Hey, what’s up, restaurant delivery?

This originally appeared in the June 15, 2020 edition of Expedite. Subscribe here.

It’s been a while since we talked, a lot has happened. Last Wednesday, Grubhub was bought by Just Eat Takeaway, a European delivery company, in an all-stock deal that values Grubhub at about $7 billion.

Then on Thursday, Yum Brands, parent company of Taco Bell, KFC, Pizza Hut, and (more recently) Habit Burger, sued Grubhub. The lawsuit is a response to an early June email sent by Grubhub’s CEO alleging that the restaurant company had violated the terms of an agreement by entering into new agreements with other delivery partners like Uber Eats. Yum invested $200 million in Grubhub in early 2018, naming Grubhub an exclusive delivery partner for its restaurants. Exact terms with restaurants weren’t made public, but they were, of course, assumed to contain favorable terms for commissions restaurants pay to the delivery service.

Now, Yum says, Grubhub reached out to its franchisees directly to impose a new pricing structure with 40 percent higher delivery fees. Reuters reports that in the note, Grubhub CEO Matt Maloney told franchisees not to worry as “all fees will be paid by the diner.” By Grubhub’s own pandemic-era admission, though, lower diner fees result in more restaurant orders — it’s how the company publicly justified cutting fees diners pay while still charging restaurant commissions.

More coverage from CNBC shares other details of the suit, which apparently “showed signs that it regretted the contract it struck with Yum.” Additionally, the Yum-Grubhub contact apparently contained a “$50 million termination fee for Yum if Grubhub came to be controlled by a third party that competed with Yum’s business.”

Pizza Hut CEO Artie Starrs is leaving the Grubhub board — he was Yum’s representative. He became a member at the time of the investment, and at the time, Grubhub execs seemed excited to learn from Pizza Hut’s early success in delivery (that’s what they told me, at least!) Jonathan Maze has some good analysis of all of this news in Restaurant Business, where he speculates that the delivery provider-chain restaurant power dynamic appears to be shifting. (I agree.)

A couple years ago, the Yum-Grubhub investment and partnership was big news. There was still a ton of competition for brand exclusivity. McDonald’s was still partnered with Uber Eats, an early and important partnership that helped Uber Eats grow its footprint around the world. In the years since, exclusivity has waned as restaurant chains start working with more than one partner — different terms, different geographical coverage, who knows? No one really talks about why, but it certainly benefits a restaurant to make itself available on as many platforms as financially possible, especially now.

An August 2019 industry report found diners to be platform-loyal in third-party delivery. Exclusive deals with big chains were important because they drove customers (and, more than likely, drivers) to the platforms. Then the platforms kept them and their information, valuable long before we found ourselves in a pandemic. Even more valuable now given narrow access points to restaurants.

Grubhub’s sale was expected, though not necessarily to Just Eat Takeaway. News of a potential European buyer surfaced after talks with Uber apparently stalled. Politicians like Elizabeth Warren and Amy Klobuchar had weighed in on a potential Uber-Grubhub pairing with regulatory and anti-competitive concerns. A CNBC report said Uber representatives are “confused” by the decision. It also said Uber was concerned about several reports of questionable business practices at Grubhub, like creating websites on behalf of restaurants that didn’t have them, or charging a fee for orders it accepted via Grubhub phone numbers it publicized in search listings.

The deal may quell anti-competitive fears in the U.S. for now, but what does it mean for the country’s food delivery market? Probably nothing immediate. The deal is expected to close early next year.

Last week, the New York Times ran a tech story about restaurant delivery apps. The piece led with a story from Matt Majesky, a restaurant owner in Ohio:

“You have no choice but to sign up, but there is no negotiating,” Mr. Majesky, who has applied for unemployment, said of the delivery apps. “It almost turns into a hostage situation.”

This tracks with much of what I’ve heard over several years writing about restaurant delivery. Pre-pandemic, it was a “necessary evil” for lots of restaurants. They didn’t love paying commission fees for delivery orders, but partnered with services because of the incremental lift in business. Then takeout and delivery became most, if not all, of business, and as focus shifted, so did the spotlight on how these businesses actually work.

So…. who’s going to buy Postmates?

Of course…

The pandemic has brought some changes. Notably, DoorDash cut restaurant commissions for independent businesses in half. Cities like San Francisco have capped what third-party delivery can charge a restaurant in emergency measures that will probably stick even after the emergency is lifted. Consumers understand better what these services do, and we understand that restaurants sacrifice more than we do for the convenience of a delivery order. The important point here is that this all comes down to consumer choice: our obsessions with convenience and a good deal fuels third party marketplaces, period.

Speaking of $billions:

DoorDash is rumored to be receiving another round of funding, valuing the company at $15 billion. As The Information’s Amir Efrati notes, the company is already sitting on a billion dollars in cash, making that late February confidential IPO filing seem like it happened in a different lifetime. (Late February does feel like a different lifetime, tbh.)

Ghosted

Uber Eats quietly backed out of its commissary kitchen experiment in Paris, with Dimitri Gore-Coty, head of Uber Eats telling the Financial Times “We’ve had a few pilots, but no intention at this stage to start our own proprietary network of dark kitchens, or warehouses… or however you call them.”

Meanwhile, (from the same article), a Los Angeles chef cut ties with CloudKitchens after launching several digital-only brands saying it was difficult to launch and promote new brands without a storefront. Existing brands seem to work just fine in the new socially distant model, though.

Also, last week, an arsonist set fire to a CloudKitchens location in San Francisco.

Hope you enjoyed this overdue/ special Monday edition of Expedite. If you’re looking for some more voices to add to your food- and restaurant-industry reading list, I recommend this list from Soleil Ho, restaurant critic at the San Francisco Chronicle. Excellent Monday reading.