Grubhub CEO: 30 Percent of Restaurants Could Close

There’s a prevailing sense among operators today that the restaurant industry will look quite different on the other side of the COVID-19 pandemic. Namely, there will be fewer locations. It’s a painful reality, but an inescapable one nonetheless. There were simply a lot of brands already clutching to the railing with one slipping hand before this crisis arrived.

Next, the tech-adoption rush brands witnessed before? It’s now the price to entry—not what sets a restaurant apart. And some spots just aren’t equipped to evolve or don’t have the means in light of everything else going on. Many operators are getting creative to stem this tide, yet there’s zero question it will take a lot of restaurants under before it’s done. That’s just the tragic face of COVID-19 unless some serious relief arrives soon.

NEARLY HALF OF CUSTOMERS ARE AVOIDING RESTAURANTS, REPORT SAYS

But to what extent exactly would this retraction look like? That’s the real question. Grubhub CEO Matt Maloney told MarketWatch recently in an interview that “30 percent of them could close because it’s too expensive to run.”

He said Grubhub has received 10 to 15 times its usual new restaurant leads lately as brands of all stripes try to jump on board. It’s led to four to five times more new restaurant go-lives compared to Grubhub’s previous record-breaking day, he added.

Market by market for restaurants, Maloney said, demand has been a mixed bag, with some areas proving more stable that others, which is why it remains unclear how COVID-19 will truly impact business in the long-term as the supply of restaurants transitions to off-premises. And, to his earlier point, a heavy chunk of them fall off and leave a new normal behind.

Let’s try to wrap facts around what 30 percent might look like. When the National Restaurant Association sent a letter to President Donald Trump and congressional leaders asking for a $145 billion industry recovery fund, it referenced “the nation’s million restaurants,” and 15.6 million employees.

In August 2018, The NPD Group pegged the number at 660,755. Chains accounted for 307,940 of those, while independents stood at 352,815.

A recent study from IHL Group on 1,660 U.S. retailers and restaurants with 50-plus locations said the industry (regarding that specific set) witnessed a net gain of 8,575 combined stores from 2017–2019. But in the past three years it measured, the net change was never more than 4,128.

So, what you can safely say is NPD Group’s figures haven’t changed all that much in the past couple of years. The industry hasn’t grown too tangibly, unit count wise, in the back half of the decade.

The Association’s million figure likely includes other foodservice elements, like college and university, and also explains why the $225 billion sales decline projection (in the next three months) is so large. Same with the 5 to 7 million jobs it expects will be lost.

Regardless of the details, however, 30 percent is a massive projection. Dave Bennett, CEO of Mirus Restaurant Solutions, once told FSR that an emphasis on delivery, and just a changing consumer preference in general, could result in a 15 percent reduction in restaurant locations in the “next few years,” or the elimination of some 100,000 restaurant sites.

Maloney’s call doubles that, and much, much quicker. Not to mention in the face of essentially zero growth as operators batten down the development hatches.

“A lot of customers aren’t aware they deliver because they literally didn’t deliver last week. Also, we encourage them to think about loyalty promotions and how to get ongoing orders," Grubhub CEO Matt Maloney told MarketWatch.

Still, he asked restaurants to “hang in there,” amid business drops of 75 to 90 percent.

“We’re constantly telling them if they have customers lists to blast off emails and let them know they are available for delivery especially ones that hadn’t delivered previously,” he told MarketWatch. “A lot of customers aren’t aware they deliver because they literally didn’t deliver last week. Also, we encourage them to think about loyalty promotions and how to get ongoing orders.”

A troubling situation he sees evolving is the lack of relief. Restaurants have to pay employees, lay off some, or close for the rest of the month, he said.

And if they do shutter, it’s difficult to reopen “because it’s almost not worth it to retrain staff if they had to let them go,” Maloney said.

As for the stop-gap that is delivery, he admitted, many restaurants can’t survive long-term on the channel alone. “The industry isn’t large enough for all restaurants to survive just on delivery, but they can survive for a matter of weeks potentially. It’s definitely not a long-term solution to bridge across restaurants,” he said.

Grubhub has delayed fee collections for the foreseeable future—something it started doing last week.

Some customers remain wary of the hand-off moment with drivers. Maloney said Grubhub instructed them to not accept orders if they have any sense of illness. And the company is now offering two weeks of paid sick leave.

Customers can also text or call the driver and ask for the food to be dropped somewhere.

Thus far, Maloney said, restaurants with a history in delivery are outpacing others. But “all of them have been furloughing employees.”

He added, “Chinese restaurants are really taking a hit. They aren’t seeing the same number of orders they used to get, which is kind of asinine and, quite frankly, racist.” Here’s a deeper look at that sad reality.

Maloney said Grubhub doesn’t plan to bring on more full-time staff at this time but is onboarding drivers, which are independent contractors, “as fast as we can.”

Grubhub isn’t the only aggregator shifting business in face of the COVID-19 world.

DoorDash recently launched an #OpenForDelivery campaign “aimed to let consumers know that restaurants are open, that delivery is safe, and that restaurants need patronage more than ever to weather COVID-19.”

It includes TV spots, paid and organic social, and the launch of a new website. The idea being to get the message out that the FDA has stated there is no current evidence of food or food packaging being associated with the spread of the coronavirus.

Brands like Wingstop, McDonald’s, The Cheesecake Factory, and Buffalo Wild Wings are featured throughout the campaign, among many others.

The company also, like Grubhub, temporarily waived commission fees for independents and added more than 100,000 independent restaurants to its DashPass—a subscription program that waives delivery fees for customers—for free. Commissions will be reduced for businesses already on DashPass and Caviar restaurants will have the opportunity to participate in a $0 delivery fee program.

Uber Eats also said it was pausing delivery fees for more than 100,000 independent restaurants across the U.S. and Canada and launching marketing campaigns to help operators