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Here's Another Reason to Be Wary of Grubhub

My wife placed an order on Grubhub (NYSE: GRUB) from a local Italian restaurant. When it arrived, a piece of it was wrong (we received the spaghetti bolognese entree instead of the polenta bolognese appetizer) and we were charged for the pricier item as well as a mysterious tip on top of the 15% we had already added.

Since we're living through a pandemic and mistakes happen, we called the restaurant and explained the mixup. It offered to make the correct appetizer for us and I grabbed my mask to drive down to pick it up.

When I arrived at the restaurant, the workers were nice but they let me know something that I found quite surprising. This eatery was not an actual Grubhub partner. It was listed on the site without its knowledge or cooperation.

Grubhub delivers food from restaurants it's not partnered with. Image source: Getty Images.

Apparently, this is common

Grubhub had listed this particular restaurant without partnering with it. When my wife placed our order online, the person picking it up for the delivery service literally called in the order (making a mistake) and charged it on a company card (adding the above-mentioned extra tip).

The online delivery service acknowledged that the industry was taking up the practice of adding restaurants that are not partners in an October 2019 shareholder letter.

"Listing restaurants on platforms without any partnership allowed other players to expand restaurant inventory rapidly," CEO Matt Maloney wrote.

The problem is that not having an actual partnership creates issues for Grubhub and its partners. That's also something that the company acknowledges.

"For restaurant inventory, we will rapidly expand our recent pilots of putting non-partnered restaurants on the platform," Maloney wrote. "For reasons we've discussed many times, we believe non-partnered options are the wrong long-term answer for diners, restaurants, and shareholders."

Basically, because other companies are using this strategy, Grubhub feels it has to do the same or fall behind. That sort of makes sense, except the company does not share in its app when you're ordering from a partner -- rivals including Uber Technologies' (NYSE: UBER) Uber Eats and DoorDash are doing that as well -- despite admitting that the experience is poor:

It is expensive for everyone, a suboptimal diner experience and rife with operational challenges. With that said, it is extremely efficient and cheap to add non-partnered inventory to our platform and it can at least ensure that all of our current and potential new diners have the option to order from any of their favorite restaurants now, even if it's not the best solution. By leveraging non-partnered options, we believe we can more than double the number of restaurants on our platform by the end of 2020.

Hey, we know this stinks for consumers and restaurants but it may be good for us in the long term so we're doing it anyway. Basically, Grubhub believes it can add customers and eventually force restaurants to partner with it if it does something that it knows nobody likes.

A customer service nightmare

After a long phone call, Grubhub refunded us for the pricey entree we did not want. The restaurant explained to me that the delivery service had used an old menu that actually contains items that it no longer sells (due to supply chain issues) and claimed that it had marked up prices (I did not verify that).

This practice would be fine if Grubhub made it clear when it was providing delivery from a non-partner. A local delivery service does just that and it explicitly charges 15% extra to pickup at eateries where it's not a partner -- and it communicates with the customer if the menu has changed or if prices have gone up.

It's not what Grubhub (and rivals including Uber Eats) is doing that's wrong. Instead, it's the lack of transparency. If you want to make a bad experience better, then be honest. Not doing so leads to anger from your existing customers and your potential partners.

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