NEW CEO SETS COURSE FOR A RENAISSANCE AT BRUNO'S

ELLIOT ZWIEBACH

BIRMINGHAM, Ala. -- James A. Demme, the new chairman and chief executive officer of Bruno's here, said last week he hopes to restore customer confidence in the company and its pricing in an effort to turn its declining fortunes around.

Demme, 57, left his position as chairman, president and CEO of Homeland Stores, Oklahoma City, to succeed William J. Bolton at Bruno's.

Bruno's said Bolton, 51, has resigned to pursue other opportunities.

Demme told SN he has not had a chance to review all the strategies devised by prior management to resolve Bruno's problems. However, he said, he will maintain the program to lower everyday shelf prices and rein in promotional levels -- a program whose implementation is already under way.

"The programs we will present to customers will demonstrate they can get great value for the money spent," Demme told SN last week, "and as we execute the new pricing program, we will make some adjustments if necessary.

"But our priority is to communicate with customers that we want them to continue to shop with us, and we must do that through advertising," he said, although he noted the company has no immediate plans to communicate that message directly in its ads in the next few weeks.

Demme said he does not expect to make any top-level management changes. "I told our staff that Bruno's has had enough changes in the past year and that they're all on my team."

Bruno's, a 220-store operator, was acquired from the Bruno family in August 1995 by Kohlberg Kravis Roberts & Co., the New York-based investment company that also has a minority equity position in Safeway, Pleasanton, Calif., and a majority position in Randalls Food Markets, Houston.

Observers said the change at Bruno's was due to the inability of top management to execute the strategies it had put in place, including a frequent-shopper program, a store-reduction program that resulted in warehouse problems and out-of-stocks at store level, declines in customer service and employee morale, and confusion over pricing policies -- all resulting in declines of 10% in sales and 53% in operating cash flow for the second quarter ended Aug. 2.

Bolton was not available for comment.

"Demme has stepped into the hot seat," Howard Goldberg, a high-yield financial analyst with Smith Barney, New York, told SN last week. "It will be as challenging a position as one could step into at this time."

According to another observer, "A management change was absolutely essential to give someone a chance to start over with a new slate, someone who could stand back and evaluate what's gone before and offer his own diagnosis."

Demme said he is looking forward "to the challenge of leading Bruno's into the future. This is a fine company with strong formats and excellent people, and with that as a foundation, I think we can compete with anyone and win the continued confidence of our customers and the communities we serve.

"With that said, we have a lot of work to do to reach our potential, and I am eager to get started."

Ted Bernstein, an analyst with Grantchester Securities, New York, said he expects Demme "to move quickly to evaluate the situation and see what strategic course he wants to set. "But I definitely believe many of the issues Bruno's faces are solvable because the franchise has real value -- customers have known and liked it for decades -- and management must simply provide good reasons for them to go back and shop there."

One issue management must deal with, Bernstein said, is "the schism that developed between former management and the rank and file, which saw management as outsiders attempting to force change, including instituting pricing programs that confused customers and frustrated store-level personnel.

"And a lot of the store managers' functions were centralized, including the ability to merchandise each store directly to the local community, and merchandise became more standardized," Bernstein pointed out.

Bob Lupo, an analyst with BA Securities, Chicago, said Bruno's problems "are definitely solvable, and the banks are the key -- if they are willing to amend their covenants to levels Bruno's can meet over the next year or so, and that should be doable, especially given KKR's support."

Bank waivers should give Bruno's time "to figure out how to improve customer service, revamp employee morale, resolve its warehouse problems and get back some of the customers it lost," Lupo said. "I'm optimistic they can turn it around -- though it will take at least a year to achieve tangible results."

Demme joined Homeland in 1994 after three years at Scrivner, Oklahoma City, as executive vice president of retail operations, prior to Scrivner's acquisition by Fleming Cos., also in Oklahoma City. He was previously president and chief operating officer of Shaw's Supermarkets, East Bridgewater, Mass., from 1988 to 1991.

(For more on Homeland's management structure, see page 6.)

Before he took the Shaw's position, Demme had spent 13 years at Scrivner after a 19-year career with A&P, Montvale, N.J., where he ended up heading the chain's Syracuse division.