Yum Brands' size and scale allows it to negotiate much better deals on delivery partnerships, as executives outlined during the company's annual investor day. No wonder Taco Bell and KFC franchise owners are so excited to participate in the Grubhub integration.
— Erika Adams
When Yum Brands announced its partnership with Grubhub earlier this year, the company made sure that the delivery integration would work out favorably for its franchisees.
According to details of the partnership terms discussed at Yum Brands’ annual investor day, Taco Bell and KFC franchise owners aren’t paying any extra delivery fees, but are instead making the same profit margins on delivery and in-store orders.
“We have a unique relationship with [Grubhub], which is incredibly beneficial to them: We give them all this scale that they can use to enter markets that they wouldn’t be able to go into otherwise, and we ensure that our franchisees have a great partner that really is committed to our success with good commercial terms,” David Gibbs, Yum Brands’ president and chief financial officer, said at the company’s annual investor day. “So, every incremental delivery transaction for our franchisees [produces] the same profit as any transaction that takes place in the store.”
For most restaurant operators, that is not the way that delivery transactions work. Delivery typically eats up 15 to 30 percent of a restaurant’s profit margin on an order, which often leaves smaller operators questioning the business sustainability of the channel.
At Taco Bell and KFC, consumers absorb delivery costs instead of the operators. “There are commercial terms with the partner that we’re not going to go into all the details on, but we have set the deal up in such a way that the fees are not being paid by the franchisee, they’re more being charged to the consumer,” Gibbs said. “But because the fees are more competitive, [we are] still very competitive on our consumer prices.”
Nearly a year since the partnership was announced, Taco Bell has over 4,000 restaurants that are fully integrated with Grubhub’s platform. Christopher Sebes, the president of Xenial, the point-of-sale system that Taco Bell uses, told Skift Table in a previous interview that the integration has been a fairly easy, cooperative process between both sides. “Taco Bell was pretty insistent that the integration go smoothly,” Sebes said.
Based on what Yum Brands has observed in international markets, and how the U.S. market is reacting to delivery in early stages, the company sees the delivery segment as a large avenue of growth. “There’s no doubt that the consumer wants delivery, and there’s no doubt they are prepared to pay for delivery,” said Greg Creed, Yum Brands’ CEO.