emergency.
Archie, Ayana. “D.C. Sues Grubhub for Allegedly Using Deceptive Trade Practices.” NPR, NPR, 22 Mar. 2022, https://www.npr.org/2022/03/22/1087988691/washington-dc-attorney-general-grubhub-food-delivery-lawsuit.
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Carman, Tim. “D.C. Sues Grubhub, Alleging It Took Advantage of Suffering Restaurants.” The Washington Post, WP Company, 24 Mar. 2022, https://www.washingtonpost.com/food/2022/03/24/grubhub-lawsuit-dc/.
Evan SymonEvan V. Symon is the Senior Editor for the California Globe. Prior to the Globe. “Door Dash to Pay $5.325 Million Settlement for Not Paying San Francisco Workers Benefits.” California Globe, 22 Nov. 2021, https://californiaglobe.com/articles/doordash-to-pay-5-325-million-settlement-for-not-paying-san-francisco-workers-benefits/.
In the Superior Court of the District of ... - Oag.dc.gov. https://oag.dc.gov/sites/default/files/2022-03/2022-03-21-Grubhub-Complaint-.pdf
Mays, Jeffery C. “Food Delivery Apps Sue New York over Fee Limits.” The New York Times, The New York Times, 10 Sept. 2021, https://www.nytimes.com/2021/09/10/business/food-delivery-lawsuit-ny-grubhub-uber-eats-door-dash.html.
MacDonald, Chris. “Ethical Theory: Kantianism.” The Concise Encyclopedia of Business Ethics, 25 Apr. 2018, https://conciseencyclopedia.org/entries/ethical-theory-kantianism/#:~:text=In%20business%20contexts%2C%20Kantianism%20implies,ones%20goals%20and%20mission%20are
Salazar, H. The Business Ethics Case Manual and PowerPoint Slides.
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