Online Meal Delivery Heavyweights Hit with Class Action Lawsuit Over Monopoly Allegations

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The biggest players in the online meal delivery arena—GrubHub, Uber Eats, Postmates and DoorDash—face a proposed class action lawsuit that alleges the companies have obtained monopoly power with which they’ve given consumers and restaurants “little choice but to do business with them.”

The 41-page complaint filed in New York’s Southern District describes the defendants as the first online meal delivery platforms to provide consumers with lists of restaurants from which they could order food for takeout via smartphone apps. The companies’ level of control in major markets has swelled to the extent that the entities effectively use their monopoly to prevent competition and limit consumer choice among online meal delivery providers, the case alleges. 

In all, the plaintiffs allege, the defendants’ restraints on the online meal delivery space have “cannibalized” the restaurant dine-in market while forcing consumers to bear the brunt of the excessive cost of doing business through the companies’ services. The case further claims the defendants’ monopolistic level of control has placed additional strain on a restaurant industry crippled by the COVID-19 pandemic.

As the suit tells it, the defendants’ monopoly power is evident in their fees, which range from 13.5 to 40 percent of their revenues despite the average restaurant’s profits sitting between three and nine percent. According to the lawsuit, the defendants’ fees are “shocking” given “how little value” the companies provide to consumers and restaurants. In contrast, whereas companies like American Express garner fees by offering special products, experiences, benefits and other exclusive services, the online meal delivery platforms “merely offer a list of local restaurants that can easily be found on Google or Yelp for free,” the lawsuit says.

The suit succinctly sums up this charge with a quote from a March 16 TechCrunch report, saying, “the primary differentiation between delivery apps today is not based on innovations that meaningfully impact user experience, but instead comes down to a handle of restaurant brands with which the various apps are in a land grab to create exclusive delivery relationships.”

The lawsuit alleges the rise of GrubHub, Uber Eats, Postmates and DoorDash has come “at great cost to American society” in that restaurants have essentially been left with “a devil’s choice” to charge supra-competitive prices to consumers who don’t buy meals through delivery apps in exchange for participation in the defendants’ monopoly. The result, the case says, is that restaurants have seen a decline in dine-in customers year after year due to being unable to offer better in-house prices.

From the complaint:

“Absent Defendants’ unlawful restraints, restaurants could offer consumers lower prices for direct sales, because direct consumers are more profitable. This is particularly true of Dine-In consumers, who purchase drinks and additional items, tip staff, and generate good will. Restaurants cannot offer Plaintiffs and the class this lower cost option, because the Delivery Apps’ No Price Competition Clauses prevent them from doing so." 

An apparent weapon at the defendants’ disposal is the “No Price Competition Clause” (NPCC) included in the companies’ contracts with restaurants, according to the case. The suit says the NPCCs prevent restaurants from charging different prices to meal delivery customers than to dine-in eaters for the same menu items, and serve as “an unlawful price restraint” that hampers eateries from gaining market share and increasing profitability. 

The harm done to restaurants by the defendants’ NPCCs is extended to consumers forced to shoulder the delivery platforms’ “exorbitant economic rents,” the suit continues, adding that the high fees charged by the companies have made meals ordered through delivery apps more expensive. In response, restaurants must calibrate their prices in order to avoid losing money on meals purchased through online delivery apps, according to the case.    

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