If you're the owner of a small, independent, casual-dining restaurant, the looming possibility of diners quarantined in their homes due to COVID-19 is a frightening proposition. But on March 13, third-party delivery service Grubhub (NYSE:GRUB) provided a glimmer of hope. It announced that it's suspending up to $100 million in commission fees for independent restaurants around the country.
Delivery to the rescue
Third-party delivery services provided a welcomed comparable-sales boost for many restaurant chains in 2019. However, delivery sales come at a cost. High estimates place delivery commissions at 30% of a meal's ticket price, which can be prohibitive for some restaurants. To counteract this, some large chains like El Pollo Loco created special delivery menu pricing to offset fees. Others have created delivery-only menus -- offering just its higher-ticket items.
In its press release, Grubhub said that dine-in restaurant traffic could fall 75% as the coronavirus takes hold in the U.S. -- a near impossible situation for small restaurant operations to endure. The problem could be solved with delivery. But if diners choose to order food via delivery en masse, the fees these small restaurants would rack up would be counter-productive. By waving the fees for now, Grubhub is essentially providing a $100 million stimulus to the restaurant economy.
For Grubhub, the move does have long-term strategic value. In a recent letter to shareholders, CEO Matt Maloney demonstrated that independent restaurant partnerships are its most profitable revenue segment. Accordingly, the company is hiring additional sales representatives in the first half of 2020 to bring more independent restaurants on board. Waiving $100 million in fees could accelerate Grubhub's reach with small dining establishments.