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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K
(Mark One)

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended:   December 29, 1996
                                       or
[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from __________ to ____________.

                         Commission file number: 1-12116

                            CARR-GOTTSTEIN FOODS CO.
             (Exact name of registrant as specified in its charter)

                                 Delaware                                     
        (State or other jurisdiction of incorporation or organization)   
                                 920135158
                   (I.R.S. Employer Identification No.)

                                  6411 A Street
                             Anchorage, Alaska 99518
                    (Address of principal executive offices)

        Registrant's telephone number, including area code: (907) 561-1944

Securities registered pursuant to Section 12(b) of the Act:

Title of each class: Common - par value $.01    
                     -----------------------
Name of each exchange on which registered: New York Stock Exchange
                                           -----------------------

Securities registered pursuant to section 12(g) of the Act: None.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form 
10-K or any amendment to this form 10-K. [X]

Aggregate market value of the voting stock held by non-affiliates of the 
registrant as of March 7, 1997:  $28,026,541

Number of Shares of Common Stock outstanding as of March 24, 1997: 7,930,396.

                       DOCUMENTS INCORPORATED BY REFERENCE
                        (To the Extent Indicated Herein)





<PAGE>



                            CARR-GOTTSTEIN FOODS CO.
                       INDEX TO ANNUAL REPORT ON FORM 10-K
                   For the Fiscal Year Ended December 29, 1996



                                     PART I

                                                                          Page

Item 1.       Business                                                       1
              ......................................................
Item 2.       Properties                                                     6
              ......................................................
Item 3.       Legal Proceedings                                              7
              ..................................................
Item 4.       Submission of Matters to a Vote of Security Holders            7
              ......................................................


                                     PART II

Item 5.       Market for Registrant's Common Equity
                       and Related Stockholder Matters                       8
              ......................................................
Item 6.       Selected Financial Information and Other Data                  9
              ......................................................
Item 7.       Management's Discussion and Analysis of
                       Financial Condition and Results of Operations        10
              ......................................................
Item 8.       Financial Statements and Supplementary Data                   13
              ......................................................
Item 9.       Changes in and Disagreements with Accountants
                       on Accounting and Financial Disclosure               13
              ......................................................


                                    PART III

Item 10.      Directors and Officers of the Registrant                      14
              ......................................................
Item 11.      Executive Compensation                                        15
              ......................................................
Item 12.      Security Ownership of Certain Beneficial
                       Owners and Management                                15
              ......................................................
Item 13.      Certain Relationships and Related Transactions                16
              ......................................................


                                     PART IV


Item 14.      Exhibits, Financial Statement Schedules, Reports on Form 8-K  16
              ......................................................











<PAGE>



Item 1.           Business

         As used in this annual  Report on Form 10-K ("Form  10-K"),  unless the
context   indicates   otherwise,   the  terms   "Company"  and  "CGF"  refer  to
Carr-Gottstein Foods Co., a Delaware corporation. Unless otherwise indicated, as
used in this Form 10-K (i) all  references  to square  feet are to gross  square
feet,  rather than net selling  space;  (ii) all references to a year shall mean
the fiscal year of the Company which  commences in such year (for  example,  the
fiscal year commencing  January 1, 1996 and ending December 29, 1996 is referred
herein as "1996").

The Company

         The Company is the leading  food and drug  retailer in Alaska,  with 42
stores primarily located in Anchorage,  as well as in Fairbanks,  Juneau,  Kenai
and  other   Alaska   communities.   The   Company   operates   a  chain  of  15
super-combination food, drug and general merchandise stores under the name Carrs
Quality  Centers (the "Carrs  Stores").  The Company also operates eight smaller
stores,  four under the name Eagle  Quality  Centers  and two under  other trade
names  (collectively,  the "Eagle  Stores"),  as well as two  neighborhood  food
stores  in  smaller   Alaska   communities.   The   Company  is  also   Alaska's
highest-volume  alcoholic  beverage  retailer  through  its chain of 16 wine and
liquor  stores  operated  under the name Oaken Keg Spirit  Shops (the "Oaken Keg
Stores").  During  1996 the Company  opened  three small  tobacco  stores  which
operate under the name The Great Alaska Tobacco Company (the "Tobacco  Stores").
In addition,  the Company's vertically integrated  organization,  which includes
freight transportation operations and Alaska's only full-line food warehouse and
distribution  center,  provides the Company's  retail and  wholesale  operations
important  merchandising  benefits,  cost advantages and operating  efficiencies
generally not available to its competitors.

History

         The Company's predecessor (the "Predecessor") was formed in 1986 as the
result of a merger of J.B.  Gottstein  & Co.,  a retail  grocery  and  wholesale
grocery  distributor  founded  in 1915,  and Carrs  Quality  Centers,  an Alaska
grocery store company that commenced  operations in 1950. The Company was formed
in 1990 by Leonard Green & Partners, L.P. ("LGA"), for the purpose of acquiring,
through Green Equity  Investors,  L.P.  ("GEI") and with certain  members of the
Company's  senior  management,  assets of the  Predecessor  used in its  retail,
wholesale  and freight  operations.  On October 12, 1990,  the Company  acquired
certain  assets  of  the  Predecessor,  including  real  property,  and  certain
subsidiaries  used or held for use in the business and  operation of retail food
and liquor stores, food wholesaling and freight operations,  and assumed certain
liabilities,  pursuant  to an  acquisition  agreement  among  the  Company,  the
Predecessor, Laurence J. Carr and Barnard J. Gottstein.

Business Strategy

         The  Company's  business  strategy  is to enhance  its  leading  market
position  in Alaska and to  increase  revenue  and  profitability  by  providing
competitively  priced,   high-quality  grocery  and  perishable  merchandise  at
superior levels of customer  convenience and satisfaction.  The Company believes
it is at the forefront of supermarket industry innovations in customer offerings
and expects to capitalize  on its  competitive  advantages  within  Alaska.  The
Company  has   devoted   significant   resources   to  expand  and  remodel  its
well-established  stores to take full  advantage of their prime  locations.  The
Company expects to vigorously pursue  opportunities to improve its profitability
through  increased  efficiencies  at both the  store  and  distribution  levels,
enhanced  systems and cost  controls and recently  implemented  state-of-the-art
electronic marketing programs. Management believes that these efforts to improve
revenue  and  reduce  costs,   combined  with   opportunistic   acquisition   or
construction of new stores, primarily Eagle Stores in smaller Alaska communities
and,  selectively,  Carrs Stores,  will address the Company's goal of maximizing
profitable growth.

         The  Company's  strategy  capitalizes  on  the  following   competitive
         advantages:

                  Superior Merchandising Capabilities. The primary objectives of
         the  Company's  merchandising  strategy  are customer  convenience  and
         satisfaction.  Hallmarks  of the  Company's  stores are their  variety,
         quality and presentation of fresh produce and other perishables offered
         together  with a wide range of specialty  departments  and services not
         found in conventional supermarkets. The Company believes that freshness
         and  quality  of  produce  is  generally  the  single  most   important
         determinant  for a customer  in  choosing a  supermarket,  and that the
         freshness,  quality,  variety and  presentation  of its perishables are
         among the finest in the United States supermarket industry.
<PAGE>

                  Quality  Store  Base.  Over the past 30 years the  Company has
         strategically  located its stores in prime  residential  shopping areas
         intended to provide maximum accessibility and convenience to customers.
         In addition, from 1990 through 1995, the Company has invested in excess
         of $100  million to remodel  and  expand  its  existing  store base and
         acquire or construct new stores. Due to the excellent  condition of the
         current  store  base,  the  Company  does not expect  that  significant
         capital improvements will be necessary in the foreseeable future.

                  Vertically   Integrated  Freight  Distribution  and  Warehouse
         Facilities. The Company's freight distribution and warehouse facilities
         provide it with  distinct  competitive  advantages  in its  procurement
         costs, quality of perishables and inventory management.  The Company is
         able to supply  merchandise  to its  Anchorage  area  stores  generally
         within  12  hours,  six days per  week,  allowing  it to offer  fresher
         perishables,  minimize  stock-outs  and devote a greater  percentage of
         store  square  footage to selling  rather than on-site  storage  space.
         Because  the  Company's  competitors  rely on  distribution  facilities
         located  more than 2,200 miles  away,  the  Company  believes  that its
         competitors   experience   a  five-day  or  more  delay  in   receiving
         merchandise,  must use more store square footage for inventory  storage
         and are not able to match the Company's  shipping volume  efficiencies.
         Furthermore,   the  economies  of  scale   provided  by  the  Company's
         third-party  wholesale and freight  distribution  businesses reduce the
         Company's own delivered cost of goods.

                  State-of-the-Art  Electronic Direct Marketing Program. Through
         its "Carrs  Plus"  electronic  marketing  program,  the Company  tracks
         consumer  buying  patterns,   enabling  the  Company  to  optimize  its
         marketing  expenditures.  By  using a  "Carrs  Plus"  card  with  their
         purchases,  customers  automatically  obtain discounts on various store
         items while the Company collects  detailed  information  about consumer
         preferences.  The Company uses the  information  generated  through its
         "Carrs  Plus"  program  to  develop   targeted  direct  mail  marketing
         campaigns,  which are typically more cost-effective and successful than
         mass mailings or newspaper advertisements.

