August 27, 2021
Stocks fall as Grubhub’s hometown city accuses food-delivery companies of experiencing ‘tremendous growth on the backs of restaurants and consumers’ during pandemic
The city of Chicago filed a wide-ranging lawsuit against DoorDash Inc. and Grubhub Inc. on Friday, accusing the meal-delivery platforms of engaging in deceptive and predatory business practices.
The lawsuit alleges the companies’ practices harm consumers, delivery workers and restaurants. The city claims DoorDash DASH, -1.60% and Grubhub GRUB, -7.40% deceive consumers by advertising a lower upfront cost for delivery and sometimes misrepresenting the cost of items at restaurants, which the city calls a “bait and switch” because in most cases consumers are too invested in an order to back out when they see additional fees at the end of a transaction.
For example, according to the suit, “During the ordering process, DoorDash and Caviar withhold the existence and amount of the Service Fee, Small Order Fee, and Chicago Fee on the Platforms until the checkout screen.”
The $1.50-per-order “Chicago Fee” isn’t imposed by the city, but rather a reaction by some delivery companies to an earlier attempt by Chicago to rein in the apps’ fees. The lawsuit says DoorDash is trying to recoup some of the money it lost from a 15% commission cap imposed by the city, which like other cities around the nation has tried to limit what huge companies like DoorDash were collecting from struggling restaurants during the coronavirus pandemic.
“DoorDash has experienced tremendous growth on the backs of restaurants and consumers,” the lawsuit states, noting that DoorDash, including its Caviar division, grew its market share in Chicago during the pandemic from 38% to 57%.
The suit — which comes after a yearlong investigation into the companies’ practices — calls for a jury trial, fines of up to thousands of dollars for each misrepresentation and unfair act and practice, and asks the court to order the companies to change their practices. DoorDash shares fell 1.6% to $187.94 in Friday’s trading session, while shares in Just Eat Takeaway NV, the owner of Grubhub, fell 7.4%.
“If you’re going to be able to influence an industry, you have to have a city big enough to have the courage to take on the giants,” Betsy Miller, partner at Cohen Milstein Sellers & Toll, the civil rights law firm working with the city of Chicago on the case, told MarketWatch.