Are Grubhub Prices Marked Up and Why?

Are Grubhub prices marked up compared to ordering directly from restaurants?

Yes, Grubhub prices are often marked up compared to the prices you would find on a restaurant's menu when ordering directly. This markup can vary depending on several factors, including the restaurant's pricing strategy, delivery fees, and service fees added by Grubhub. While some restaurants maintain consistent pricing across platforms, many adjust their prices on third-party delivery services to account for the commission fees they pay to Grubhub. Checking the prices on Grubhub against the restaurant's menu is always a good idea to see if there is a significant difference.

How Grubhub Models its Business

The Grubhub model functions differently from the assumption that it charges a fee directly from the consumer. Instead, Grubhub earns a commission from the restaurant for the delivery of each order. This means that restaurants benefit by accessing a larger market and gaining new customers through Grubhub's platform. As a restaurant, you may opt to lower your prices slightly on Grubhub to accommodate these fees, but also recognize the significant boost in your customer base and order volume.

Exploring the Business Model

Let's break down the financial aspect of the Grubhub model with a specific example. Imagine you own a Thai restaurant and are considering using Grubhub to expand your reach. If you normally offer a standard delivery fee of $5 to customers ordering directly from your restaurant, you might find that Grubhub charges an additional $3 per order. This price marking up is due to the commission Grubhub takes on each order, which in this case would be $3 out of your $8 delivery fee, leaving you with $5 per order.

Win-Win Scenario for Restaurants

Even with this markup, the Grubhub model is advantageous for restaurants because it expands their customer base and provides a convenient platform for customers to order food. By using Grubhub, restaurants gain access to a larger market and the convenience of online ordering. Grubhub's role is essentially to act as a middleman, providing infrastructure and support for online ordering, which restaurants would otherwise have to build and maintain on their own. This collaboration can lead to higher revenue for the restaurant without the need to invest additional resources.

For example, a restaurant with a consistent order volume may see an increase in deliveries, leading to higher overall revenue. The increased number of deliveries means that the restaurant's marginal return on delivery per order is higher, even if the price per order is slightly lower. This setup incentivizes restaurants to maintain Grubhub as a key part of their business strategy.

Conclusion

While Grubhub prices may mark up traditional restaurant menus, the benefits of the platform for both restaurants and customers make it an indispensable service in the modern food delivery landscape. By understanding the intricacies of the Grubhub model, restaurants can optimize their pricing and strategies to maximize their earnings without sacrificing customer satisfaction.