Food delivery apps offer convenience. A customer can go online, order and pay through the platform, and then have the platform handle the rest of the transaction. The delivery app sends a driver to order food from the restaurant, pay for it, and drop it off. Sometimes without the restaurant knowing about it. And the separation between the ordering platform and the restaurant can have some interesting side effects. It can create opportunities for actual fraud, but some situations are more of a gray area.
This Livemint article about the Indian food delivery startup Foodpanda discusses a few situations that are obviously fraud. The first example involves restaurants that closed down, but still appear on the restaurant’s ordering platform. So when a customer orders food from them, the platform tries to resubmit the order and gets no response. The platform cancels the order and sends the customer a small payment because it couldn’t fulfill the order. Intentionally ordering food from closed restaurants to collect many of these payments seems like fraud.
Another case of obvious fraud from the same article is restaurants abusing 2-for-1 deals. For example, a restaurant orders $20 worth of food and then uses the two-for-one coupon to get $10 back, minus the delivery fee. If the restaurant tries to use the coupon on a fake order that was never delivered, that’s another case of fraud. And if the food delivery platform doesn’t send a representative to visit each restaurant, it’s even possible for a fake restaurant to list itself on the platform and attempt to claim the coupons.
But some situations are less clear. Like the ones in the Margins newsletter. If the food delivery platform scrapes prices from the restaurant’s website, it might record the prices incorrectly. In this example, the platform was listing a pizza for $16 that the restaurant normally sold for $24, creating an arbitrage opportunity. And taking advantage of that opportunity is more of a gray area.
If the restaurant buys its own pizzas for $16 and receives $24 from the delivery company, it may not have violated a contract. It fulfilled the orders from its customer and prepared the pizzas for delivery. But it’s possible that the restaurant could still get in trouble for overcharging the delivery company. And it’s surprising that the platform didn’t notice the $8 price gap for a long time.
Ordering a pizza for $16, putting uncooked dough in the box, and accepting $24 for delivering that pizza is much more questionable. That’s similar to submitting fake orders for reimbursement, even if the customer didn’t complain. When restaurants in India submitted fake orders to claim 2-for-1 deals, those orders didn’t result in any complaints either.
Another article about food delivery apps from the Melrose Street Journal came out around the same time. In this case, an Uber customer learned that Uber was offering free ride credits in exchange for referrals. And because Uber also owns the Uber Eats food delivery service, those ride credits could be converted into credits for the other app. So the customer received $20 worth of food delivery credits in exchange for each referral.
By promoting the referral offer using Google Adwords, the customer was able to earn a lot of free food delivery credits and eat free meals for a year. In my opinion, this is affiliate marketing and not fraud. Promoting another company’s offer and receiving compensation is a normal business model for many companies, including major publishers.
If a lot of people did this, the cost of ads for platform-related keywords could rise. There’s one drawback for the company. And the platform wouldn’t have control over the creative design of the ads either. It’s understandable why the company shut down the affiliate offer after a while. I’ve seen other referral programs with terms of service that prohibit commercial promotion campaigns. But I don’t think this strategy is unethical.
In fact, the decision by the platform to cancel the remaining credits could be less ethical. The customer fulfilled his side of the deal and used paid ads to convince people to sign up for the ridesharing offer. And then the ridesharing platform decided not to allow him to use all of the credits he’d earned. If another affiliate program canceled earned rewards like that, it might result in a lot of negative publicity.