Grubhub, America’s largest food ordering service is battling a lawsuit for allegedly taking commissions from restaurant owners for unexecuted orders and telephonic queries of customers. 

Seeking $5 million in damages, the law suit's scope may increase if more hoteliers start joining the legal challenge making it a class action suit.

This is because more and more restaurant operators in America are waking up to the alleged high-tech exploitation by Grubhub in terms of hidden fees on orders not executed. 

Grubhub was sued by Munish Narula, who owns Tiffin Indian Cuisine in Philadelphia on charges for “phantom orders for at least seven years.” The lawsuit alleged that the food delivery company’s 115,000 restaurant partners are facing this kind of overcharging.

The lawsuit alleges that behind the thriving commission taking exercise is the modus operandi was the practice of installing own phone numbers on the website and app than revealing the actual phone number of restaurants so that customers can make direct calls for any query.

Customers using the numbers given on the website may not know the difference. This is because Grubhub automatically forwards those calls to the restaurants and takes a commission.

Grubhub owns food delivery service Seamless. The stated position of the company in the competitive market with players like Zomato is that it will only charge only those orders it helped in generating.

But eatery owners allege that the Chicago company is sending them inflated bills for all kinds of calls, including calls for dinner reservations or even on tiny complaints like sauce pack was not available.

Hoteliers not convinced

Mike Evans, a co-founder of Grubhub said in 2013 that a “statistical model” is at work to determine whether a phone call through its system had generated an order or not.

“It turns out to be possible to predict with a high degree of accuracy which calls are orders or not,” Evans answered at a Quora forum.

But the lawsuit contends that Grubhub’s a statistical model is an eyewash and it bills hotels for any call above 45 seconds.

Narula also accused the company of having refused him transcripts of his Grubhub-recorded calls for verification. The request was made in March 2018 but transcripts were supplied only in August 2018 even as Grubhub maintains it has been consistent in providing transcripts to clients. 

Grubhub Grubhub logo Photo: Grubhub

Grubhub dubs lawsuit meritless

However, Grubhub played down the lawsuit as meritless. “We believe the Tiffin case is without merit and dispute the claims,” it said in a statement.

Claiming transparency in the matter, Grubhub said restaurants “have the ability to review and audit recordings of phone calls through the dedicated portal and easily dispute any charges,” adding that it records calls made through Grubhub lines.

First quarter revenue up

Meanwhile, Grubhub showed up impressive first-quarter 2019 earnings at 30 cents per share, beating analysts estimate. However, that figure was down 42 percent on a year-over-year basis.

Revenues jumped 39 percent year over year to $323.8 million, beating the consensus of $323 million. The jump in costs and expenses was 56.7 percent year over year and the expenditure was $314.9 million.  

Interestingly, revenue per order minus operations costs jumped to $3.46 from the $3.34 of the previous quarter.

In the guidance for Q2 2019, GrubHub forecasts revenue between $305 million and $325 million. For the whole year 2019 guidance, Grubhub expects revenue between $1.315 billion and $1.415 billion.