Restaurants

Grubhub offers restaurants new ways to receive orders—without paying commission fees

Key Points
  • Grubhub unveiled new tools that allow customers to order food straight from restaurants without requiring the eateries to pay commission fees.
  • Third-party delivery companies make the bulk of their revenue charging restaurants anywhere from 15% to 30% on every order.
  • The National Restaurant Association estimates that 110,000 establishments have shut down, either permanently or long term, due to the pandemic.
The GrubHub app
Andrew Harrer | Bloomberg | Getty Images

Grubhub is giving restaurants new tools for commission-free orders as more states and cities force eateries to turn once again to delivery and takeout for survival.

In the wake of the coronavirus pandemic, Grubhub has seen its orders soar, growing revenue 36% during the first three quarters of the year. In the same time, it has processed $6.31 billion worth of food orders. Third-party delivery companies make the bulk of their revenue through commission fees, charging restaurants anywhere from 15% to 30% on every order they fulfill to pay for the technology and connecting them with hungry customers.

In recent years, bigger restaurant chains have used growing competition between food-delivery companies to negotiate smaller commission fees, but smaller establishments don't have the same leverage. In the past, they have had to choose between partnering with Grubhub and paying commission fees or not being able to use its delivery service. The company's latest move provides them with another option.

With Grubhub's new direct order links, restaurants won't have to pay commission fees as long as customers buy their food via the link, rather than on the delivery company's app. The links are meant for restaurants to use in their own marketing, such as in emails or on social media. A customizable "order now" button for direct ordering can be added to an eatery's website, while a unique QR code can be included in mailers or signs on their doors.

"Even though we may fulfill the order and be the back-end technology, because we're not providing the marketing service there, we're not taking a commission," said Chief Revenue Officer Seth Priebatsch.

Eateries will still be on the hook for delivery and payment processing fees, but those are typically smaller than a commission fee.

The health crisis has forced restaurants to rely more heavily on the likes of Grubhub and DoorDash, which is expected to hold its initial public offering on Tuesday. In an effort to keep more independent eateries afloat, San Francisco, New York and other cities have moved to cap commission fees during the crisis. Restaurants have also brought new awareness to the commission fees through posts on social media and even telling customers to order directly through them rather than on delivery apps.

The New York City landmark Katz's Delicatessen is among the restaurants that have chosen to move away from third-party delivery services and deliver its own food. Owner Jake Dell said in an interview that it's hard to argue against Grubhub's new zero-commission tools but expressed skepticism that the company would actually follow through on its promises.

"For the majority of restaurants that don't have the ability to build their own websites, then it's good if it's real and if it lasts," he said.

Priebatsch said Grubhub is trying to take a longer-term perspective on restaurants, prioritizing the health of the industry over the next three to five years. The National Restaurant Association estimates that 110,000 establishments have shut down, either permanently or long term, due to the pandemic. Without restaurants, Grubhub won't have any food to sell to customers.

"This is one of the ways where we know we can help them monetize better traffic that they're already getting, that's already visiting their website or on their email list, and we want to be their partner in turning that traffic into orders," Priebatsch said.

Shares of Grubhub, which has a market value of $6.34 billion, have risen 40% this year, as of Monday's close. Netherlands-based Just Eat Takeaway.com agreed to buy Grubhub in June for $7.3 billion. The deal is expected to close next year.

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