BIRMINGHAM, Ala. -- Bruno's Supermarkets here is about to join the Ahold stable.
ident and chief executive officer, hedged a bit when asked about it by SN last week.
"We're considered an emerging thoroughbred," he said, somewhat modestly, then added, "Ahold only buys thoroughbreds."
For Bruno's, it's been a fairly rapid rise from also-ran to the winner's circle.
Three years ago it filed Chapter 11 bankruptcy, and it didn't emerge until February 2000, two years later.
Last week, Bruno's agreed to be acquired by Netherlands-based Ahold as its sixth U.S. retail company, joining Stop & Shop Supermarket Co., Quincy, Mass.; Giant Food, Landover, Md.; Giant Food Stores, Carlisle, Pa.; Tops Markets, Williamsville, N.Y.; and Bi-Lo, Mauldin, S.C.
Bruno's sales last year were $1.65 million, with same-store sales increasing more than 10%, Demme said, "and significant profits." Operating cash flow rose from 2.6% of sales in 1999 to approximately 3.8% last year, he added.
Interviewed earlier this year, Burt Flickinger 3rd, managing director, Reach Marketing, a Westport, Conn.-based consultancy, seemed to agree that Bruno's would be a thoroughbred for any company that ultimately acquired it.
"With its information systems and the synergies it would bring, Bruno's should become one of the crown jewels in someone's portfolio, providing higher returns than Vons or Randalls did for Safeway, or Giant Food of Landover did for Ahold," he told SN. "And in terms of profitability, Bruno's is stronger than either Fred Meyer or American Stores were before their acquisitions by Kroger and Albertson's, respectively."
Demme said the seeds of last week's acquisition deal were planted several months ago, when he contacted Ahold USA executives. "I told them we'd like to explore opportunities regarding a merger," Demme said, "and I believe our performance over the past two years, plus the potential synergies, got their attention, which led us to begin talking in earnest."
Demme said last week he expects the merger with Ahold to be beneficial for his company. "In today's highly competitive environment, merging with a strong, experienced partner is the best way for us to serve our customers and employees," he said.
"Over time we will be able to draw upon Ahold's vast supermarket knowledge and take advantage of its experience to offer the best quality products, the best variety and the best prices possible for our valued customers.
"Ahold shares our goal to become the best food retailer in the industry. They respect our brand, our customers, our management and our cultural heritage, and they are eager to invest in our future.
"The economies of scale and synergies Ahold offers, as well as its experience and know-how, will help make us a very strong company."
The change in ownership will be invisible to customers, Demme said, "but because Ahold is one of the world's largest food providers, its considerable resources and expertise will enable Bruno's stores to become even better.
"This is not an acquisition by a financial investment group. Financial investors purchase companies with the goal of owning them for a period and then selling them for a profit. Ahold is acquiring Bruno's with the goal of partnering with us to grow our business on a long-term basis."
Demme said he will remain with Ahold after the merger is completed, sometime during the first quarter of 2002; most of the current management team is also expected to remain, he added.
Bruno's was a family-owned chain from 1932 until 1995, when the Bruno family sold controlling interest to Kohlberg Kravis Roberts & Co., the New York-based investment firm that had overseen major turnarounds at Safeway and Fred Meyer Inc.
However, KKR was considerably less successful at turning things around at Bruno's, observers told SN, as an influx of competition in the Southeast, combined with an inconsistent pricing program at the stores, resulted in severe sales declines beginning in 1996. That situation, combined with high debt service, prompted the company to file for Chapter 11 relief on Feb. 1, 1998.
It took the company exactly two years to emerge, during which time it closed or sold 84 stores and exited from the Tennessee and Atlanta markets. Once equity shareholders and subordinated debt-holders resolved the differences that had extended the bankruptcy, Bruno's finally emerged from Chapter 11 on Feb. 1, 2000, with KKR giving up its ownership position.
Demme joined Bruno's in September 1997 to stem the company's losses. He said he spent his first 45 days there taking customer calls and cataloging all complaints to determine what needed fixing.
Ultimately, he said he determined that five elements had caused the business to erode and that needed fixing: store cleanliness, friendliness, freshness, in-stock conditions and pricing.
Bruno's was able to expand its store base during its bankruptcy, acquiring four Delchamps stores in Alabama in 1998 and four Gregerson's stores in Alabama in 1999; after emerging last year, Bruno's acquired 19 Jitney-Jungle and Delchamps stores.
Bruno's has its eye on other small groups of stores within its operating area, Demme told SN earlier this year, but the company moved ahead slowly, he indicated, "because we want to be cautious and avoid overextending ourselves."
