Food delivery services like Grubhub offer a significant amount of convenience where the tradeoff is that they’re often more expensive than ordering from a restaurant.
People who have been customers for years have noticed that the prices have been increasing. I looked into the main reasons for anyone wondering why Grubhub is so expensive today!
Why Is Grubhub So Expensive In 2023?
Grubhub is expensive for many reasons that have to do with the need for profitability as of 2023. What you pay on Grubhub at the end of your order includes several fees that are affected by several other factors. Grubhub prices go up depending on internal targets and in response to external influences the company can’t control.
Read on to find out why Grubhub is so expensive, including how corporate practices, legislation, and more drive the prices and fees!
1. Grubhub Has To Make Money Without Tips
Grubhub gives 100% of the tips to the drivers, so the company can’t rely on it as a guaranteed source of income.
For this reason, Grubhub has to look for revenue elsewhere which is why it has things like service fees.
2. Grubhub Has To Show Its Investors Growth
Grubhub has several investors and stakeholders whose money got the company to where it is, and they need to see a positive return on their investment.
Most notably, Just Eat Takeaway bought Grubhub for over $7 billion in June 2020, and they expected to recoup their investment and then some.
However, it isn’t happening as they’d hoped, so the company is considering selling it off.
If Grubhub’s earnings start dropping, investors are more likely to pull out, hurting Grubhub’s operations, so it has to come up with ways to keep revenue growing.
3. Grubhub Has To Account For Third Parties
Grubhub operates using services from third parties, primarily regarding payment options.
For example, companies like Mastercard and Visa charge a fee for using their services, and Grubhub passes these on to the customers.
4. Grubhub Can’t Rely On Delivery Fees
Restaurants on Grubhub set their delivery fees, and they can decide whether to use their own delivery network or Grubhub’s.
Therefore, the company can’t consider delivery fees a guaranteed source of income, so Gruhub has to raise prices elsewhere.
5. Grubhub Has To Account For Taxes
Grubhub has to pay state and federal taxes to maintain operations, and the company’s baked this cost into its charges.
That said, places with higher taxation rates will usually have higher fees on Grubhub.
6. Grubhub Charges You For The Convenience
Grubhub operates on a business model that allows you to buy someone’s time without too much hassle on your part, and it charges a premium fee for this.
Although Grubhub charges you for the person’s time through tips, it facilitates the whole thing, which carries a price tag of its own.
7. Grubhub Has To Account For Certain Laws
Grubhub and the food delivery industry are relatively new in general, so lawmakers are still figuring out how they should operate.
Since it was founded, Grubhub has been the subject of several legal controversies, some of which have resulted in laws that impact operations, such as ones controlling how much it can pay drivers.
To address these, one of the most popular strategies in the industry is increasing the prices that the customers will have to pay to cover the additional costs.
In 2020, California voters passed Prop 22, which affected how Grubhub drivers get paid.
As of now, it’s being battled in court, but it’s one of many examples of the law affecting the pricing of food delivery apps on the consumer’s end.
8. Grubhub Allegedly Forced Restaurants To Make Food Expensive
A recent class-action lawsuit filed against Grubhub alleges that it makes restaurants enter an agreement where they can’t make their food cheaper if customers get it outside the app.
However, because of the large cut that Grubhub takes, they have to make food prices within the app very expensive to keep up.
9. It’s Expensive To Operate In Your Area
By default, Grubhub is expensive in areas where the cost of living is already high to cover the actual cost of the food and operations and tips for the drivers.
For example, if you’re in the Bay Area or New York, you will pay more to use Grubhub than you would if you were in a rural region.
Inflation is always happening, but it’s ramped up in the past couple of years, and it’s one of the biggest reasons Grubhub has become more expensive.
For starters, restaurants have to pay more for their supplies, and this drives up the price of the food they sell on the platform.
Also, Grubhub has to raise the other fees to maintain its ability to operate even with the cost of living going up all over the country.
Grubhub is expensive because it needs steady and reliable sources of income outside of the ones the company can’t control, such as delivery fees and tips.
On top of that, external economic factors such as the cost of living in your city and the rising inflation rate also make Grubhub more expensive.