Merchandising Strategy

         The  Company's  retail   merchandising   strategy  emphasizes  shopping
convenience,  superlative  customer service and high-quality  produce,  meat and
other  perishables.  The  integration of the Company's  retail and  distribution
operations  is important  to the success of its  merchandising  strategy,  as it
allows the Company to offer fresher  perishables and experience fewer stock-outs
than its  competitors.  Key  elements of the  Company's  merchandising  strategy
include:

         Quality  Produce,  Meat and other  Perishables.  Carrs Stores and Eagle
Stores emphasize  superior quality produce,  meat, seafood and other perishables
in  addition  to  a  wide  selection  of  food,   drugstore  items  and  general
merchandise.  The Company  believes  that the  freshness,  quality,  variety and
presentation  of its  perishables  are among the  finest  in the  United  States
supermarket industry.

         Innovative Specialty Departments. A hallmark of the Company's stores is
the variety of innovative specialty departments.  A number of Carrs Stores offer
a combination of specialty service meat departments, 59-minute photo developing,
"Orient  Express"  Chinese and other specialty food take-out  counters,  service
seafood departments,  sushi counters,  candy departments,  fresh fruit and juice
bars,  espresso and ice cream stands, and full-service Bank of America branches.
All Carrs Stores also include  full-service  pharmacies,  floral departments and
service  delicatessens.  All Carrs Stores and most Eagle Stores include  natural
food  departments,  soup and salad  bars,  in-store  bakeries  and video  rental
departments.  In the Anchorage area, the Company also offers  catering  services
for large and small events. In addition,  the Company is the exclusive ticketing
agent for most major  Alaska  cultural  and  sporting  events,  selling  tickets
through its Carrs TixTM  outlets in all but one Carrs Store and at certain event
locations.

         Competitive  Prices. The Company maintains a reputation as the provider
of  the  best  overall   supermarket  values  in  Alaska  by  supplementing  its
competitive  pricing with targeted  temporary price  reductions on selected food
and non-food merchandise.  The Company's  sophisticated  information systems and
distribution  network  give  management  the  flexibility  to  respond to market
conditions by rapidly adjusting its prices.

         Customer Service. The Company distinguishes itself from its competitors
by offering  excellent  customer  service.  The  Company  has adopted  operating
policies  designed to maximize customer  convenience and satisfaction.  Checkout
services  include price  scanning in all stores,  acceptance of credit cards and
debit cards, use of the Company's  proprietary  "Carrs Plus" card,  "candy-free"
checkout  aisles  for  customers  with  young  children,  and  carryout  for all
customers  with more than one bag.  Many Carrs Stores and Eagle  Stores  feature
special  services  to assist  customers,  including  baby  changing  rooms  with
complimentary  diapers and a service  center from which  customers  can send and
receive faxes, send overnight packages and purchase hunting and fishing licenses
and money orders.
<PAGE>
Store Base

         Over the past 30 years the Company has strategically located its stores
in  prime  residential  shopping  areas to  provide  maximum  accessibility  and
convenience  to  customers.  The Carrs Stores and Eagle  Stores are  destination
stores  that  offer   customers   one-stop   shopping   convenience  in  modern,
easy-to-shop  formats.  Due to the Company's Anchorage  distribution center, the
Company's stores are not required to maintain a significant  amount of space for
inventory storage and are therefore able to maximize selling area.

         Carrs Stores. Carrs Stores are super-combination food, drug and general
merchandise  stores.  Specialty  departments  and  merchandise mix in each Carrs
Stores  are  based  upon  management's  review  of  the  location  of  a  store,
demographics of the area surrounding each store and a store's proximity to other
Carrs Stores. The 15 Carrs Stores range from  approximately  28,500 total square
feet to approximately 73,000 total square feet, and average approximately 52,000
total square feet.

         Eagle Stores and Other  Stores.  Eagle Stores are designed to serve the
smaller  and more rural  communities  in which they  operate by  offering a full
range of food  items,  a variety of  non-food  and  drugstore  items and general
merchandise  products with a selection of the Company's  higher margin specialty
departments.  The Eagle Stores range from approximately 16,300 total square feet
to approximately 43,900 total square feet and average approximately 25,600 total
square  feet.  The  Company  operates  Eagle  Stores in Homer,  Seward,  Valdez,
Unalaska/Dutch  Harbor, Nome and Kotzebue. In addition, the Company operates two
smaller neighborhood stores in Big Lake and Seldovia which average approximately
10,000 square feet.

         Oaken Keg Stores. The Company is the state's  highest-volume  alcoholic
beverage retailer.  Alaska law does not permit alcoholic beverages to be sold in
grocery stores. Accordingly, a wholly-owned subsidiary of the Company operates a
chain of 16 Oaken Keg Stores.  The Company has positioned 14 of the 16 Oaken Keg
Stores  adjacent to Carrs Stores to provide  convenient  access to customers and
generate walk-in  traffic.  Oaken Keg Stores range in size from 900 total square
feet to 5,300 total square feet.

         Tobacco  Stores.  Tobacco  Stores were designed to offer the consumer a
customer friendly environment,  in a tightly controlled area, to purchase a full
range of tobacco items including a broad  selection of cigars and  miscellaneous
accessories.  The three Tobacco  Stores range in size from 850 total square feet
to approximately 1,500 total square feet.

         Store Expansions,  Remodels and Additions.  From 1990 through 1995, the
Company  pursued a program of store  expansions  and remodels,  as well as store
additions  through either  construction  or  acquisition.  Remodels  involve the
addition of specialty departments and cosmetic  renovations.  Expansions involve
the same type of work as remodels,  but include the addition of square  footage.
Management believes that the addition or expansion of specialty  departments and
services into the Company's stores,  combined with the upgrading and enlargement
of core product  departments,  has led to increased  customer  traffic and sales
volume  and  improved  store  operating  performance.  In  addition,  management
believes that providing a broad range of products and services  strengthens  the
competitive  position of its Carrs Stores and Eagle Stores as destination stores
in each of their markets.

         In 1995,  the  Company  opened a new 70,000  square foot Carrs Store in
Juneau.  In 1994,  the  Company  opened a new 43,920  square foot Eagle Store in
Unalaska/Dutch  Harbor.  Additionally,  in March 1994, the Company  acquired two
stores in Nome and Kotzebue from an  independent  operator and converted them to
Eagle  Stores.  The  Company has several  major  remodels  planned for its Carrs
locations  during fiscal 1997 and will continue to search for  opportunities  to
grow its Eagle Division either through acquisition or new construction.
<PAGE>
Warehouse Facilities and Freight Distribution

         Warehouse  Operations.  The  Company's  full-line  food  warehouse  and
distribution center in Anchorage is the only facility of its kind in Alaska. The
warehouse and distribution  center consists of a 233,000 square foot facility in
Anchorage  which  supplies  approximately  80% of the  merchandise  sold  in the
Company's  stores.  This facility also contains  refrigeration and freezer space
and six state-of-the-industry  banana ripening rooms. The Company's computerized
store ordering system allows each individual  store to place its own merchandise
orders  directly with the warehouse.  Special  computerized  storage and picking
systems  track  merchandise  from point of  receiving  through  point of sale to
ensure precise  inventory control and minimize handling costs. The warehouse and
distribution  center operates above a 95% fill rate. This  efficiency,  plus the
proximity  of the  facility to a  significant  number of the  Company's  stores,
enables  the  Company  to  respond  quickly  to  store  orders  and to  minimize
stock-outs at its stores.

         Freight  Operations.  The Company  operates its own 105,000 square foot
warehouse  and  cross-dock  facility in Tacoma,  Washington,  which  serves as a
collection point for substantially all of the inventory purchased by the Company
in the lower 48 states.  At the Tacoma facility,  inventory is received,  sorted
and logged into the Company's  computerized  inventory  management  system.  The
Company  operates  26 tractors  and 550  trailers.  This  fleet,  in addition to
trailers leased as needed on a short-term basis, handles all transportation from
the Company's  Tacoma  facility to ocean ports,  from the Anchorage  port to the
Company's warehouse, and most of the transportation from the Company's warehouse
to the Company's retail stores and third-party customers.

         Third-Party  Wholesale and Freight  Services.  In addition to supplying
its own stores, the Company utilizes its warehouse and distribution capabilities
to sell  grocery  and  household  products  on a  wholesale  basis to  customers
throughout  Alaska,  including  other retailers and military  commissaries.  The
Company believes that this expanded customer base allows it to take advantage of
purchasing and other operating synergies which might otherwise be unavailable to
it. In addition  to its  warehouse  sales,  the Company  utilizes  its  existing
shipping  and  freight  handling  systems  to offer  freight  services  to third
parties.  The  economies of scale  resulting  from these  third-party  sales and
services reduce the Company's own delivered cost of goods.

