Every Monday, Kory Lau opens his restaurant and prepares to spend a couple of hours fighting with his delivery providers.
The owner of Dollar Cafe in Morrow, Georgia, is charged hundreds of dollars a month by DoorDash, Uber Eats and Grubhub for undelivered orders that Lau said aren’t his fault.
Instead, he said, the culprits are delivery drivers who pretend they’re picking up an order and then make off with the food, leaving Dollar Cafe on the hook.
Lau said it happens two or three times a night, triggering refunds to angry customers and a charge to the restaurant. On Mondays, he logs into his delivery accounts and disputes those chargebacks. He estimated that he gets his money back about 60% of the time, but it still comes at a cost.
“I spend a good amount of time worrying about the canceled orders,” he said. Those orders are important to Dollar Cafe, where about 70% of sales come from third-party delivery.
Industrywide, 2.5% to 3% of operators’ total revenue is caught up in disputes with their delivery providers, according to Priyam Saraswat, CEO of Voosh, a tech company that helps restaurants contest error charges. It may seem like a small slice of sales, but it represents about 20% of restaurants’ already slim delivery profits.
To be sure, restaurants are responsible for some of those errors. But operators say they’re often dinged for things they have no control over—including fraud. On top of that, they say they have little time to spend clawing back the deductions.
“The onus is on the operator to make sure they’re filing their dispute in the proper way,” Saraswat said. “Because the process to file this is so complicated and it’s so time-consuming, most of the restaurant brands just end up not filing it.”
It comes as delivery makes up a growing piece of many restaurants’ revenue. But the three big delivery apps—DoorDash, Uber Eats and Grubhub—said that only a small portion of deliveries result in complaints, and that just a fraction of those get charged to the restaurant.
Policies differ slightly by app, but in general, restaurants are responsible for missing or incorrect items or orders that are completely wrong, while the delivery providers will pay for things like cold or damaged food or late deliveries.
Importantly, the apps say restaurants are never responsible for covering the cost of fraud, and that they have ways of policing fraudulent activity.
None of the apps gave on the record interviews for this story but provided statements or links to online resources.
“The bottom line is that DoorDash aims to be fair to all parties when an order does go wrong and will not charge a restaurant for an error that is out of their control,” the company said in a statement.
Fighting fraud
A multiunit McDonald’s franchisee told Restaurant Business that they contest an average of $500 worth of delivery refunds per location every month and end up winning those disputes often.
The franchisee, who asked to remain anonymous, suspects that’s because some of the errors are fraudulent: The customer says they didn’t receive an item when they actually did. They can then collect a credit or refund from the delivery app at the restaurant’s expense.
“I know this sounds crazy, but you have to ask yourself, why do we get more refunds via third-party orders vs. in-store?” the franchisee said. “It doesn’t make any sense.”
This form of fraud is not uncommon in e-commerce. In survey results published this week by fraud protection company Sift, 42% of Gen Zers and 22% of millennials admitted to requesting a refund for an online purchase even though they received the item.
The scheme, known as first-party or “friendly” fraud, tends to increase during times of economic hardship, according to Sift. And there are signs that it is growing in restaurants. Chargeback rates on food and delivery orders increased 31% year over year in the first quarter of 2023, Sift found.
The problem got so bad at Frato’s Culinary Kitchen in Schaumburg, Illinois, that the restaurant installed cameras so it could prove that employees were bagging orders correctly.
“I used to investigate every error and came to the realization that 99% of the time, we’re not at fault,” owner Mike Kudrna said.
Delivery people can also be to blame for problems that get attributed to the restaurant, such as missing or forgotten items or orders that don’t make it to their destination, as Lau and other operators have discovered.
At Dan & Day’s Burgers & Shakes in Montclair, New Jersey, orders frequently disappear after they leave the store. “The driver comes, we know we gave it to them, and it just never gets there,” said co-owner Dan Campeas.
Delivery apps say they have robust measures for shielding restaurants from fraud by both customers and drivers.
