Taco Bell, KFC Owner Suing Grubhub For Violation Of Distribution Agreement

Yum! Brands, Inc. (NYSE: YUM) is suing Grubhub Inc. (NYSE: GRUB) for violating a distribution agreement dating back to 2018.

What Happened

Yum purchased a 3% stake in Grubhub in 2018 and signed a deal that would give it favorable pricing and service levels for its KFC and Taco Bell restaurants, mainly operated by franchisees, reported CNBC.

The restaurant operator filed a lawsuit Thursday in New York County’s Supreme Court alleging
Grubhub’s CEO, Matt Maloney, terminated the 2018 contract in an improper manner on June 2.

In a letter sent to Yum, Maloney claimed the company’s work with Uber Inc. (NYSE: UBER) owned Uber Eats and Postmates violated the terms of the deal between Yum and Grubhub.

Yum is demanding Grubhub revoke the termination and begin deliberations. 

Why It Matters

According to CNBC, Grubhub is imposing a 40% higher fee on deliveries from Yum franchisees as of Monday.

The lawsuit claims that Grubhub blacked out Yum restaurants open for business during the ongoing pandemic.

Yum is alleging that in February 2020, Grubhub breached the contract by not allowing Taco Bell or KFC to participate in its subscription service unless they paid an additional fee.

The deal between the two firms includes a $50 million termination fee for Yum should Grubhub come under the control of a third party, which is in competition with Yum. 

On Wednesday, Just Eat Takeaway.com N.V. (OTC: TKAYF), a Dutch delivery company, announced that it was merging with Grubhub.

The merger announcement may make the termination fee “relevant,” reported CNBC.

Price Action

Yum shares closed 3.63% lower at $90.67. 

Grubhub shares traded 0.63% lower at $61.40 in the after-hours session on Thursday. The shares had closed the regular session 4.64% higher at $61.79.