Yum! Brands filed a lawsuit against Grubhub Thursday in New York County’s Supreme Court, a day after the third-party delivery company announced a $7.3 billion merger with Just Eat Takeaway.
The Taco Bell, Pizza Hut, and KFC owner claims Grubhub violated terms of its deal. Yum! took at $200 million, or 3 percent, stake in the company in 2018 as it looked to expand delivery across KFC and Taco Bell. Part of the deal ensured favorable pricing for thousands of restaurants, mostly franchisees.
Yum! alleged in the suit Grubhub CEO Matt Maloney improperly terminated the contract June 2. According to the lawsuit, he sent Yum! a letter saying the fast-food company’s involvement with Uber Eats and Postmates violated terms of the deal. Yum! denied the claim.
Per the suit, Maloney said in an email the agreement was of no “further force and effect” and would “no longer apply.” Grubhub then told Yum! franchisees of a substantial increase in delivery fees. Yum! said Grubhub said “all fees will be paid by the diner.”
Yum!’s concern with that, however, given how it’s operated under favorable terms in recent years, is that the uptick would cause reputational damage as delivery charges rose to nearly 40 percent. It would dampen sales as well.
Essentially, Grubhub admitted Yum! customers would need to pay roughly 40 percent more for the same delivery orders.
Yum! said in the suit it asked Grubhub to revoke its termination of contract and enter into negotiations. Grubhub instead reached out directly to franchisees to let them know of the new pricing structure, the suit said.
Yum! also claimed Grubhub blacked out restaurants open for business during COVID-19. In separate occasions, the suit said, Grubhub asked for payment for services it was required to provide for no extra charge under the original contract.
Yum! added when Grubhub launched its subscription service in February 2020, it breached the contract by not letting Taco Bell or KFC units participate unless they paid an additional fee.
The company accused Grubhub of trying “to rid itself of a deal it no longer wanted and to line its pockets.”
The contract also allegedly included a $50 million termination fee for Yum! if Grubhub was taken over by a third-party that competed with its restaurants. Per Yum!’s suit, this figure “may well be relevant,” in light of the Just Eat Takeaway merger.