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Grubhub is a 'trojan horse' for small businesses: New York City councilman

Nick Robertson
Senior Producer

Food delivery app giant Grubhub (GRUB) is taking a major bite out of restaurants’ profits, according to one New York City councilman. And now he’s says the Big Apple’s government needs to step in to re-balance the equation.

“Our small businesses, in particular the restaurant owners, are in trouble,” New York City Councilman Mark Gjonaj (D) told Yahoo Finance’s The Ticker. “[GrubHub] really is taking away from the bottom line of these restaurants and undermines their very existence to keep their doors open.”

Gjonaj is helping lead the charge for new regulations that would cap how much delivery companies like Grubhub and Uber Eats (UBER) could make from commissions. A restaurant’s fees for using Grubhub and its subsidiary Seamless typically range anywhere from 10% to 30% per order.

Cannibalizing customers?

"These restaurants wouldn’t mind paying these high fees provided they’re new customers,” Gjonaj explains. “In fact, the only evidence we’ve seen is that they’re cannibalizing their existing customer base.”

BOSTON - MARCH 15: Jane Bergman, a delivery driver for Grubhub, leaves El Pelon in Boston on March 15, 2015. (Photo by Lane Turner/The Boston Globe via Getty Images)

Grubhub is pushing back against those claims.

“A survey done by research firm Technomic this past August found that nearly nine out of 10 independent operators agree that Grubhub increases the volume of takeout and delivery orders,” Grubhub counters in a statement to Yahoo Finance. “Eight of 10 independent operators agree that Grubhub increases customer frequency.”

Gjonaj remains unconvinced. He says he’s hearing far different feedback in meetings with local restaurants owners as chair of the New York City Council’s Committee on Small Business.

“The evidence that we see now is what was once a very healthy relationship where both profited now looks like a trojan horse where they’ve undermined the very existence of these businesses,” he says. “We know that the average profit is less than 10%. How is it possible for [restaurants] to survive when they’re paying [nearly] one-third in fees?”

Gjonaj makes clear it’s just not Grubhub in his sights.

“We’re looking at the industry as a the whole,” he explains. “Obviously consumer behavior is demanding food order apps — now we want to make sure it’s a healthy relationship.”

“Everything is on the table at this point.”

Nick Robertson is a senior producer at Yahoo Finance.

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