         Competitive Advantages.  The Company's freight and warehouse operations
give  the  Company  several  logistical  and  cost  advantages  relative  to its
competition.  The Company  has  developed  logistical  expertise  in  long-range
distribution  which  enables it to  service  efficiently  stores  and  customers
throughout  Alaska, up to approximately 900 miles from its Anchorage  warehouse.
The Company  manages the inventory for its retail  operations  and its wholesale
distribution operations on a combined basis. It is able to consolidate van loads
at its Tacoma facility for maximum space efficiency, reducing the number of vans
that  must  be  shipped  and  the  landed  cost of the  Company's  inventory  in
Anchorage.

         In  contrast,   the  Company's  competitors  do  not  have  centralized
warehousing  and  distribution  facilities in Alaska and must supply  individual
retail sites in Alaska from  warehouses in the lower 48 states,  more than 2,200
miles from  Anchorage.  This  requires a longer  lead time for store  orders and
makes it difficult  for  competitors  to match the  consistent  freshness of the
Company's  perishables or its  responsiveness  to market  conditions.  Without a
consolidation and distribution center in Alaska, the Company's  competitors must
ship vans from the lower 48 states  directly to their  Alaskan  stores,  and the
Company  believes that the competitors  generally have a five-day or more period
from placement of order to receipt of merchandise. Since the Company ships to an
Alaska  warehouse  where loads can be  redistributed  for shipment to individual
stores,  management  believes the Company is able to load vans more efficiently,
reducing  the cost of shipment.  In order to reduce  stock-outs,  the  Company's
competitors must maintain larger in-store inventories,  thereby reducing selling
square  footage  that  could  otherwise  be devoted  to a broader  selection  of
merchandise.

Marketing and Promotion

         The  Company's  retail  advertising  strategy is directed  primarily at
emphasizing  its variety of  high-quality  perishables,  customer  service and a
broad  selection of  nationally  advertised  brand name  products,  available at
competitively  low prices.  The Company  markets its retail  operations  through
newspaper,   radio  and  television   advertising  and  also  uses  direct  mail
advertising,  including periodic advertisements,  and special season catalogues.
The Company's proprietary "Carrs Plus" card is used by customers for quick check
cashing and video rental,  special  discounts and bonuses without using coupons.
Through  its "Carrs  Plus"  electronic  marketing  program  the  Company  tracks
consumer  buying  patterns,  enabling  the  Company to  optimize  its  marketing
expenditures.  The Company  uses the  information  generated  through its "Carrs
Plus" program to develop  targeted  direct mail  marketing  campaigns  which are
typically more  cost-effective  and  successful  than mass mailings or newspaper
advertisements. The Company markets its wholesale operations primarily through a
wholesale sales force. The Company also participates actively in local community
affairs  through the donation of funds and products to local sporting events and
charities, and it encourages employees to participate in civic groups.
<PAGE>
Management Information Systems

         The Company employs sophisticated information technology systems in all
of its stores and distribution  operations to improve  operating  efficiency and
achieve lower costs, particularly in the areas of buying, distribution, scanning
and  in-store  computing,   merchandising  and  expense  management.  Management
believes that its commitment to management  information  systems  provides labor
cost savings, better control of prices and increased checkout speed and accuracy
due  to  improved  product  procurement,  store  delivery  schedules,  inventory
management and pricing accuracy.  The Company's  information system also handles
real time  electronic  mail and  authorizations  for  check,  debit  and  credit
payments,  and processing for third-party pharmacy  authorization.  In addition,
the Company uses  scanner-generated  information by store of individual  product
sales for better  merchandising of stores,  tighter inventory control and better
space allocation.

         All  Company  stores  and  a  majority  of  the  Company's  independent
wholesale customers place orders via hand-held TelxonTM  terminals.  Such orders
can be processed by the  warehouse  within the hour.  The Company  developed and
maintains a warehouse inventory tracking and productivity  improvement system to
manage all of the Company's  warehouse  inventory  levels.  This system includes
inventory control and labor management  components that help reduce product cost
and maximize the Company's ability to service customers. This system also tracks
inventory  that is "on the water"  during ocean  transport  from  Washington  to
Alaska. Sophisticated logistics systems anticipate inventory needs and recommend
product moves between the Tacoma and Anchorage sites.  Central  purchasing and a
proprietary forward-buying system provide the Company with purchasing power that
helps minimize product acquisition costs.

         During the first quarter of 1996, the Company  completed the process of
replacing  its 4381 IBM  mainframe  computer  with the  installation  of its new
purchasing and financial system ("Project  Fusion") that was designed to improve
operating   efficiencies  and  help  streamline  the  Company's   administrative
operations.  Project  Fusion will allow the Company to support  modern  database
tools and client/server technology.  The Company believes that this new flexible
systems  environment  will  enable  it  to  respond  more  rapidly  to  business
opportunities  and competitive  situations as a result of better  utilization of
management information data.

Trademarks and Licenses

         The Company employs various trademarks,  trade names and service marks.
Certain  governmental   licenses  and  permits,   including  alcoholic  beverage
licenses,  health  permits and  various  business  licenses,  are  necessary  to
operations.  Management  believes  that the  Company  holds  and is in  material
compliance with all necessary licenses and permits.

Competition

         The food,  drug and general  merchandise  retail  businesses are highly
competitive.  The principal  competitive  factors in the Alaska  market  include
quality of products, customer service, product assortment, price, store location
and convenience. The Company believes that its competitive strengths include its
high-quality perishables,  customer service, specialty departments,  low prices,
variety of product  offering,  convenient  store  locations  and long history of
community  involvement.  The  Company  believes  that its  freight  network  and
Anchorage warehouse and distribution center also provide significant competitive
advantages.
<PAGE>
         Given the wide  assortment  of products its stores  offer,  the Company
competes  with various types of retailers,  including  independent  and national
supermarket  operators,  retail drug chains,  national general merchandisers and
discount  retailers and  membership  wholesale  clubs.  The Company's  principal
competitors in the supermarket  business  include  Safeway,  Fred Meyer,  Alaska
Commercial,  a number of independent  supermarket  operators,  and four military
commissaries. The Company's primary competitors for general merchandise are Fred
Meyer,  Kmart and  Wal-Mart,  and  Costco and Sam's  Club  membership  warehouse
stores.  The  pace  of new  store  openings  and  store  expansions  has  slowed
considerably  since April 1994 and, to the Company's  knowledge,  other than one
small  independent  store  scheduled  to open  during  the first half of 1997 in
Anchorage,  no  other  new  competitive  openings  are  scheduled  or have  been
announced,  there can be no  assurance  that other  competitors  will not either
expand or begin operations in Alaska.

Alaska Economy

         Historically, Alaska had been one of the more rapidly growing states in
the  United  States  in  terms  of  both  population  and  employment,  although
employment  growth  has slowed  recently.  The  Alaska  Department  of Labor had
projected growth in Alaska's  population from  approximately  553,000 in 1990 to
approximately  716,000 in 2000, a compound  annual growth rate of  approximately
2.6% compared to the estimated national  population growth rate of approximately
1.0%  for that  period.  Employment  in  Alaska,  which  grew  0.5% in 1996,  is
projected to remain fairly flat over the next few years.  Alaska's residents are
not subject to any state sales or income taxes and receive annual  distributions
from the state of Alaska  Permanent  Fund, a fund of  approximately  $20 billion
that is supported by royalties from oil  production.  The  distribution  totaled
$643 million  ($1,130 per eligible  resident) in Alaska's fiscal year ended June
30, 1996.

         The  traditional  strengths of the Alaska economy have been  petroleum,
fishing,  forest  products  and  mining  industries.   Military  and  government
spending,  as well as tourism,  have also been major contributors to the state's
economy.  Military  and  government  spending  provide a stimulus to the state's
economy   through  payroll  and  benefit   payments  and  capital   spending  on
transportation and other infrastructure.  In recent years, tourism has become an
increasingly important contributor to the Alaska economy.

Employees

         As of March 1, 1997,  the  Company  employed  a total of  approximately
3,300 people,  approximately 2,400 of whom are covered by collective  bargaining
agreements.  Certain employees engaged in the Company's warehouse operations are
represented by the Teamsters Union,  grocery store and administrative  employees
are represented by the United Food and Commercial  Workers Union  ("UFCW"),  and
pharmacists  are  represented by the Alaska State District  Council of Laborers.
The Company has not  experienced  a labor  strike  since 1971 and  believes  its
relations with its employees to be satisfactory.

         On July 24, 1996, the Company entered into a three-year labor agreement
covering approximately 2,000 grocery store employees represented by the UFCW. On
December 1, 1996, the Company  entered into a three-year  contract with the UFCW
covering its  administrative  employees  and on February  28, 1997,  the Company
entered  into a  three-year  agreement  with the  Teamsters  Union  covering its
Anchorage warehouse and distribution employees. The two latter contracts provide
for pay increases over their terms.

