Bruno’s, Inc.

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Brunos, Inc.

800 Lakeshore Parkway
P.O. Box 2486
Birmingham, Alabama 35201-2486
(205) 940-9400
Fax: (205) 940-9568
Web site:

Public Company
Incorporated: 1959
Employees: 25,000
Sales: $2.9 billion (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: BRNOQ
SICs: 5411 Grocery Stores; 5912 Drug Stores & Proprietary Stores

Brunos, Inc., 82 percent-owned by Kohlberg Kravis Roberts & Co., operates some of the largest supermarket chains in the southeastern United States. Once one of the nations most successful supermarket companies, Brunos was struggling under Chapter 11 bankruptcy protection in 1998. The corporation 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, Brunos 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.

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 parents savings for an initial investment of $600, Joe would achieve the kind of success that young immigrants still dream of. Joes cash-only policy enabled him to keep prices low, and customers came from all over Birmingham to the first Brunos store. As they became old enough to work, Joes 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 Brunos, 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 Brunos 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. Brunos 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 Brunos launched its Food World chain. The stores were designed as discount supermarkets, and Brunos 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, Brunos refined its marketing strategy in the 1980s, more closely targeting different market segments. First, Brunos 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 Brunos Food Stores and renamed the chain Brunos 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, Brunos 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 Brunos opened its first Brunos 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.

Brunos also expanded through acquisitions in the 1980s. In 1985 the company bought the Birmingham, Alabama, chain Megamarket. Brunos 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. Brunos moved into Tennessee in 1987 with the purchase of the Stevens Supermarket chain in Nashville. The company also bought seven BiLo supermarkets in 1988, which moved the company into Georgia.

Also in 1988, Brunos acquired PWS Holding Corp., which held Piggly Wiggly Southern, Inc. This purchase helped Brunos achieve a substantial expansion in northern Georgia and Florida. The acquisition of 58 Piggly Wiggly stores was Brunos first major competitive purchase. The price was 2.49 million shares of Brunos common stock. Brunos retained some of Piggly Wigglys management, naming the former Piggly Wiggly Southern president, William White, executive vice-president of Brunos 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 Brunos, 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 Brunos and a general retailer with expertise in merchandise sales. The management of Brunos felt that the new sales could boost growth, even in the traditionally slow grocery trade. Three American Fare hypermarkets owned jointly by Kmart and Brunos opened between 1989 and 1991 in Atlanta, Georgia; Charlotte, North Carolina; and Jackson, Mississippi.

In the late 1980s Brunos 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 Brunos stores, they made presentations directly to a committee of Brunos 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, Brunos could save money and pass the savings on to their customers. In addition, Brunos store managers were compensated according to how much money their stores made. This put pressure on them to keep inventories moving, but most Brunos 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 Brunos 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 Brunos 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 Brunos trucks for delivery to stores. The shipments, arrivals, pricing, and deliveries were also tracked on computer.

A tremendous test to Brunos organization came in a tragic accident on December 11, 1991, when six Brunos 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 Brunos. The accident took an emotional toll on the family business and required much shifting of personnel. Angelos 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 Brunos, Inc. bought 3.6 million shares of common stock from the estates of Angelo and Lee Bruno.

Brunos 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, Albertsons, and Giant Food competed with Brunos mainly in the southeast region. Many of Brunos competitors in Georgia suffered after Brunos 1988 acquisition of Piggly Wiggly. But Brunos continued to keep watch over its competition as Warehouse clubs and Wal-Mart supercenters began to pose a challenge to Brunos in several of its larger markets.

Problems in the 1990s

Brunos, 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 Brunos territory in Atlanta. Profits for Brunos, which had more than quadrupled in the last decade, fell 37 percent in 1992. Combined with the loss of the companys leadership in the 1991 plane crash, the lowered profits fed doubts about the companys 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, Brunos still had a firm foundation on which to rebuild its growth.

Two major changes hurt Brunos bottom line in 1992 but promised savings in the future. In June 1992 Brunos announced an end to its joint venture with Kmart. Kmart assumed full ownership of the hypermarkets, taking over Brunos 49 percent interest in the Atlanta and Charlotte stores and its 51 percent interest in the Jackson store. Brunos 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 companys lowered profits in 1992, the sale would eliminate the companys $3.5 million annual loss from the joint venture.

Also during fiscal 1992, Brunos 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. Brunos 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, Brunos share price continued to fall. Fluctuating between $7 and $10 a share, the low stock price made Brunos ripe for a takeover. Rumors of a buyout were circulating in 1994, and the following year Kohlberg Kravis Roberts & Co. (KKR) approached Brunos 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. Brunos 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 Brunos. One of the first changes initiated by KKR was moving from every day low pricing at the Brunos Food and Pharmacy stores to high-low pricing. For example, Brunos 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 under-performing stores.

These efforts did little to slow Brunos 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, Brunos 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 Brunos filed for Chapter 11 bankruptcy protection. KKR, which owned 82 percent of Brunos at the time, stood to lose the $250 million it had put up in the 1995 leveraged buyout.

Principal Subsidiaries

PWS Holding Corporation.

Further Reading

Brokers Hail Brunos, Winn-Dixie, Frozen Food Age, July 1996, p. 14.

Brunos After the Crash, Forbes, July 6, 1992.

Brunos Agrees to Be Acquired by KKR for $12.50 Per Share, Corporate Growth Report, May 1, 1995, p. 7820.

Brunos Could Protest Too Much, Business Week, September 26, 1994, p. 112.

Brunos Leaves American Fare Venture with Kmart, New York Times, June 11, 1992.

Donegan, Priscilla, Merchandising the Store, Progressive Grocer, August, 1987.

Getting Hyper, Forbes, January 11, 1988.

Grossman, Laurie M., and Martha Brannigan, Six Brunos Officials and Three Others Die in Jet Crash During Goodwill Tour, Wall Street Journal, December 12, 1991.

Kindel, Stephen, Brunos: On the Mend, Slowly, Financial World, March 30, 1993, pp. 20-22.

______, Rebel Sell, Financial World, January 9, 1990.

Setton, Dolly, Sony About That, Forbes, March 9, 1998, p. 130.

Smothers, Ronald, Crash of Private Plane in Georgia Kills 9, New York Times, December 12, 1991.

Fran Shonfeld Sherman

updated by Susan Windisch Brown