Now the GrubHub has offered its IPO prospectus in a bid to go public, they have disclosed (via accounting) their commission rates. Most restaurants listed with them pay about a 13.5 percent commission, but others may pay even more in order to receive higher ranking in GrubHub results.
Every meal processed through the site pays around that minimum average percentage, making for a total of just over a billion dollars in delivery and pick-up orders through GrubHub last year for a total commission of about $137 million. From this comes the 13.5% average.
The prospectus explains that restaurants are promoted via their agreed-upon commission cut. Basically, restaurants can choose their promotion rate based on how much they’re willing to give up in commissions to GrubHub. The IPO says “..to affect their relative priority in its sorting algorithms, with restaurants paying higher commission rates generally appearing higher in the search order..”
GrubHub’s newly-acquired partner, Seamless, likely uses the same system given that it’s not separated out in the IPO, which would likely see the two merge as one were the parent company to go public.
Interestingly, this may constitute a violation of U.S. Federal Trade Commission (FTC) rules on search, which call for “clear and conspicuous disclosure” of paid search results. If Restaurant A is paying more than Restaurant B to appear higher in results, it could be argued that GrubHub would be required to disclose that clearly on its pages.
Now that this is known, it could mean problems for GrubHub going forward, as users are not historically happy about this kind of non-disclosure. This could also open competition to others who are looking for a way into the online restaurant paradigm.