Yum Brands on Thursday announced a plan to invest $200 million in the online food ordering company Grubhub as part of a broad delivery and ordering partnership that will rapidly expand delivery at the company’s KFC and Taco Bell brands.
Louisville, Ky.-based Yum has agreed to buy $200 million of Grubhub stock to help the company accelerate expansion of its delivery network in the U.S., improve ordering and delivery and push more orders to KFC and Taco Bell.
The two companies will market together. And Grubhub will work with Yum Brands’ Pizza Hut concept, which already operates its own vast delivery network. Pizza Hut’s U.S. president, Artie Starrs, will take a seat on Grubhub’s board of directors.
“There’s no better way to make a brand easy than to have it delivered right to your door,” Yum CEO Greg Creed said on his company’s fourth quarter earnings call on Thursday. “This will rapidly expand KFC’s and Taco Bell’s ability to roll out online ordering and delivery.”
Grubhub will work with KFC and Taco Bell franchisees to test and roll out online ordering for pickup and delivery to thousands of locations in U.S. markets that Grubhub serves. The initial phase of the rollout is expected to launch over the coming months.
Taco Bell currently has delivery in 1,500 locations, and the Grubhub partnership will enable it to roll out to more locations. KFC has a couple of delivery tests, so the deal will make the service available with that brand more quickly. Yum has said that delivery holds considerable promise for a chicken concept like KFC.
Executives with Yum also indicated that the partnership would be profitable for franchisees.
One of the bigger concerns restaurants have with delivery is the fees, which delivery services require to pay drivers, but which many operators believe hurts profitability. The deal with Yum and Grubhub is designed in part to improve those economics while giving Grubhub some investments and a large, key multibrand partner in Yum that will enable it to expand.
“We did a thorough process understanding the economics to franchisees and to us,” CFO David Gibbs said. “It was a really important process to us, to make sure franchisees had good economics.
“We think we have a deal our franchisees will absolutely embrace.”
Matt Maloney, CEO of Grubhub, cited the “unmatched consumer awareness and innovative advertising of KFC and Taco Bell,” and he said the deal with Yum will help “accelerate the shift from offline ordering to online, driving more orders to all our restaurants.”
Grubhub will also be integrated in the point-of-sale systems at both KFC and Taco Bell, which should make online ordering and delivery easier for operators and for customers—while making the brand’s menus available for online ordering through Grubhub.
The partnership between the two is the most unique and extensive effort on the part of a restaurant chain and a delivery service.
Delivery is perhaps the biggest single trend in the restaurant industry at the moment, with numerous chains working alongside third-party services, or adding delivery themselves, in a bid to make their offerings more convenient. Most publicly traded chains are at least testing delivery.
This is the first time, however, that a major chain has taken a step as big as investing in a third-party service.
Grubhub and Pizza Hut will talk about ways to work together on delivery, but executives at Yum stressed that the Grubhub deal for now is all about expanding delivery and online ordering at KFC and Taco Bell.
“Right now this is mostly about Taco Bell’s and KFC’s relationship with Grubhub,” Gibbs said. “It’s not just about delivery. It’s about the ability to order online at Grubhub. We’re working to integrate the POS and make the ordering process simpler.”
Executives also dismissed concerns that the deal would enable Grubhub to expand its deals with other brands—which could then take some business away from Pizza Hut.
Gibbs indicated that third-party delivery expansion isn’t hurting Pizza Hut. “Pizza Hut’s delivery business as a percentage of the Pizza Hut business has climbed,” Gibbs said. “We’re confident in the model at Pizza Hut today.”