NEW YORK -- What began with a $600 loan and a dream last month became a footnote to a trend.
Joseph and Sam Bruno opened their first grocery store during the Great Depression in Birmingham, Ala., with money borrowed from their mother. One store grew to 10, two other brothers joined in and Bruno's Inc. was born in 1959. Over the next few decades, the family-run operation expanded throughout the Southeast to 254 stores.
Last month, the Bruno family, which managed and still owned almost a fourth of the chain, agreed to sell most of the company to investment firm Kohlberg Kravis Roberts & Co. for $1.2 billion.
(On Thursday, KKR extended its review of Bruno's by one week to May 18 to allow the New York investment firm to evaluate information that came up in its due diligence review.)
Assuming the sale is completed, Bruno's would become the latest supermarket chain to disappear as an independent company, as larger chains gobble up smaller ones to grow without overloading an already crowded market.
Big companies also are building ever-larger stores of their own. Smaller companies trying to remain independent find it increasingly difficult to withstand the onslaught.
"If you're a small chain, do you wait for the supercenter to open across the street from you or do you sell when you can get a good price?" asked Merrill Lynch analyst Gary Vineberg.
In the past several months, several big acquisitions have been announced, including Yucaipa Cos.' $1.5 billion purchase of Southern California rival Ralphs Supermarket and its $750 million acquisition of Chicago's largest chain, Dominick's Finer Foods Inc.
"Our industry continues to experience consolidation," Ronald Bruno, Bruno's chairman and chief executive and nephew of co-founder Joseph, said in announcing the sale to KKR. He said Bruno's needed the resources of a larger company if it wanted to remain healthy and to grow.
The tide began to change for Bruno's, as it did for other smaller companies, in the early 1990s, as new competition from Publix Supermarkets Inc. and Wal-Mart Stores' supercenters began hacking away at profit. By 1994, Bruno's net income was 44 percent lower than its 1991 peak.
KKR is better known for its much-publicized takeovers of RJR Nabisco and Borden Inc., but it quietly has become the largest supermarket company in the United States, with stakes in Fred Meyer Inc., Stop & Shop Cos. and Safeway Inc., which in turn owns part of Vons Cos. and now Bruno's.
It's easy to see the attraction. KKR bought Safeway for about $2 a share. The nation's third-largest chain went public at 11 1/4 and now trades around 38. KKR made out about as well with its stakes in Stop & Shop and Fred Meyer.
And Yucaipa, a Los Angeles-based investment company similar to KKR, will become one of the 10 largest U.S. supermarket companies after it completes its purchases of Ralphs and Dominick's.
Consolidation benefits both buyers and sellers. Buyers get to expand their business and knock out a rival. Sellers get to escape a market in which they can no longer effectively compete, especially with high-volume, low-margin supercenters that sell lawn mowers as well as lunch meat.
"These big, new retail formats with peripheral departments are much more profitable for the retailer and give the consumer a lot more choice," said J. P. Morgan analyst Mark Husson.
The pace of mergers and acquisitions in the supermarket industry has more than doubled in the past two years, to 42 in 1994, up from 19 in 1993, said Edie Clark, a spokeswoman for the Washington, D.C.-based Food Marketing Institute.
Executives are bracing for more. According to a survey by trade magazine Progressive Grocer, 65 percent of supermarket executives and 76 percent of warehouse-store executives expect more mergers and acquisitions this year.
Analysts agree that consolidation not only makes sense, but is necessary: There are too many stores and not enough people.
"What it adds up to is increasing capacity for some people," Mr. Vine berg said, "while others are saying 'I think it is time for me to make a quick getaway.' "
Larger chains are only too happy to facilitate such an exit. After years of streamlining, cutting costs and building private-label brands, leaner-and-meaner companies armed with swelling budgets for capital expenditures are ready to expand.
In addition to buying up competitors, big companies are adding stores to fill out some markets or enter new ones. "Albertson's is building more stores. Kroger . . . Winn-Dixie. . . . Everyone is building more stores," Mr. Vineberg said.
Safeway plans to invest almost $500 million this year to open about 30 stores and remodel 90 to 100 others. Earlier this month, Winn-Dixie Stores Inc. said its store count is up for the first time in eight years, thanks to its acquisition of Thriftway Inc. and aggressive building.
Kroger Corp., the largest U.S. supermarket chain, last month heaped another $158 million onto its capital-spending budget to hasten openings of its combination food and drug stores.
"The increased investment in capital expenditures we have undertaken over the past two years is already producing returns greater than we originally projected," said Joseph Pichler, Kroger's chairman and chief executive.
Although conventional supermarkets constitute almost two-thirds of all supermarkets, sales at these stores now account for less than half of all supermarket volume, down from nearly 60 percent 10 years ago, Progressive Grocer reported.
Stop & Shop said last month it plans to buy Northeastern rival Purity Supreme Inc. for $255 million; Winn-Dixie, extending itself beyond its Southeastern territory, recently closed an agreement to purchase the 25-store Thriftway chain in Cincinnati; and Penn Traffic Co. bought 45 Acme stores from American Stores Co.
