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Purchasing co-ops shelter independent, chain members alike from current food-cost tempest

When restaurateur Evan Christou helped form a buyers’ cooperative in 1992 for his upstate New York industry peers, he did so to boost profit. Sixteen years later and with food prices at record levels, he’s touting the buying power of Restaurant Operators Cooperative, or ROC, as one element helping to keep independent restaurants alive during this nearly unprecedented economic environment.

“This is not about glamour or glory, this about survival,” said Christou, owner of Tops American Grill, Bakery & Bar in Rotterdam, N.Y., and president of ROC, which has 97 members. “This is a very scary economy, and I’ve gotten a lot more calls about [joining] the co-op over the last six months.”

Factoring in both purchasing rebates and member dividends, Christou said ROC members save more than 6 percent on their purchases, a number he proffered was double the national average received by restaurants not using a co-op.

Even large chains want a piece of the action. After the former IHOP Corp. bought Applebee’s International Inc. last year, the 3,000-plus franchised units of both chains, now unified under parent DineEquity Inc., formed a committee to examine how best to create their own purchasing co-op. Franchisees of both brands have a combined $3 billion of annual buying power.

“So much is going on with our economy that this couldn’t have come at a better time for us,” said Franklin Carson, chairman of the Applebee’s Franchise Business Council and a 47-unit franchisee in Tampa, Fla. “[Between both brands] we found we shared more than 70 percent of our supplier base. That represents a pretty dramatic negotiating platform.”

Some franchisees at some of the industry’s biggest companies, like Yum! Brands and Subway, have used co-ops for years to gain volume discounts on product purchases. Paid staffers who manage the operations typically are monitored by franchisee boards, and operational costs are funded by rebates from food manufacturers. In good years, those rebates add up to dividends paid directly to members.

At DineEquity, spokesman Patrick Lenow said the company hopes to launch the co-op in January. To ensure a healthy start, DineEquity pledged to pay co-op employees’ wages through next year. Though Lenow declined to discuss potential savings, franchisee Carson said a small percentage of billions in buying power could add up to a lot.

To work successfully, co-ops depend on members to purchase from a short list of approved vendors. Since such practices already exist in most franchise systems, franchisees usually comply with set standards.

Ensuring full compliance in independent co-ops such as ROC, however, takes some diligence. The organization, which makes annual purchases totaling $15 million, monitors whether members purchase 80 percent of groceries through the prime vendor, Christou said.

“We want our members to get in the boat and row so all can benefit,” Christou said. At the end of the day, co-ops make member lives easier, he said, a strong advantage today when small-business owners are concerned about the economy, the credit crunch and rising costs of doing business.

“They avoid playing Turkish bazaar with three or four companies,” he said. “Pricing is locked to a cost-plus basis, so even the salesman can’t get creative.”

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