Bruno's Supermarkets, Inc.

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Bruno's Supermarkets, Inc.

800 Lakeshore Parkway
P.O. Box 2486
Birmingham, Alabama 35201-2486
U.S.A.
Telephone: (205) 940-9400
Fax: (205) 940-9568
Web site: http://www.brunos.com

Wholly Owned Subsidiary of Ahold USA
Incorporated: 1959
Employees: 14,500
Sales: $1.74 billion (2004)
NAIC: 445110 Supermarkets and Other Grocery (Except Convenience) Stores

Bruno's Supermarkets, Inc., operates some of the largest supermarket chains in the southeastern United States. One of the nation's most successful supermarket companies, Bruno's operated more than 200 stores, including a variety of retail food stores, pharmacies, and combination food and drug stores in Alabama, Georgia, Florida, Mississippi, and Tennessee. Located in urban and rural settings, these stores comprised Food World, Bruno's Food and Pharmacy, FoodMax, and Food Fair. For years the company had operated dozens of stores under the Piggly Wiggly name but had terminated its franchise agreement allowing it to use the name in 1997. In 2001, Bruno's emerged from bankruptcy and was acquired by Ahold USA, the U.S. presence of the Dutch conglomerate Royal Ahold N.V.

Early History

In 1932 during the Great Depression, Joseph Bruno, the son of Sicilian immigrants, opened his first grocery, an 800-square-foot corner store in Birmingham, Alabama. Using his parent's savings for an initial investment of $600, Joe would achieve the kind of success that young immigrants still dream of. Joe's cash-only policy enabled him to keep prices low, and customers came from all over Birmingham to the first Bruno's store. As they became old enough to work, Joe's three brothers, Anthony, Angelo, and Lee, joined the business. In 1935 the family opened a second store. By April 1, 1959, when the company was incorporated in Alabama as Bruno's, Inc., all four Bruno sons were well established in the business. The company had a firm foundation of 10 stores that year.

A decade later Bruno's began its strategy of opening different chains to target different markets. In 1968 the company opened its first Big B Discount Drug Store, a chain that would grow steadily over the next dozen years. Bruno's Food Stores had also been expanding, reaching a total of 29 stores throughout Alabama by 1970. The following year the family took their business public, although they retained 30 percent of the shares and held on to the management of the company.

In 1972 Bruno's launched its Food World chain. The stores were designed as discount supermarkets, and Bruno's kept prices low with many innovative strategies that would later be widely imitated. More than 40,000 square feet in area, the stores were essentially warehouses that displayed shelves of food in manufacturers' cartons. Their economical store design and no-frills service encouraged high sales volume and low overhead. Food World was the first chain in the region to forgo periodic sales on selected merchandise in favor of everyday low prices.

Expansion in the 1980s

After the success of the Food World chain, Bruno's refined its marketing strategy in the 1980s, more closely targeting different market segments. First, Bruno's divested its Big B Discount Drug Stores in 1980 by offering all stock in the subsidiary to the public. In 1983 the company remodeled its Bruno's Food Stores and renamed the chain Bruno's Food and Pharmacy. Aiming for a higher-end market, these stores stocked gourmet items from the United States and overseas and boasted larger-than-average departments for produce, meat, seafood, deli items, and baked goods. With about 50,000 square feet per store, Bruno's Food and Pharmacy featured one-stop shopping, in-store banks, and specialty items. The combination food and drug stores were committed to customer service, with such amenities as bag boys carrying groceries to customers' cars. The same year Bruno's opened its first Bruno's Finer Foods, and in 1985 it launched its Food Fair chain. Food Fair stores, at only approximately 30,000 square feet, were designed as conventional neighborhood stores with personal service and promotional pricing.

