BRUNO'S TAGS 42 STORES AND GEORGIA DEPOT FOR DIVESTITURE

ELLIOT ZWIEBACH

BIRMINGHAM, Ala. -- Bruno's here last week said it plans to sell 42 stores in south-central Georgia and South Carolina plus a Georgia-based distribution center to focus capital spending on building market share "in areas with greater upside potential."

The 255-store chain anticipates a sale in a relatively short time, said Lisa Kranc, senior vice president of marketing.

"Given the interest level being generated, we don't think it will take much time [to make a deal for the stores]," she told SN.

Bruno's has not decided yet whether to sell the 42 stores as a group or on a piecemeal basis, according to Kranc. "We're interested in evaluating any and all offers," she said. Observers estimated combined sales for the 42 stores of about $386 million -- $306 million at the 34 Piggly Wiggly units up for sale and $80 million at the eight FoodMax units on the block. Including the price of the 700,000-square-foot distribution center, they estimated that Bruno's could sell the package for $150 million to $185 million.

Kranc said Bruno's already has initiated discussions with potential buyers for the 42 stores and warehouse, although she declined to name them or indicate whether they are strategic players or investment groups.

Possible buyers for the smaller Piggly Wiggly units, observers told SN, might include Food Lion, Salisbury, N.C., and Ingles Markets, Black Mountain, N.C. Winn-Dixie Stores, Jacksonville, Fla.; Bi-Lo, Mauldin, S.C., an Ahold chain; and the Atlanta division of Kroger Co., Cincinnati, might be interested in the larger FoodMax units, observers said.

Officials at Ingles told SN the company has no interest in any of the stores, and officials at Winn-Dixie and Food Lion declined to comment. Representatives of Bi-Lo and Kroger could not be reached for comment.

Asked whether Bruno's plans to put other groups of stores up for sale, Kranc replied, "At this point we're concentrating on this deal. However, we are always reviewing and evaluating assets to be sure we're doing the right things strategically."

An asset sale by Bruno's has been expected since the company was acquired in August 1995 by Kohlberg Kravis Roberts & Co., a New York investment firm, according to Bob Lupo, a high-yield analyst with BA Securities, Chicago. "The company has said it was looking for an asset sale before the end of the year," he noted.

The smaller Piggly Wiggly stores are a logical candidate for sale "because they tend to be in more rural areas and have been underperforming the rest of the company, and the ones for sale are probably the weaker units," Lupo said, adding that he does not expect Bruno's to sell any other groups of stores.

Bruno's operates supermarkets in Alabama, Mississippi, Georgia, Florida, South Carolina and Tennessee. Once the 42 stores have been sold, it would operate 213 stores, with none in South Carolina.

The 34 Piggly Wiggly stores up for sale are all in Georgia. Of the eight FoodMax stores, three locations are in Georgia and five are in South Carolina. The Piggly Wiggly stores average 30,000 square feet and operate with a neighborhood price format, while the FoodMax units average 48,000 square feet and operate with a conventional discount format.

Along with the warehouse in Vidalia, Ga., the 42 stores are part of Bruno's Vidalia distribution operation, which includes 71 stores in the Atlanta and Macon, Ga., marketing areas.

Bruno's said it will retain the remaining 29 stores in the division after the other 42 have been sold. According to Kranc, the company plans to service those 29 stores, along with its 21 other Georgia stores, from its 1 million-square-foot distribution center in Birmingham.

The chain is considering different options for use of the funds the sale is likely to generate, Kranc said. "While paying down debt is one consideration, it is not the major consideration. The major goal is to better focus our spending on building market share," she explained.

According to David B. Clark, senior vice president of operations, the decision to divest the 42 stores and the Vidalia distribution center was made to reduce costs and improve system efficiencies.

"The stores that we have decided to divest either cannot be efficiently serviced from the Birmingham distribution center or are not located in markets that fall within our strategic growth plans," Clark said. "This divestiture will allow us to better focus our capital spending on building market share in those areas where Bruno's has greater upside potential." Kranc declined to pinpoint the areas Bruno's believes have the desired upside potential.