Please ensure Javascript is enabled for purposes of website accessibility

Grubhub Suspending $100 Million in Commissions

By Jon Quast - Updated Mar 16, 2020 at 8:09AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As the coronavirus threatens the economy, the private sector is providing economic stimulus.

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 (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.

A woman holds a phone open to the Grubhub mobile app.

Image source: Grubhub.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GrubHub Inc. Stock Quote
GrubHub Inc.
El Pollo Loco Holdings, Inc. Stock Quote
El Pollo Loco Holdings, Inc.
$9.80 (0.41%) $0.04

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.