Bruno's also expanded through acquisitions in the 1980s. In 1985 the company bought the Birmingham, Alabama, chain Megamarket. Bruno's changed the new stores' name, adding them to its FoodMax chain, another "Value Format" supermarket chain with warehouse-like facilities in the 50,000 to 60,000 square foot range. Bruno's moved into Tennessee in 1987 with the purchase of the Steven's Supermarket chain in Nashville. The company also bought seven BiLo supermarkets in 1988, which moved the company into Georgia.

Also in 1988, Bruno's acquired PWS Holding Corporation, which held Piggly Wiggly Southern, Inc. This purchase helped Bruno's achieve a substantial expansion in northern Georgia and Florida. The acquisition of 58 Piggly Wiggly stores was Bruno's first major competitive purchase. The price was 2.49 million shares of Bruno's common stock. Bruno's retained some of Piggly Wiggly's management, naming the former Piggly Wiggly Southern president, William White, executive vice-president of Bruno's for merchandising and operations. Piggly Wiggly stores were conventional supermarkets typically 28,000 square feet in size. They offered store specials, double manufacturers' coupons, and weekly selected merchandise specials.

In September 1987 Angelo Bruno, cofounder and then chair, signed a joint venture agreement with Kmart. Considered a bold move for Bruno's, the idea was to build hypermarkets of approximately 200,000 square feet all over the country. The hypermarkets would combine groceries and general merchandise, selling everything from vegetables to clothing and featuring up to 50 checkout stands. Such shopping centers already existed in Europe, and this was not the first time hypermarkets would open in the United States. However, this venture represented the first partnership between a grocery chain with the food expertise of Bruno's and a general retailer with expertise in merchandise sales. The management of Bruno's felt that the new sales could boost growth, even in the traditionally slow grocery trade. Three American Fare hypermarkets owned jointly by Kmart and Bruno's opened between 1989 and 1991 in Atlanta, Georgia; Charlotte, North Carolina; and Jackson, Mississippi.

In the late 1980s Bruno's had a reputation in the industry for aggressive, effective management and practices. For instance, it bought most of its food directly from manufacturers rather than from wholesalers. When manufacturers wanted their products sold at Bruno's stores, they made presentations directly to a committee of Bruno's managers, many of whom were part of the Bruno family. If the committee decided to buy the products, they usually bought large quantities and qualified for the largest volume discounts. That way, Bruno's could save money and pass the savings on to their customers. In addition, Bruno's store managers were compensated according to how much money their stores made. This put pressure on them to keep inventories moving, but most Bruno's managers were happy to hustle, especially knowing they could earn as much as $80,000 in a good year. Many of these managers started at Bruno's while they were still in high school and stayed, and this loyalty served the company well.

Always on the lookout for new technology to improve operations in its stores, in the early 1990s Bruno's installed minicomputers connected to the Birmingham mainframe computer in its stores. These computers were used primarily to improve direct store buying and delivery. The system also enabled stores to monitor customer traffic in order to adjust labor needs. They also used the computers to keep track of store employees' attendance and working hours. The warehouse was also highly computerized. Food arrived from manufacturers and was priced, inventoried, and loaded onto Bruno's trucks for delivery to stores. The shipments, arrivals, pricing, and deliveries were also tracked on computer.

A tremendous test to Bruno's organization came in a tragic accident on December 11, 1991, when six Bruno's executives and three others were killed in a crash of the corporate jet shortly after takeoff in Rome, Georgia. The executives, including cofounders Angelo Bruno and his brother Lee Bruno, were on their annual Christmas visit to all of their stores when the crash occurred. Also killed were Sam Vacarella, the senior vice-president for merchandising; Edward Hyde, vice-president for store operations; Randolph Page, a vice-president for personnel; Karl Mollica, produce director; and Mary Faust, an advertising account executive working with Bruno's. The accident took an emotional toll on the family business and required much shifting of personnel. Angelo's son Ronald Bruno, who had been groomed to run the company and who had already been designated president and chief executive officer, was elected to the chair. In August 1992 Bruno's, Inc. bought 3.6 million shares of common stock from the estates of Angelo and Lee Bruno.

