GrubHub (GRUB), the app-based online food delivery company, has come under fire for charging excessive fees that hurt the profitability of restaurants that use their service.

The New York City Council has warned GrubHub executives to modify its practices or incur new laws that will regulate fees they charge restaurants. The council also wants to end the practice of online firms charging fees for phone calls that don’t result in actual food orders.

The GrubHub app allows customers to either order online by tapping their Smartphone screens or via telephone call. Listings on Yelp often include a GrubHub phone number next to the restaurant’s direct line.

The council asked GrubHub to refund the overcharges to the affected restaurants.

“Restaurant owners are caught in an unsustainable business model that not only fails to add to their bottom line but could actually eat away at their profits and their ability to keep their doors open,” Councilman Mark Gjonaj said. Gjonaj noted the restaurant business in New York is already tough enough – some 80% of restaurants in the city fail within the five years.

GrubHub works with more than 80,000 restaurants in 1,600 cities across the U.S.

Gjonaj also warned online food delivery service companies are able to acquire valuable information from customers – including email and home addresses, phone numbers, favorite foods and credit card numbers. And this data may allow them to have some measure of leverage over restaurants who might want to move to another app.

“We’re finding that a food app could come in and actually take over your business,” said Gjonaj. “The websites control all the customer sales data and don’t share it, and that gives them the power to undermine your existence and take away customers if you decide to end the deal.”

Other food delivery service companies, including UberEats, Postmates Inc. and DoorDash Inc. have also come under scrutiny for high delivery fees and other policies.

At a hearing before New York City Council in June, GrubHub executives said the company earned about $30 million in phone commissions last year. But they also said restaurants should audit their own phone commission charges every month. Gjonaj replied such a request was impossible to do.

“Owners do not have the time and the wherewithal to listen in to every phone call that was placed,” Gjonaj said. “It was a calculated move on behalf of GrubHub knowing that small businesses would not be looking at their statements carefully.”

In August GrubHub agreed to refund restaurant owners for wrongly applied phone commission charges made in the last 120 days.

Still, GrubHub insists that fees charged to restaurants -- 15% to 30% of each bill -- are justified because of customers eventually becoming patrons of the physical restaurant.

“The incremental sales and traffic with higher average checks more than offset commission rates,” said Katie Norris, a GrubHub spokeswoman.

Gjonaj is considering capping the fees food delivery apps can charge restaurants.

Earlier this year, Munish Narula, the owner of an Indian chain restaurant in Philadelphia, filed a lawsuit against GrubHub, claiming the company may have generated more than $5 million from “sham telephone orders.”

Narula alleged GrubHub had charged commissions on phone calls that were routed through GrubHub itself without his restaurant’s knowledge, even when the phone calls did not lead to the customer placing a food order.

Narula estimated that about 80% of the telephone commissions that GrubHub received were derived from phone calls were not related to a food order – for example, someone calling about the restaurant’s hours or asking for directions to the eatery.

Online food ordering is a huge growing business.

Mobile Order-Ahead Tracker said the volume of food orders placed on mobile apps increased by 130% between 2016 and 2018, accounting for about 60% of all digital food orders.

UBS predicts that by 2030 most meals will be ordered online and delivered from restaurants or central kitchens. By that point, the industry could be valued at $365 billion, up from $35 billion in 2018.

“We see a bright future for food delivery platforms, and positives for the restaurant sector as delivery adds a further growth engine,” UBS wrote. “There could also be an impact on property markets, with increased demand for edge-of-town industrial units, plus a positive environmental and sustainability angle as well, given the potential to cut food waste and packaging.”

But some online food delivery firms are currently struggling.

DoorDash, which plans to go public next year, remains unprofitable, despite having more than $2 billion in cash reserves. Meanwhile, GrubHub stock plunged 44.4% year-to-date through Monday.

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