Item 2.           Properties

         The Company owns eight neighborhood  shopping centers. Five centers are
located within the Anchorage  area,  and each is anchored by a Carrs Store.  The
other centers are located in Homer,  Valdez, and  Unalaska/Dutch  Harbor and are
anchored  by  Eagle  Stores.   These  eight  centers  include  an  aggregate  of
approximately 491,000 square feet of retail space,  approximately 347,000 square
feet of which is  occupied  by the  Company's  grocery  and  liquor  stores  and
approximately 144,000 square feet of which is leased to retail tenants.
<PAGE>
         In addition to its shopping centers,  the Company owns five stand-alone
supermarkets,  one each in Anchorage,  Fairbanks,  Juneau, Seward, and Nome. The
Anchorage,  Fairbanks,  and Juneau facilities include adjacent Oaken Keg Stores.
The Company owns a supermarket in Ketchikan, Alaska, which is part of a shopping
center  owned by an  unaffiliated  party.  The Company  owns its  warehouse  and
distribution  center in  Anchorage  (approximately  233,000  square  feet),  its
cross-dock and warehouse facility in Tacoma,  Washington  (approximately 105,000
square  feet with  associated  truck  yard),  an office  building  in  Anchorage
(approximately  9,300  square  feet),  and one  stand-alone  Oaken  Keg Store in
Fairbanks. The Company owns a small village store located in Seldovia, Alaska.

         The Company leases five Carrs Stores,  six Oaken Keg Stores and its two
headquarters buildings from general partnerships controlled by the former owners
of the Predecessor. The Company leases one Carrs Store, two Oaken Keg Stores and
two neighborhood stores from unaffiliated landlords.

         The remaining terms for all leased Carrs Stores locations,  except one,
exceed 20 years, including renewal options. The lease term of one Carrs location
in Anchorage expired in 1996, and negotiations are underway to extend that term.
The lease term of one Oaken Keg location  exceeds twenty years,  and one expires
in 2015. The lease term of one Oaken Keg expires in each of 2001, 2000, 1999 and
1998. Two Oaken Keg Stores are currently on month-to-month lease terms while new
long-term  leases are being  negotiated.  The lease for the Kotzebue Eagle Store
expires in 1998,  and the Company has four two-year  options to extend the lease
terms.  The Company's  lease for its  neighborhood  store in Big Lake expires in
1998.

         Most of the  properties  owned in fee by the Company are collateral for
approximately  $42.5 million  principal amount of first mortgage  financing that
matures in June 2001.  Certain of the Company's leased properties are collateral
for the Company's $130 million bank facility.

         The Company is subject to federal, state and local laws and regulations
that impose  liability for cleaning up past or present releases of pollutants to
the   environment.   In  this  regard,   the  Company  has  performed   remedial
investigations  and  cleanup  activities  with  respect  to  contamination  from
underground  storage  tanks at certain  of its  properties.  One such  situation
remains  pending at the present  time.  Management  believes  that any liability
relating  to that  situation  will not have a  material  adverse  impact  on the
financial condition, results of operations or business of the Company.

Item 3.           Legal Proceedings

         The Company is a party to a number of legal proceedings in the ordinary
course of business.  Management believes that these proceedings will not, in the
aggregate, have a material adverse impact on the financial condition, results of
operations or business of the Company.

         A subsidiary of the Company, AOL Express ("AOL"),  operates a warehouse
and cross-dock facility near the Port of Tacoma, Washington. In 1981, the United
States  Environmental   Protection  Agency  ("EPA")  designated  the  bottom  of
Commencement  (Tacoma)  Bay (the  "Bay")  as a site to be  cleaned  up under the
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA").
In 1989,  the EPA named as  potentially  responsible  parties  ("PRPs") over 130
parties,  including  AOL,  that own property  located  along the Bay or on storm
sewer  systems  that  discharge  into the Bay.  The agency  divided the Bay into
several areas and intends to negotiate cleanup responsibilities  separately with
those PRPs in each area.  The  cleanup  costs for the area to which AOL has been
assigned  have been  estimated  preliminarily  to range from $8 million to $13.8
million.  The EPA announced that it has named too many PRPs to discuss dismissal
or  settlement  with  any  single  party.  The  Company  therefore  joined  with
approximately  40 other  PRPs who claim to have  contributed  little or  nothing
toward the  contamination  of the Bay (the  "Minor PRPs  Group").  The Minor PRP
Group is currently  working with a group of large,  industrial  PRPs to create a
privately  mediated  allocation of  liability.  No assurance can be given that a
private  allocation of liability will be agreed upon or, if agreed upon, that it
will be acceptable to the Company.  The Company has  commissioned  environmental
investigations  of its Tacoma facility site and operations,  and, based on these
investigations,  management believes that the Company is not responsible for the
contamination that is the subject of these proceedings. Accordingly, the Company
has made no accrual  for  liability  in  connection  with this  action.  It will
continue to seek its dismissal from the action, directly,  through the Minor PRP
Group,  and through the  allocation  mediation.  While there can be no assurance
that the Company will be dismissed from these proceedings and an estimate of the
portion (if any) of the cost allocable to the Company is uncertain, based on the
Company's  findings to date,  the Company  believes  that any costs or liability
resulting  from  this  action  will not have a  material  adverse  impact on the
financial condition, results of operations or business of the Company.


Item 4.           Submissions of Matters to a Vote of Security Holders

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of the fiscal year ended December 29, 1996.

<PAGE>


                                     PART II


Item 5.           Market for the Registrant's Common Equity and 
                      Related Stockholders Matters.


         The  Company's  Common  Stock is traded on the New York Stock  Exchange
under the symbol CGF.  The  quarterly  high and low closing  sale prices for the
Common Stock as reported on the New York Stock  Exchange  during 1994, 1995 and
1996 are as follows:

<TABLE>
<CAPTION>

                                                                                        High               Low
1994                                                                                  -------             -------
<S>                                                                                    <C>                 <C>
           First quarter .......................................................       $10.63              $ 7.38
           Second quarter ......................................................       $ 8.13              $ 5.50
           Third quarter .......................................................       $ 7.75              $ 5.75
           Fourth quarter ......................................................       $ 7.88              $ 5.88
1995
           First quarter .......................................................       $ 6.75              $ 5.88
           Second quarter ......................................................       $ 5.88              $ 5.75
           Third quarter .......................................................       $ 6.88              $ 6.00
           Fourth quarter ......................................................       $ 8.50              $ 5.13
1996
           First quarter .......................................................       $ 5.63              $ 4.50
           Second quarter ......................................................       $ 5.13              $ 4.13
           Third quarter .......................................................       $ 4.38              $ 3.63
           Fourth quarter ......................................................       $ 4.13              $ 3.38
1997
           First quarter  (through March 21, 1997) .............................       $ 6.38              $ 3.63
</TABLE>          
           As of March  21,  1997,  the  number of  stockholders  of record of 
           the Company's Common Stock was 238.

         The  Company  has  not   declared  or  paid  cash   dividends   to  its
stockholders.  The  Company  anticipates  that all of its  earnings  in the near
future will be used for debt  repayments or be retained for the  development and
expansion of its business and,  therefore,  does not anticipate paying dividends
on its Common Stock in the foreseeable  future.  Declaration of dividends on the
Common Stock will depend,  among other things,  upon the level of  indebtedness,
future  earnings,  the operating and  financial  conditions of the Company,  its
capital requirements and general business  conditions.  The agreements governing
the Company's  indebtedness  contain  provisions which prohibit the Company from
paying dividends on its Common Stock. See "Item 7.  Management's  Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity  and Capital
Resources."

         On  October  13,  1995 the  Company  announced  a tender  offer for 7.5
million  shares of Common  Stock at $11.0 per  share,  approximately  50% of the
Company's  outstanding  Common Stock. The tender offer was completed on November
15, 1995 and the Company  repurchased  and retired 7.5 million  shares of Common
Stock at a cost $82.5  million plus  $750,000 of expenses.  The tender offer was
financed  through the  issuance of $100  million  principal  amount of unsecured
senior  subordinated  notes.  In addition to  financing  the tender  offer,  the
proceeds  from the sale of the notes  were  used to repay a portion  of the debt
outstanding  under the Company's  existing  credit  facility and to pay fees and
expenses of $8.3  million for the issuance of the notes and to amend and restate
the Company's existing credit facility. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity  and Capital
Resources."