Bruno's entered the 1990s in the top 40 of some 270 food stores ranked by sales volume. National competition consisted of such chains as American Stores, Kroger, Safeway, Winn-Dixie, and Jewel, whereas Food Lion, Albertson's, and Giant Food competed with Bruno's mainly in the southeast region. Many of Bruno's competitors in Georgia suffered after Bruno's 1988 acquisition of Piggly Wiggly. However, Bruno's continued to keep watch over its competition as Warehouse clubs and Wal-Mart supercenters began to pose a challenge to Bruno's in several of its larger markets.

Company Perspectives:

One company, with one mission: to be the premier grocery retailer in the Southeast, one that understands, anticipates and surpasses customer expectations for value and service.

Problems in the 1990s

Bruno's, like many food retailers and supermarket operators, suffered during the recession of the late 1980s and early 1990s. Some store sales were slow while consumer spending plummeted. Food prices went down, and consumers were spending less money on food. In addition, competition from Wal-Mart and supermarket chains Winn-Dixie and Publix intensified in the 1990s. In 1992 alone Wal-Mart opened three Supercenters in Birmingham and Publix elbowed into Bruno's territory in Atlanta. Profits for Bruno's, which had more than quadrupled in the last decade, fell 37 percent in 1992. Combined with the loss of the company's leadership in the 1991 plane crash, the lowered profits fed doubts about the company's future on Wall Street. The stock price plummeted from a high of $21 a share in 1991, coming to rest around $12 in 1993. With 256 stores and $2.7 billion in sales in 1992, Bruno's still had a firm foundation on which to rebuild its growth.

Two major changes hurt Bruno's bottom line in 1992 but promised savings in the future. In June 1992 Bruno's announced an end to its joint venture with Kmart. Kmart assumed full ownership of the hypermarkets, taking over Bruno's 49 percent interest in the Atlanta and Charlotte stores and its 51 percent interest in the Jackson store. Bruno's management noted, "We felt it was time to eliminate our loss from the American Fare stores and focus our full attention on our primary store concerns." The company took a charge of $.13 a share, or $10.8 million, for the fiscal year ending in June 1992. Although the one-time charge contributed to the company's lowered profits in 1992, the sale would eliminate the company's $3.5 million annual loss from the joint venture.

Also during fiscal 1992, Bruno's finalized plans to consolidate the Piggly Wiggly division offices from Vidalia, Georgia, to a unit in the Birmingham corporate office. According to Ronald Bruno, savings from the closed Vidalia division offices would be in the vicinity of $5 million. The offices were officially closed in 1992, but the distribution center in Vidalia remained. Bruno's planned to use the facility as a jumping-off point for new operations in that geographic area.

Sales and earnings remained stagnant throughout 1993 and 1994, and despite a reorganization eliminating several layers of management, Bruno's share price continued to fall. Fluctuating between $7 and $10 a share, the low stock price made Bruno's ripe for a takeover. Rumors of a buyout were circulating in 1994, and the following year Kohlberg Kravis Roberts & Co. (KKR) approached Bruno's with an offer to acquire the company for $12.50 a share. The Bruno family held 24 percent of the company in 1995, and Ronald Bruno still ran the company as chief executive officer. Bruno's agreed to the $1 billion offer, which would give KKR 97 percent of the company. Although during negotiations there was talk of Ronald Bruno remaining as chairman of the board for at least three years, he stepped down soon after the buyout. KKR finished the acquisition in 1995, making its subsidiary Crimson Associates L.P. the official owner of the stock.

Optimism was high after the KKR takeover. KKR had made resounding successes of two other grocery chains, Safeway and Stop & Shop, and hoped to do the same for Bruno's. One of the first changes initiated by KKR was moving from every day low pricing at the Bruno's Food and Pharmacy stores to high-low pricing. For example, Bruno's began featuring buy-one-get-one-free offers. In 1996 the company cut costs by closing its distribution center in Georgia and closing or selling 47 underperforming stores.