These include flagging customers who repeatedly complain of missing items; taking a closer look at complaints that involve high-value orders, alcohol or first-time customers; and requesting photo evidence in some cases.
The apps may also flag drivers who have a history of missing-item complaints or remove drivers who get low satisfaction scores from both customers and stores.
“Order error adjustments never include refunds for customers or delivery people flagged for potential fraud,” Uber Eats wrote in an order error guide for restaurants.
A manual process
Sometimes bad actors slip through the cracks. But perhaps more frustrating for restaurants is the process of getting their money back when that happens.
“You can fight it, but it’s the type of thing where you’re crazy busy on a Friday night, you have so many orders coming in, you can’t really do it in the middle of service,” said Campeas. “And then it’s a process to dispute it. Sometimes we’re on the phone for literally 20 minutes, just for one order.”
Operators said simply keeping track of their error charges is a chore in itself.
“You have to log in, and you will have to make four clicks just to be able to see and/or dispute a claim,” Kudrna said. “They make nothing simple for you.”
Lau said he looked into developing software that can automate the dispute process, but learned that the delivery apps don’t share the APIs for their refund data. He estimated it would cost as much as $18,000 to hire someone to reverse-engineer a solution.
Saraswat explained that third-party delivery apps, like most consumer brands, are laser-focused on keeping the end customer happy. That naturally creates headaches for the restaurants upstream.
“I won’t say that the apps have not made anything to get your money back, but they’re not designed in a restaurant-friendly way,” Saraswat said. Voosh uses artificial intelligence to automate disputes for chain restaurants.
On DoorDash, there are four ways for restaurants to view error charges in their account, including setting up recurring reports. Restaurants can dispute those charges from within their account by filling out a form.
DoorDash does limit the number of transactions restaurants can dispute based on the percentage of orders that result in chargebacks. The threshold is based on a baseline rate for missing and incorrect orders across the app, a spokesperson said.
Uber Eats has multiple ways for restaurants to track errors, including downloadable spreadsheets and a weekly payment summary email. Its dispute process is similar to DoorDash's.
Grubhub said it has a transparent dispute process that restaurants can access in the Grubhub for Merchants portal.
Legal scrutiny
The issue of delivery chargebacks has begun to attract some legal attention. Last month, Los Angeles County sued Grubhub for “deceptively and unilaterally” charging restaurants when customers asked for a refund without verifying who was at fault. The county argued that the practice leaves restaurants on the hook even for issues they didn’t cause, including fraud.
Grubhub told Restaurant Business in a statement that it discontinued that practice last year and now allows restaurants to file refund requests online.
Dino Delic, an Illinois attorney who is looking into error charges on behalf of restaurants, said it boils down to the concept of liability, which gets complicated in a three-sided marketplace.
“Restaurants are incurring these liabilities they’ve never had before,” he said. When something goes wrong, “it falls on the people with the most to lose.”
Solutions
Both sides seemed to agree that assigning blame for delivery mishaps is complicated and virtually impossible to get right every time.
One way restaurants can help ease the burden is by limiting mistakes on their end. The delivery apps recommend checking off food items on a printed receipt as they’re bagged, clearly labeling bags that are part of the same order and securing bags with tamper-proof seals.
“The easiest thing I think would be for restaurants to be proactive and double check everything,” said Sherri Kimes, a revenue management consultant for hospitality businesses.
Restaurants should also make sure their hours are up to date and that menus are current and optimized for delivery. DoorDash said a clear and concise menu can improve order accuracy by 20% to 50%.
Restaurants could also let customers know to contact them rather than the delivery provider if there’s a problem. “That could be something as simple as putting a message in with the order,” Kimes said. “‘Hope you enjoy your food. If there are any questions or problems, please contact us.’”
Still, many operators say they’re at a loss when it comes to stopping people who are bent on gaming the system.
“There seems to be no way to prevent theft unless they use automated robot cars,” Lau said. “It’s just human nature.”