<PAGE>

<TABLE>
<CAPTION>
Item 6.           Selected Financial Information and Other Data.
                                                                                                                     (1)
(Amounts in Thousands, except for per share      Fiscal year     Fiscal year     Fiscal year     Fiscal year     Fiscal year
and store information)                              1996            1995            1994            1993            1992
---------------------------------------------- ---------------- -------------- ---------------- -------------- ---------------
<S>                                              <C>              <C>              <C>            <C>             <C>        
Operating Results:
Sales                                            $  612,576       $  601,322       $ 577,063      $ 555,266       $ 556,549

Cost of merchandise sold, including
warehousing and transportation expenses (2)         442,996          431,230         417,183        396,080         400,048

Gross profit                                        169,580          170,092         159,880        159,186         156,501

Operating and administrative expenses (2)           144,525          141,884         130,255        131,313         125,427

Operating income                                     25,055           28,208          29,625         27,873          31,074

Interest expense, net                                27,923           16,079          12,210         19,327          27,231
Income (loss) before extraordinary item and
cumulative effect of change
in accounting for income taxes                      (2,810)        (4) 4,650           9,211     (3)  4,244             972
Net income (loss)                                   (2,810)            3,744           9,211        (14,581)          2,007
                                                 =============== ============== =============== ============== ===============

Other Data:
Depreciation and amortization                        17,702           17,626          15,690         18,294          19,977
Compensation expense stock options (5)                    -            1,518               -              -               -
Cash interest                                        26,484           15,558          12,143         18,680          25,549

Income (Loss) Per Share:
Before extraordinary items                          $ (0.36)          $ 0.32          $ 0.55      $    0.30          $ 0.09

Net income (loss)                                  $ (0.36)           $ 0.26          $ 0.55        $ (1.03)         $ 0.18

Weighted average shares outstanding                   7,814       (6) 14,457          16,763         14,139          11,390

Financial Position:
Total assets                                        330,844          336,620         326,369        308,912         297,630
   Long-term debt,
      excluding current maturities                  227,640          234,740         136,339        137,456         190,844
   Stockholders' equity                              29,598           32,302         112,636        113,366          50,323

Capital expenditures                               $  4,390        $  16,660       $  26,473      $  27,949       $   9,827

Other Year End Statistics:
   Number of stores                                      42               39              36             33              32
   Number of employees                                3,243            3,568           3,597          3,525           3,560
</TABLE>


(1) The  Company's  fiscal  year is a 52 or 53 week  year,  ending on the Sunday
    closest to the calendar year-end.  All fiscal  years  presented  consist 
    of 52 weeks,   except  for  fiscal   year  1992  which consist  of 53 weeks.
(2) Reclassifications have been made to fiscal years 1992 through 1995. During 
    these years, warehousing, transportation and the related occupancy costs 
    were originally reported as operating and administrative expenses.  For the
    current years presentation, these expenses have been classified as cost of 
    sales.
(3) In fiscal year 1993 extraordinary item consisted of a $21,100 ($1.49 per 
    share) charge resulting from early retirement of debt.
(4) In fiscal year 1995, extraordinary item consisted of a $906 ($0.06 per 
    share) charge resulting from early retirement of debt.
(5) In 1995,  the  Company  recognized  a one time  pre-tax  charge of $1.5
    million  for  non-cash  expenses  associated  with the  restructuring  of a
    management stock option incentive plan.
(6) On November  15, 1995 the Company  repurchased  and retired  7,500 shares of
    common stock.  This  repurchase  reduced the weighted  average shares for 
    fiscal year 1995 by approximately 800 shares.
<PAGE>


Item 7.    Management's Discussion and Analysis of Financial Condition 
                         and Results of Operations.

         In recent years,  Alaska,  primarily the greater  Anchorage  area,  has
attracted  an  increased  presence of existing  and new  competitors,  including
supermarkets, general merchandisers, discount retailers and warehouse membership
club  stores.  The Company has  addressed  the  competition  by  remerchandising
certain general merchandise  categories and by continuing its aggressive capital
expenditure  program to remodel existing stores and establish  additional stores
in new regions of Alaska. From 1993 through 1995, 13 of the 15 Carrs Stores have
been remodeled or expanded,  and two new Carrs Stores and three new Eagle Stores
have been added.

The table below sets forth certain income  statement  components as a percentage
of sales.
<TABLE>
<CAPTION>
                                                                                 Fiscal  Year
                                                                   ------------------------------------------
                                                                         1996            1995       1994
                                                                         ----            ----       ----
<S>                                                                      <C>            <C>         <C>
      Sales ........................................................     100.0%         100.0%      100.0%
   
      Cost of merchandise sold, including warehousing
            and transportation expenses.............................      72.3           71.7        72.3

      Gross profit..................................................      27.7           28.3        27.7

      Operating and administrative expenses.........................      23.6           23.6        22.6
                                                                          ----           ----        ----

      Operating income..............................................       4.1            4.7         5.1
                                                                           ===            ===         ===
</TABLE>
Results of Operations

         Fiscal 1996 Compared to Fiscal 1995

         Sales.  Sales for fiscal  1996 were $612.6  million  compared to $601.3
million for fiscal 1995.  The 1.9%  increase  was due  primarily to increases in
Eagle Stores sales as well as sales  improvements from the wholesale and freight
divisions.  The increase in sales for 1996  reflects a 0.1%  decrease and a 2.9%
increase  in  comparable  store  sales for the Carrs  Stores  and Eagle  Stores,
respectively.

         Gross Profit.  Gross profit for fiscal 1996 was $169.6 million compared
to $170.1  million for fiscal  1995.  The  decrease in gross  margin  dollars is
primarily attributable to the increased promotional spending associated with the
kick-off of the Carrs Plus "Swipe the Gold, Save the Green" electronic marketing
campaign  which  impacted the first three  quarters of 1996.  As a percentage of
sales,  gross  profit was 27.7% for fiscal  1996 as compared to 28.3% for fiscal
1995.  Gross  profit as a  percentage  of sales for fiscal 1996  decreased  as a
result of the increased  promotional spending during the first three quarters of
1996 and an overall increase in third party wholesale and freight business sales
mix, generating a lower gross profit margin.

         Operating and  Administrative  Expenses.  Operating expenses for fiscal
1996 were $144.5 million  compared to $141.9 million for fiscal 1995.  Operating
expenses as a percentage  of sales were 23.6% for each of fiscal 1996 and fiscal
1995. The increase in operating  expenses reflects expenses  associated with the
new Carrs Store opened in March 1995, as well as increased  expenses  associated
with the Company's "Fusion" corporate  reengineering  project which was designed
to bring operating  efficiencies  and  improvements to the backstage side of the
business.

         Operating  Income.  Operating  income for fiscal 1996 was $25.1 million
compared to $28.2 million for fiscal 1995. The decrease was due primarily to the
increased  promotional  expenses  associated  with  the  Carrs  Plus  electronic
marketing  campaign,  increased expenses  associated with the Company's "Fusion"
project and increases in depreciation and amortization.

     Other Income and Expense. Net interest expense was $27.9 million for fiscal
1996 compared to $16.1 million for fiscal 1995. The increase in interest expense
reflects  increased  borrowings  associated  with the financing of the Company's
tender offer for  approximately  50% of its outstanding  stock in November 1995.
See "Liquidity and Capital Resources."
<PAGE>
         Income Taxes.  Income tax expense for fiscal 1996 was $30,000  compared
to $5.2 million (a 52.8% effective tax rate) for fiscal 1995. The high effective
tax rate in 1995 resulted from the  amortization of intangible  assets for which
no tax benefit was available.

         Net Income (Loss).  Net loss was $2.8 million,  or $0.36 per share, for
fiscal 1996, compared to net income before  extraordinary items of $4.7 million,
or $0.32 per share,  for fiscal 1995.  An  extraordinary  charge of $1.5 million
($0.9 million,  or $0.06 per share,  on an after-tax  basis) was recorded during
1995 as a result of the early  retirement  of debt.  After giving  effect to the
extraordinary  charge, net income for 1995 was $3.7 million, or $0.26 per share.
The net income for fiscal 1995  reflects a $2.2  million  pre-tax  non-recurring
charge (or $0.09 per share on an after-tax basis) for expenses associated with a
sale/leaseback transaction that the Company elected not to pursue.

         Fiscal 1995 Compared to Fiscal 1994

         Sales.  Sales for fiscal  1995 were $601.3  million  compared to $577.1
million for fiscal 1994.  The 4.2% increase was due in part to a new Carrs Store
opened in March 1995  coupled  with  results from three new Eagle Stores and the
new institutional food service business that were opened or acquired late in the
first  quarter of 1994.  The increase in sales for 1995 reflects a 0.4% and 4.2%
increase  in  comparable  store  sales for the Carrs  Stores  and Eagle  Stores,
respectively.

         Gross Profit.  Gross profit for fiscal 1995 was $170.1 million compared
to $159.9  million for fiscal  1994.  The  increase in gross  margin  dollars is
partially  attributable  to the increase in sales resulting from the increase in
comparable  store  sales and the new Carrs  Store  opened  in March  1995.  As a
percentage of sales, gross profit was 28.3% for fiscal 1995 as compared to 27.7%
for fiscal 1994. Gross profit as a percentage of sales for fiscal 1995 increased
as a result of improved  operating results from existing  specialty  departments
and the addition of new specialty  departments,  together with a higher  overall
gross  margin  in  the  wholesale   operations   resulting  primarily  from  the
acquisition of YES Foods which was acquired late in the first quarter of 1994.

