UPDATE: This story has been updated with additional comment from DoorDash.
A lawsuit accuses third-party delivery company DoorDash of steering business from non-partner restaurants by incorrectly listing them as closed or too far away for delivery.
The suit was filed Thursday in California on behalf of Lona’s Lil Eats, an Asian-fusion restaurant in St. Louis. Though Lona’s has no official relationship with DoorDash, it has a page on DoorDash’s website where customers can order delivery. The restaurant alleges, however, that when a customer attempts to order, the site will say the order can’t be completed because Lona’s is too far away. A demonstration provided in the lawsuit used a delivery location just 200 feet from the restaurant.
The lawsuit alleges that DoorDash is using non-partner restaurants like Lona’s to drive customers to their platform and then using “deceptive information” to redirect orders to its own partners, thus collecting a commission. This in turn puts pressure on Lona’s to partner with DoorDash, the suit says.
“The problem is not, in fact, that the delivery address is too far away, the problem is that Lona’s has not agreed to pay DoorDash’s exorbitant fees,” the lawsuit says. “A consumer can change his or her address over and over again, but it will never become available for delivery because Lona’s is not a Partner Restaurant.”
DoorDash said Tuesday it wasn’t intentionally redirecting customers and that the issue was related to tracking restaurant closures during the pandemic.
“At no time was DoorDash intentionally steering customers away from any restaurant. We have previously addressed the technological issue on our platform that arose from the difficulty in tracking restaurant closures as a result of the pandemic, which impacted a small number of merchant partners and non-partners alike,” the company said in a statement to Restaurant Business. “We’re proud of the role DoorDash plays in helping restaurants connect with new customers and generate additional revenue, and we remain committed to supporting the merchant community and demonstrating the value of the DoorDash platform.”
It is common practice for third-party delivery companies to list non-partner restaurants on their apps. The companies will then service those restaurants without charging the fees reserved for official partners. The delivery companies say it’s a way to increase their restaurant supply as well as show restaurants the potential benefits of the service. But it has led to confusion for some restaurants that didn’t know they were listed and may not even be set up for delivery or takeout. On Thursday, California Gov. Gavin Newsom signed a law banning the practice in the state.
The flurry of activity adds to the scrutiny being faced by third-party delivery companies, which have seen massive growth during the coronavirus pandemic even as many restaurants have continued to struggle. Most of the criticism revolves around the fees charged to restaurants by the companies—which can be as high as 30% or more—coupled with the fact that the pandemic has forced restaurants to rely on delivery more than ever, and with only a few providers to choose from.
About a dozen local governments have approved temporary caps on those fees. And earlier this week, three members of the U.S. House of Representatives asked the Federal Trade Commission to investigate the delivery companies for market consolidation and “potentially deceptive marketing actions.”
The lawsuit seeks approval as a class action representing all U.S. restaurants that don’t partner with DoorDash but are nonetheless listed on its app or website. It was filed in federal court in the Northern District of California with the justification being that DoorDash is headquartered in San Francisco.