Subway chain's global buyer

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August 17, 2006|By MCCLATCHY-TRIBUNE

MIAMI -- Jan Risi has traveled to all corners of the world, searching for the best quality and prices on the ingredients for Subway sandwiches.

She buys tuna from Pago Pago in American Samoa, olives in Morocco and tomatoes in California. She has visited slaughterhouses in Iowa and wheat fields in Kansas. It's all part of her efforts to manage the Subway food chain from "seed to sandwich."

As president and chief executive of Subway's Independent Purchasing Cooperative, Risi is equally comfortable negotiating with executives in a boardroom and farmers in the field. She drives a hard bargain, but those who've worked with Risi credit her for the style with which she pulls off even the most challenging deals.

"She'll end up with all the change on the table in her pocket and everybody smiling as she walks out of the room," said Rick Ueable, chairman of the IPC board of directors and Risi's boss. "She has a way of disarming people."

Risi supervises a staff of 70 employees at the company's headquarters in Dadeland, Fla. They handle $3 billion in annual purchases for 21,000 Subway restaurants in the United States and Canada. That makes IPC the largest buyer of produce, turkey, tuna and cookies in North America.

And when it comes to purchasing, with size come advantages.

Since 1996, when Risi and Subway franchisees formed IPC, the company has saved franchisees more than $500 million. The secret is a combination of leveraging purchasing power, investing in commodities, using technology to improve efficiency and creating partnerships.

Subway franchisees, who actually own IPC, have been so thrilled with the results that over the years they have increased the company's workload. What started as food and paper products purchasing has expanded to include distribution, equipment and now services such as insurance, accounting, cleaning, a credit union and, most recently, gift cards.

"I don't think we ever knew that it was going to do this well and grow this big," said Bill Cornelius, a founding member and director of IPC.

But at the same time it has been saving franchisees money, IPC has been raising the quality of the Subway sandwich. Risi and her team introduced breads such as honey oat and Italian herbs with cheese. They've upgraded the turkey and roast beef, as well as switched from yellow onions to the more flavorful red.

"We've been able to serve high-quality products at a value price," Risi said. "You can save all the money in the world, but if you don't make safety and quality the first and primary concern, the rest doesn't matter."

It all started in 1996, when Risi was approached by a group of franchisees who were familiar with her work as director of purchasing at Burger King's Restaurant Services Inc. They wanted advice on whether forming a cooperative would save them money.

Dwight Gallimore, chairman of the Subway Franchisee Owner's Advisory Council at the time, had been researching how other fast-food chains did their purchasing.

"We couldn't afford the status quo," said Gallimore, who has since sold his Subway restaurants and now works as a consultant for Subway and others. "Food costs were skyrocketing. Subway was struggling with declining sales and increasing costs. It was a matter of survival."

The challenge excited Risi.

"It was a big risk, but there was the potential for a huge reward if you could make it happen," Risi said.

"I was fascinated by Subway. These franchisees were willing to work and do things for the brand like I had never seen before," she said.

Although franchisees could have formed a co-op without the support of Subway's founder and owner Fred DeLuca, Risi recommended against it. But getting DeLuca's support wasn't easy.

At that time, purchasing was run by DeLuca's sister, Suzanne Greco, as part of Doctor's Associates Inc., the Subway franchiser. Doctor's is based in Milford, Conn.

Greco's research and development department approved several vendors for each product category and let franchisees decide with whom they wanted to do business.

"Fred thought he was doing the franchisees a favor," Risi said. "His philosophy was in the spirit of cooperation."

When Greco learned of Risi's proposal, she was "skeptical" about Risi and her team, and worried that they would bring in suppliers that didn't meet company standards. "My biggest concern was that they would constantly be pushing us to reduce the quality of the product to get a better price," Greco said.

But Risi's argument to Greco and DeLuca was that they had a system that was focused on "driving the wrong behavior." For example, there were five turkey vendors and 85 garbage bag companies, which left vendors spending all their time on the road trying to sell products. That left no money for research and development, improving quality and food safety.

Risi's plan: Guarantee the vendors a long-term contract. By aggregating the buying power and letting vendors reduce sales costs, Subway could get a better price.

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