         Operating and  Administrative  Expenses.  Operating expenses for fiscal
1995 were $141.9 million  compared to $130.3 million for fiscal 1994.  Operating
expenses as a percentage  of sales were 23.6% for fiscal 1995  compared to 22.6%
for fiscal 1994. The increase in operating expenses reflects expenses associated
with the new Carrs Store opened in March 1995,  as well as the three  additional
Eagle Stores and the new institutional food service business which were acquired
or opened late in the first quarter of 1994.

         Operating  Income.  Operating  income for fiscal 1995 was $28.2 million
compared to $29.6 million for fiscal 1994.  This decrease was due primarily to a
one time pre-tax charge of $1.5 million for non-cash  expenses  associated  with
the  restructuring  of a management  stock option incentive plan coupled with an
increase in depreciation  expense  partially  offset by improvement in the gross
profit  margin  discussed  above as well as  continued  reductions  in  selling,
general and administrative  expenses.  The increase in depreciation  expense was
the result of the new Carrs  Store  added in March 1995  coupled  with the three
additional  Eagle Stores and the new  institutional  food service business which
were acquired or opened late in the first quarter of 1994.

         Other Income and Expense.  Net interest  expense was $16.1  million for
fiscal 1995 compared to $12.2 million for fiscal 1994.  The increase in interest
expense  reflects both higher  interest  rates on borrowed  funds in the current
year and  increased  borrowings  associated  with the financing of the Company's
tender offer for  approximately  50% of its  outstanding  stock in November 1995
stock repurchase plan. See "Liquidity and Capital Resources."  Additionally,  in
September 1995 the Company recognized a non-recurring charge of $2.2 million for
expenses  incurred in  connection  with a  sale/leaseback  transaction  that the
Company elected not to pursue.

         Income  Taxes.  Income tax expense for fiscal 1995 was $5.2  million (a
52.8%  effective tax rate) compared to $8.2 million (a 47.1% effective tax rate)
for fiscal 1994. The high effective tax rates resulted from the  amortization of
intangible assets for which no tax benefit was available.

         Net Income. Net income before  extraordinary items was $4.7 million, or
$0.32 per share,  for fiscal 1995,  compared to net income of $9.2  million,  or
$0.55 per share, for fiscal 1994. An extraordinary  charge of $1.5 million ($0.9
million,  or $0.06 per share, on an after-tax basis) was recorded during 1995 as
a  result  of  the  early  retirement  of  debt.  After  giving  effect  to  the
extraordinary  charge, net income was $3.7 million,  or $0.26 per share. The net
income for fiscal 1995 includes a $2.2 million pre-tax  non-recurring charge (or
$0.09  per  share  on  an  after-tax  basis)  for  expenses  associated  with  a
sale/leaseback transaction that the Company elected not to pursue.
<PAGE>
Liquidity and Capital Resources

         The  Company's  primary  sources  of  liquidity  are  cash  flows  from
operations  and  its  working  capital  revolving  credit  facility,  which  are
considered to be adequate for anticipated  cash needs.  Primary uses are capital
expenditures, debt service, and lease payments.

         Net cash provided by operating  activities was $22.2 million for fiscal
1996  compared to $17.1  million  for fiscal  1995 and $30.1  million for fiscal
1994. The fiscal 1996 increase  compared to fiscal 1995 was due primarily to the
one-time  charge  in  1995  for  expenses   associated  with  a   sale/leaseback
transaction  that the Company elected not to pursue.  The balance of the changes
is due to higher inventory  balances offset by increases in accrued payables and
expenses.

         The Company spent an aggregate of $4.4 million, $16.7 million and $26.5
million on capital expenditures, during fiscal 1996, 1995 and 1994 respectively.
During fiscal 1996 the Company  completed its "Fusion"  corporate  reengineering
program and opened three new Tobacco Stores. Management anticipates that capital
expenditures  for fiscal 1997 will be  approximately  $5.0 to $8.0 million,  the
majority of which will be spent for maintenance capital improvements.

         The table below summarizes year-end historical remodels, expansions and
new store  information,  as well as added selling square footage  resulting from
expansions and new stores,  for the period from 1990 through  December 1996. Due
to the  Company's  substantial  investment  in the store  base since  1990,  the
Company does not expect that significant capital  improvements will be necessary
in the foreseeable future.
<TABLE>
<CAPTION>
                                Number of stores                     Total selling
               --------------------------------------------
               Remodels        Expansions         New Stores       square feet added       Total selling square feet
               ----------      -----------        ----------       -----------------       -------------------------
Year       Carrs    Eagle     Carrs    Eagle  Carrs    Eagle       Carrs        Eagle         Carrs          Eagle
<S>         <C>      <C>       <C>      <C>    <C>      <C>        <C>         <C>            <C>           <C>
1990         3        1        --       --     --       --             --          --         407,446        44,076
1991         7       --        --        1     --       --             --       5,240         407,446        49,316
1992        --       --         2       --     --       --         38,581          --         446,027        49,316
1993         5        2         2       --      1       --         50,450          --         496,477        49,316
1994         3       --         2       --     --        3          5,320      67,184         501,797       116,500
1995        --       --         1       --      1       --         43,976          --         545,773       116,500
1996        --       --        --       --     --       --             --          --         545,773       116,500
</TABLE>
         Net cash used by  financing  activities  was $12.3  million  for fiscal
1996.  The level of borrowings  under the Company's  revolving debt is dependent
primarily  upon  cash  flows  from  operations,  the  timing  of  disbursements,
long-term borrowing activity and capital expenditure requirements.

         On November 15, 1995 the Company completed a cash tender offer in which
it purchased 7.5 million shares of previously  outstanding common stock at $11.0
per share.  In  conjunction  with the tender  offer,  the Company  completed the
issuance of $100  million  principal  amount of  unsecured  senior  subordinated
notes. In addition to financing the tender offer, the net proceeds from the sale
of the  notes  were used to repay a portion  of the debt  outstanding  under the
Company's existing credit facility and to pay fees and expenses  associated with
the offering of the notes, the tender offer and the amendment and restatement of
the Company's existing credit facility.

         Concurrently  with the  consummation  of the tender offer,  the Company
amended and restated its credit  facility (the "New Credit  Facility").  The New
Credit  Facility  provides  for (i) two term loan  facilities,  a $35.0  million
facility  maturing on June 30,  2001 and a $60.0  million  facility  maturing on
December  31,  2002,  and (ii) a  revolving  credit  facility  of $35.0  million
expiring on June 30, 2001. The revolving  credit  facility and the $35.0 million
term loan bears  interest at an annual rate equal to the lender's base rate plus
1.5% or the reserve-adjusted Eurodollar rate plus 2.5%, at the Company's option,
and the $60.0  million  term loan bears  interest at an annual rate equal to the
lender's base rate plus 2% or the  reserve-adjusted  Eurodollar rate plus 3%, at
the Company's  option.  Interest rates on the revolving  credit facility and the
$35.0  million term loan are subject to reduction by up to .75% in the event the
Company meets certain financial tests.
<PAGE>
         The  principal  amount of the $35.0 million term loan and $60.0 million
term loan is required to be amortized  commencing  on June 30,  1996.  Scheduled
amortization payments under the $35.0 million term loan is $5.0 million in 1996,
$7.0  million  in each of 1997,  1998 and 1999,  $5.0  million  in 2000 and $4.0
million in 2001.  Scheduled  amortization  payments under the $60.0 million term
loan are $600,000 in 1996,  1997, 1998, 1999 and 2000, $15.0 million in 2001 and
$42.0 million in 2002.  Availability  under the revolver will be reduced by $5.0
million on each of December 31, 1999 and 2000.

         At  December  29,  1996  there  was  $7.0  million  outstanding  on the
Company's revolving credit facility.  The Company had available unused credit of
$28.0.  Funds  borrowed  under the  revolving  credit  portion of the New Credit
Facility are restricted to working capital and general corporate purposes.

         Inflation.  As is typical of the supermarket industry,  the Company has
adjusted  its retail  prices in response  to  inflationary  trends.  Competitive
conditions  may from time to time limit the  Company's  ability to increase  its
prices as a result of inflation.

         New  Accounting  Pronouncements.   Statement  of  Financial  Accounting
Standard No. 125, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, was issued in June 1996 and is effective for the
Company as of January 1, 1997. This statement provides  accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a  financial-components  approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Management of the Company does
not expect that adoption of SFAS No. 125 will have a  significant  impact on the
Company's financial position, results of operations, or liquidity.

Item 8.          Financial Statements and Supplementary Data.

                 See the Index to Consolidated Financial Statements at page F-1.



Item 9.           Changes in and Disagreements with Accountants on Accounting
                  and Financial Disclosure.

                  None.



<PAGE>


                                    PART III

         Certain information required by Part III is omitted from this Report as
CGF will file a  definitive  proxy  statement  pursuant to  Regulation  14A (the
"Proxy  Statement")  not later than 120 days  after the end of the  fiscal  year
covered by this Report, and certain information included therein is incorporated
herein  by  reference.   Only  those  sections  of  the  Proxy  Statement  which
specifically  address the items set forth herein are  incorporated by reference.
Such  incorporation  does not include the  Compensation  Committee Report or the
Performance Graph included in the Proxy Statement.