These efforts did little to slow Bruno's fall: Sales stayed flat at around $2.9 billion, but earnings fell from $33 million in 1995 to a loss of $71 million in 1996. In 1997 KKR brought in Jack Demme, who had helped make a success of supermarket chain Homeland Stores, as president, CEO, and chairman of the board. The same year, Bruno's did not renew the franchise agreement that gave it the use of the Piggly Wiggly name.

Losses for 1997 came in around $50 million, and debt had skyrocketed to approximately $1 billion. Early in 1998 Bruno's filed for Chapter 11 bankruptcy protection. KKR, which owned 82 percent of Bruno's at the time, lost the $250 million in equity it had put up in the 1995 leveraged buyout. Industry analysts, including Bob Lupo of BA Securities, indicated that Bruno's had alienated its customer base with its shift from everyday low pricing to the high-low approach. Major competitors, such as Winn-Dixie Stores, Wal-Mart, and Delchamps, seized the opportunity to move in on Bruno's customer base.

In response Bruno's negotiated a $200 million loan from Chase National Bank, one of its creditors, which allowed the chain to improve its customer service, refurbish older stores, and build new ones. The company's woes were compounded over the next year, however, when both Standard & Poor's and Moody's lowered their ratings of Bruno's bonds. Bruno's was also targeted by the United Food & Commercial Workers Local 1657 in an extensive strike in its hometown of Birmingham, Alabama, which began in September of 1999. In addition, the company was losing sales amounting to more than a billion dollars between 1996 and 1999.

Opening the New Millennium

By January of 2000, however, Bruno's announced plans to emerge from Chapter 11, along with a new name (Bruno's Supermarkets Inc.) and a new chairman (Terry Peets, formerly of PIA Merchandising Services, a food brokerage based in Irvine, California). The new company, owned by the creditors who had owned most of the debt of the company before the Chapter 11 filing, promised to pay unsecured shareholders a cash payment equal to 30 percent of the established value of their claims.

Key Dates:

1932:: Joseph Bruno sets up a grocery store in Birmingham, Alabama.
1959:: Ten stores are incorporated as Bruno's Inc.
1970:: Some 29 Bruno's stores are in operation across Alabama.
1985:: Company launches is Food Fair chain and acquires the Megamarket chain.
1995:: Company is acquired by the buyout firm Kohlberg Kravis Roberts & Co.
2001:: Bruno's emerges from Chapter 11 and is acquired by Ahold USA.

By the end of 2000 Bruno's had already begun to acquire new assets. In November the corporation secured ownership of seventeen stores (including twelve in its home state of Alabama) from rival supermarket chain Delchamps. The acquisitions brought Bruno's into contact with the rising Hispanic population in Alabama, and the company began an outreach intended to attract both Hispanic customers and employees from the local Spanish-speaking population. Local Bruno's stores also stock Spanish-language periodicals and offer job applications in Spanish.

In 2001 Bruno's Supermarkets Inc. was acquired by the international supermarket conglomerate Royal Ahold's U.S. subsidiary Ahold USA, headquartered in Columbia, Maryland, which wished to expand its presence in the southeastern United States. Within two years Ahold launched a corporate restructuring in which Dean Cohagan, head of Ahold's Bi-Lo chain, became head of Bruno's as well. Former Bruno's vice-president Bruce Efird assumed the titles of executive vice-president and general manager. Bruno's also began offering irradiated beef, treating the food with electronic beam technology to kill potentially harmful bacteria.

By the middle of the first decade of the 21st century, Bruno's had began a partial recovery, although its performance came nowhere near what it had been in the 1980s. The process of centralization, bringing logistics, real estate and construction under a single administration, helped bring Bruno's even further into the black. In 2004, as part of that centralization, however, Ahold ordered the closing of 11 stores in Alabama, putting 362 employees out of work. The corporation also put its Bruno's holdings up for sale, so the company's future remained unclear in the mid-2000s.