The Many Lessons of Grubhubgate

retail and hospitality

The Many Lessons of Grubhubgate

A Recent Food Delivery Controversy Is a Great Test Case for Stakeholder Commitment

January 9, 2020
by Ken Gordon

When, back in August, the Business Roundtable announced: “We share a fundamental commitment to all of our stakeholders,” they perhaps weren’t thinking about ordering dinner that night.

It might have been appropriate if they had been.

The food delivery sector is a superb area in which all stakeholders need, but aren’t currently receiving, their proper respect and attention. The New York City Council’s recent rebuke to Grubhub is a perfect example of unfulfilled stakeholder commitment.

According to the New York Times, the food delivery service has been charging restaurants for phone calls—users can dial restaurants on the app—that never evolved into orders. Grubhub responded by expanding the stretch of time restaurant owners had to review calls (up to 120 days). Owners complained about how this process was insufficient and the Council agreed, strongly insisting that Grubhub bring in an independent auditor to review the phone records. Now the Council has issued a letter saying: “A refund must be issued for any phone call fees that did not yield a sale. In the event that you do not take corrective actions, we will explore potential legislative solutions.”

This scenario calls to mind something Columbia Business School professor Rita McGrath writes in her new book Seeing Around Corners: “Whenever a system has a sufficient number of badly served constituents, an inflection point has fertile ground to take root.”

Grubhub’s food-delivery system has clearly amassed a number of badly served constituents. What should it do?

The company needs to show a good-faith belief in what the restaurants and the Council are saying and make amends. Grubhub should resolve this issue as quickly and fairly as possible. It would be wise to show humility here, which is essential when creating complex partnerships.

The idea of this food app company stepping forward and being transparent would be a smart way to differentiate itself, and perhaps to build some goodwill among hungry customers. As my colleague Toby Bottorf once wrote, “A bungled or evasive reckoning can break trust permanently, but a candid and graceful recovery can put you in a better place than you were before your mistake.”

Earning the restaurant ecosystem’s trust is essential. Trust is, in fact, what binds the commitment-to-all-stakeholders model together. You see the importance of trust embedded in the skepticism raised following the Business Roundtable’s stakeholder announcement. It would be in Grubhub’s interest to avoid even the appearance of defensiveness.

Grubhub, and other delivery apps, should also rethink their pricing and value. It may be impossible for them be less expensive, with their infrastructural and human resources overhead, but they could be a better partner in many ways to restaurants, drivers, and diners alike.

The fees restaurants are paying are unsustainable—up to 30%—and yet, despite the high prices, many of the apps are not yet profitable. This strongly suggests an issue with the business model. If the delivery business can’t find a way to justify the price tag to their thin-margined restaurant customers, there’s a risk of a full-fledged #logout-style rebellion.

There needs to be a reset in terms of the value delivery apps provide. Delivery apps need to understand that they are the guests here—the late arrivals on the scene—and that restaurants are the hosts. For the system to work, there must be a symbiosis in terms of both value and price. They need to think harder about what kind of value they can provide to restaurants.

One thought is data. Grubhub has surely generated much meaningful data that might help restaurants better serve their customers. Of course, they’d need to be transparent with customers about this, because the stakeholder ethos demands it—and because consumers are now aware of the value of their data. Working with restaurants, rather than against them as competitors, could be beneficial to all.

Fact is, inside and outside of Grubhubgate, committing to all stakeholders is a complicated and difficult shift (we haven’t even talked about the enormous challenges delivery people face). To do so properly will require ingenuity, humility, and a willingness to make big changes. Will Grubhub have the appetite for this? We’ll have to see. It currently looks like the company might be taking itself out of the delivery game.

Want to read about designing great food delivery experiences? Check out our report, “Delivery: The Last Mile.”

filed in: retail and hospitality, food and beverage

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