GLENDALE Calif. DineEquity Inc., parent to the IHOP and Applebee’s Neighborhood Grill & Bar chains, said Tuesday it has formed a purchasing co-op called Centralized Supply Chain Services LLC, which officials say will deliver up to 5 percent in cost savings over the next several years.
Scheduled to be in place by Feb. 16, the co-op was created to manage procurement for DineEquity’s nearly 3,400 franchise and company-operated restaurants. Applebee’s and IHOP share more than 75 percent of vendors, and officials last year announced plans to create the co-op to better leverage the brands’ combined $1.6 billion in buying power.
Heading the new co-op as president and chief executive will be David Parsley, formerly DineEquity’s senior vice president of supply chain management. All of DineEquity’s existing supply chain personnel will transition to CSCS, which will be based in Lenexa, Kan., the home of the Applebee’s brand. CSCS also will have a presence in Glendale, Calif., where DineEquity and IHOP are based.
The co-op will be operated by a governing board made up of franchisor and franchisee representatives from both brands.
Julia Stewart, DineEquity’s chairman and chief executive, predicted the co-op would help improve unit profitability as the company moves toward a majority-franchised system for both brands following the acquisition of the Applebee’s chain in 2007.
“The creation of this purchasing co-op, and the benefits associated with it, are made possible as a direct result of the Applebee’s acquisition and is an example of efficiencies DineEquity intends to create for its franchisees,” she said. “We believe that expected reductions in food costs, and increased supply chain efficiencies made possible by the co-op, will create a significant competitive advantage for our brands and present one of the greatest opportunities for improved franchisee profitability in the coming years.”
CSCS was created as an independent company owned by restaurant operating members, primarily IHOP and Applebee’s franchisees, and it will be the only approved buyer for both brands, officials said. DineEquity and its brands retained the right to define product specifications and ensure quality standards are met.
DineEquity is providing about $6 million to fund the first year of operating expenses. Ongoing funding will be provided through sourcing fees applied to select products.