Item 10.          Directors and Executive Officers of the Registrant

         John J.  Cairns,  69, is the  current  Chairman of the Board of CGF. He
joined  Carr-Gottstein  Inc., CGF's  predecessor,  in 1981 and served as General
Manager,  Executive Vice President,  Chief Operating Officer,  Secretary,  and a
director until the sale of its operating  assets to CGF in 1990. From 1990 until
1993,  Mr. Cairns served as President of CGF and served as Chairman of the Board
of  Directors  of CGF. In 1993,  he was made Chief  Executive  Officer  upon the
creation of that  position.  In September,  1994,  Mr.  Cairns  retired from his
position as Chief Executive  Officer.  Mr. Cairns continues to serve as Chairman
and is  employed  by the  Company  on a  part-time  basis to  assist  the  Chief
Executive Officer on special projects and matters of strategic  planning.  Prior
to  joining   CGF's   predecessor,   Mr.   Cairns  held   various   operating  ,
administrative,  and executive positions with the Great Atlantic and Pacific Tea
Company from 1943 to 1978 and served as Vice President-Corporate Development and
a director of Smith Management  Corporation,  a regional retail food operator in
Salt Lake City, from 1978 to 1981. Mr. Cairns  currently  serves on the Board of
Directors of Western Association of Food Chains, Inc.

         Mark R. Williams, 48, is the current Vice-Chairman of the Board of CGF.
He joined the  Company's  predecessor  in 1976 as a store  manager and was later
promoted to Vice President of Operations.  He became Chief Operating Officer and
a director of CGF in 1990 and was promoted to President in 1993.  In  September,
1994, Mr.  Williams was promoted to Chief  Executive  Officer and served in that
position  until his  retirement  in August 1996.  Mr.  Williams has more than 24
years  of  experience  in the  retail  food  business.  Prior to  joining  CGF's
predecessor,  he was store manager with Supermarkets  Interstate and Fred Meyer,
Inc. in Seattle.

     Lawrence H. Hayward,  42, is President and Chief Executive  Officer of CGF.
He joined  the  Company in March 1995 as its  Senior  Vice  President  and Chief
Operating  Officer and was promoted to President and Chief Executive  Officer in
August  1996.  From 1990 to 1995,  Mr.  Hayward was employed by Buttrey Food and
Drug Co. as Vice President for  Distribution/Transportation,  Vice President for
Support  Services  and then Vice  President  of Store  Operations.  Mr.  Hayward
currently  serves on the  Board of  Directors  of  Western  Association  of Food
Chains, Inc.

         Donald J.  Anderson,  36, is Senior  Vice  President,  Chief  Financial
Officer and  Secretary of CGF. He joined the Company in his present  position in
April 1995.  Mr.  Anderson has 20 years of experience  in the grocery  industry.
From 1977 to 1994,  he served in various  positions  with  Buttrey Food and Drug
Co., including Director of Financial Reporting,  Corporate Controller,  and Vice
President.  In 1994, Mr. Anderson  returned to American Stores Corporate were he
was  Program  Manager  for  the  financial  portion  of a  multi-million  dollar
re-engineering program.

     Jeff L. Philipps,  41, is Senior Vice President  Retail Division of CGF. He
joined the Company in his present  position in February 1997.  Mr.  Philipps has
more than 20 years of experience in the retail food  business.  Prior to joining
CGF Mr. Philipps served as the Director of Business Development for the National
Procurement  Organization at American Stores Company  headquartered in Salt Lake
City, Utah.
<PAGE>
         Leonard I. Green,  63, has served as a director  of the  Company  since
1990. Since 1989, he has been, individually or through a corporation,  a partner
of LGA, a merchant  banking firm that is the general partner of GEI. Since 1994,
Mr. Green has also been an executive officer and equity owner of Leonard Green &
Partners,  L.P.  ("LGP"),  a second  merchant  banking firm that manages another
investment fund. Before forming LGA in 1989, Mr. Green had been a partner of the
merchant banking firm of Gibbons, Green, van Amerongen for more than five years.
Mr.  Green  is  also  a  director  of  Horace  Mann  Educators  Corp.,  Rite-Aid
Corporation and several private companies.

     Jonathan D. Sokoloff, 39, has been a director of the Company since 1990. He
joined LGA as a partner in 1990. Mr. Sokoloff has also been an executive officer
and equity owner of LGP since its formation in 1994. Mr. Sokoloff was previously
a managing director in corporate finance at Drexel Burnham Lambert Incorporated.
Mr. Sokoloff is also a director of Twin  Laboratories,  Inc. and several private
companies.

         Gregory J. Annick,  33, has been a director of the Company  since 1990.
He joined LGA as an associate in 1989, became a principal in 1993, and through a
corporation  became a partner in 1994.  Since 1994,  Mr. Annick has also been an
executive  officer  and  equity  owner  of LGP.  From  1988 to  1989,  he was an
associate  with the merchant  banking  firm of Gibbons,  Green,  van  Amerongen.
Before that time, Mr. Annick was a financial analyst in mergers and acquisitions
with  Goldman,  Sachs & Co.  Mr.  Annick is also a director  of several  private
companies.

     E. Dean Werries,  67, became a director of CGF in 1994.  From 1989 to 1994,
Mr. Werries served as Chairman of the Board of Fleming Companies, Inc. He joined
Fleming in 1955 and held various  positions  within that company  through  1988,
when he was  appointed  President  and Chief  Executive  Officer.  In 1994,  Mr.
Werries retired as Chairman.  He currently  serves as a Chairman of the Board of
Sonic Corp.

         Donald  E.  Gallegos,  62,  became a  director  of CGF in  1994.  He is
currently the President of King Soopers, a retail grocery chain owned by Kroger,
Inc. On April 1, 1997, after serving seven years as President, Mr. Gallegos will
retire from that position and become  Chairman of the Executive  Committee.  Mr.
Gallegos  held  various  positions  with King Soopers  prior to being  appointed
Senior Vice President of King Soopers in 1982 and then President in 1990.

         To the best of CGF's knowledge,  based solely upon review of the copies
of such  reports  furnished  to CGF and  written  representations  that no other
reports were required,  all Section 16(a) filing requirements  applicable to its
officers,  directors,  and greater than ten-percent  shareholders  were complied
with during the fiscal year ended December 29, 1996.


Item 11. .........Executive Compensation

         The  information  required by this Item is included  under the captions
"Executive Compensation" in the Proxy Statement.


Item 12. .........Security Ownership of Certain Beneficial Owners and Management

         The  information  required by this Item is  included  under the caption
"Ownership of Voting Securities By Certain  Beneficial Owners and Management" in
the Proxy Statement.



<PAGE>





Item 13.       Certain Relationships and Related Transactions

         The  information  required by this Item is  included  under the caption
"Certain Transactions" in the Proxy Statement.



Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a) 1     Financial Statements - See Index to Consolidated Financial 
               Statements at page F-.1

     (a) 2     Financial Statement Schedule - none

     (a) 3     Exhibits - See Index to Exhibits immediately following page S-1.

     (b)       No reports on Form 8-K were filed during the fourth quarter of 
               the fiscal year ended December 29, 1996.




<PAGE>


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 28th day of
March, 1997.

                                    CARR-GOTTSTEIN FOODS CO.



                                    By: /S/  Lawrence H. Hayward
                                        ----------------------------------------
                                        Lawrence H. Hayward, President and Chief
                                        Executive Officer

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities indicated on the 28th day of March, 1997.

PRINCIPAL EXECUTIVE OFFICERS                         DIRECTORS
 (AND DIRECTORS)

                                        /S/  Leonard I. Green
                                        -----------------------
  /S/  Lawrence H. Hayward              Leonard I. Green
----------------------------------------
Lawrence H. Hayward, President and Chief
Executive Officer
                                        /S/  Jonathan Sokoloff
                                        -----------------------
                                        Jonathan Sokoloff
PRINCIPAL FINANCIAL OFFICER
and ACCOUNTING OFFICER     
                                        /S/  Gregory Annick
                                        -----------------------
                                        Gregory Annick

  /S/  Donald J. Anderson
-------------------------------------------
Donald J. Anderson, Chief Financial Officer 
and Accounting Officer                    
                                        /S/  John J. Cairns
                                        -----------------------
                                        John J. Cairns


                                        /S/  Mark R. Williams
                                        -----------------------
                                        Mark R. Williams

                  
                                        /S/  E. Dean Werries
                                        -----------------------
                                        E. Dean Werries


                                        /S/  Donald Gallegos
                                        ----------------------
                                        Donald Gallegos





<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES


Index to Consolidated Financial Statements
--------------------------------------------------------------------------------
                                                                          Page
                                                                          ----
Independent Auditors' Report                                               F-2
 .........................................................

Consolidated Statements of Operations for the years ended
  December 29, 1996, December 31, 1995 and January 1, 1995                 F-3
 .........................................................

Consolidated Balance Sheets as of December 29, 1996 and
  December 31, 1995                                                        F-4
 .........................................................

Consolidated Statements of Stockholders' Equity for the 
  years ended December 29, 1996, December 31, 1995, 
  January 1, 1995                                                          F-5
 .........................................................

Consolidated Statements of Cash Flows for the years ended 
  December 29, 1996, December 31, 1995, and January 1, 1995                F-6
 .........................................................

Notes to Consolidated Financial Statements                                 F-7
 .........................................................



<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES


Independent Auditors' Report
--------------------------------------------------------------------------------



The Board of Directors and Stockholders
Carr-Gottstein Foods Co.

         We have audited the consolidated financial statements of Carr-Gottstein
Foods  Co.  and  subsidiaries  as  listed  in  the  accompanying   index.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present  fairly,   in  all  material   respects,   the  financial   position  of
Carr-Gottstein  Foods Co. and  subsidiaries as of December 29, 1996 and December
31,  1995 and the results of their  operations  and their cash flows for each of
the years in the three-year  period ended  December 29, 1996 in conformity  with
generally accepted accounting principles.


                                          KPMG Peat Marwick LLP


Anchorage, Alaska
February 21, 1997

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                                        Years ended
--------------------------------------------------------------------------------------------------------------------------
                                                                     December 29,         December 31,      January 1,
Amounts In Thousands (except per share data)                              1996               1995              1995
--------------------------------------------------------------------------------------------------------------------------
<S>                                                                    <C>               <C>                 <C>      
Sales                                                                  $  612,576        $  601,322          $  577,063
Cost of merchandise sold, including warehousing
     and transportation expenses                                          442,996           431,230             417,183
--------------------------------------------------------------------------------------------------------------------------
         Gross profit                                                     169,580           170,092             159,880

Operating and administrative expenses                                     144,525           140,366             130,255
Compensation expense for stock options                                          -             1,518                   -
--------------------------------------------------------------------------------------------------------------------------
         Operating income                                                  25,055            28,208              29,625

Other income (expense):
         Interest expense, net                                            (27,923)          (16,079)            (12,210)
         Gain (loss) on disposals of property and equipment                    88               (23)                 11
         Non-recurring costs related to sale-leaseback                          -            (2,249)                  -
--------------------------------------------------------------------------------------------------------------------------
         Income (loss) before income tax expense,
            and extraordinary item                                         (2,780)            9,857              17,426

Income tax expense                                                            (30)           (5,207)             (8,215)
--------------------------------------------------------------------------------------------------------------------------
         Income (loss) before extraordinary item                           (2,810)            4,650               9,211

Extraordinary item - loss on early retirement of debt,
   net of income tax benefit                                                    -              (906)                  -
--------------------------------------------------------------------------------------------------------------------------

         Net income (loss)                                            $    (2,810)       $    3,744          $    9,211
==========================================================================================================================

Income (loss) per common share:
         Income (loss) before extraordinary item                     $      (0.36)       $      0.32        $      0.55
         Extraordinary item                                                    -               (0.06)              -
--------------------------------------------------------------------------------------------------------------------------

         Net income (loss) per share                                 $      (0.36)       $      0.26        $      0.55
==========================================================================================================================

Weighted average common shares outstanding                                  7,814            14,457              16,763
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES


Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                       December 29,       December 31,
Amounts in Thousands                                                                       1996               1995
------------------------------------------------------------------------------------------------------------------------

                                      Assets
Current assets:
<S>                                                                                     <C>                <C>
         Cash and cash equivalents                                                      $     8,655        $     2,817
         Accounts receivable, net                                                            16,650             17,853
         Income taxes receivable                                                                  -                164
         Inventories                                                                         54,232             50,505
         Deferred taxes                                                                       1,918              1,756
         Prepaid expenses and other current assets                                            2,809              2,881
------------------------------------------------------------------------------------------------------------------------
               Total current assets                                                          84,264             75,976

Property, plant and equipment, at cost, net of accumulated depreciation                     142,179            152,836
Intangible assets, net of accumulated amortization                                           91,731             94,589
Deferred taxes                                                                                  334                  -
Other assets                                                                                 12,336             13,219
------------------------------------------------------------------------------------------------------------------------
                                                                                          $ 330,844          $ 336,620
========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
                       Liabilities and Stockholders' Equity
Current liabilities:
<S>                                                                                      <C>                <C>
         Accounts payable                                                                $   38,467         $   35,986
         Accrued expenses                                                                    15,145              7,352
         Income taxes payable                                                                   298                  -
         Current maturities of long-term debt                                                 7,281              3,551
         Revolving line of credit                                                             7,000             16,000
         Estimated obligation for self-insurance                                              1,958              2,794
------------------------------------------------------------------------------------------------------------------------
               Total current liabilities                                                     70,149             65,683

Long-term debt, excluding current maturities                                                227,640            234,740
Estimated obligation for self-insurance                                                       1,536              1,536
Deferred tax liability                                                                            -                488
Other liabilities                                                                             1,921              1,871
------------------------------------------------------------------------------------------------------------------------
               Total liabilities                                                            301,246            304,318
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Stockholders' equity:
         Common stock, $.01 par value, authorized 25,000 shares,
<S>                                                                                      <C>                <C>
            issued 9,680 shares at 1996 and 1995, respectively                                  97                 97
         Additional paid in capital                                                          52,513             52,595
         Stock subscriptions receivable                                                           -                (44)
         Deficit                                                                            (10,544)            (7,734)
------------------------------------------------------------------------------------------------------------------------
                                                                                             42,066             44,914

         Less treasury stock, 1,855 shares and 1,876 shares, respectively, at cost           12,468             12,612
------------------------------------------------------------------------------------------------------------------------
               Total stockholders' equity                                                    29,598             32,302
------------------------------------------------------------------------------------------------------------------------

Commitments and contingencies
========================================================================================================================
                                                                                          $ 330,844          $ 336,620
========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES


Consolidated Statements of Stockholders' Equity

Years ended December 29, 1996
December 31, 1995, and                                                          
January 1, 1995
<TABLE>
<CAPTION>
                                                                                                               Total
                                                      Additional                   Stock                       Stock-
                                           Common      Paid-In                Subscriptions      Treasury     holders'
Amounts in Thousands                        Stock      capital       Deficit    Receibable         Stock       Equity
------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>        <C>           <C>           <C>            <C>         <C>
Balance at January 2, 1994                $    172   $  134,251    $  (20,689)   $    (123)     $    (245)  $   113,366

Issuance of common stock                         -            7             -            -              -             7
Issuance of treasury stock                       -            -             -            -             13            13
Purchase of treasury stock                       -            -             -            -        (10,044)      (10,044)
Net income                                       -            -         9,211            -              -         9,211
Payments under stock purchase plan               -            -             -           83              -            83
------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1995                     172      134,258       (11,478)         (40)       (10,276)      112,636

Issuance of treasury stock                       -           (6)            -            -            162           156
Purchase of treasury stock                       -            -             -            -         (2,498)       (2,498)
Purchase and retirement of common
stock                                          (75)     (83,175)            -            -              -       (83,250)
Issuance of stock options                        -        1,518             -            -              -         1,518
Net income                                       -            -         3,744            -              -         3,744
Change under stock purchase plan                 -            -             -           (4)             -            (4)
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995                    97       52,595        (7,734)         (44)       (12,612)       32,302

Issuance of treasury stock                       -          (82)            -            -            144            62
Net loss                                         -            -        (2,810)           -              -        (2,810)
Payments under stock purchase plan               -            -             -           44              -            44
------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996              $     97  $    52,513    $  (10,544) $         -    $   (12,468)  $    29,598
========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES


Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                          Years ended
-----------------------------------------------------------------------------------------------------------------------
                                                                       December 29,       December 31,       January 1,
Amounts in Thousands                                                        1996               1995            1995
-----------------------------------------------------------------------------------------------------------------------
Operating activities:
<S>                                                                   <C>               <C>                <C>
       Net income (loss)                                              $     (2,810)     $     3,744        $    9,211
       Adjustments to reconcile net income (loss) to net cash
          provided by operating activities:
              Extraordinary loss before income tax benefit                       -            1,539                 -
              Depreciation                                                  14,844           14,141            12,157
              Amortization of intangibles                                    2,858            3,485             3,533
              Amortization of loan fees and discounts                        1,439              696               510
              Loss (gain) on disposal of property and equipment                (84)              23               (11)
              Compensation recognized for stock options                          -            1,518                 -
              Changes in assets and liabilities:
                 Decrease (increase) in receivables                          1,203           (2,244)           (5,085)
                 Increase in inventories                                    (3,727)          (1,111)           (6,725)
                 Decrease (increase) in prepaid expenses                        72              564            (2,271)
                 Increase in other assets                                     (556)          (1,284)             (987)
                 Increase in income taxes payable                              298                -                 -
                 Decrease (increase) in deferred taxes                        (984)             390             9,757
                 Increase (decrease) in accounts payable                     2,481           (4,368)           14,015
                 Increase (decrease) in accrued expenses                     7,793            1,024            (3,604)
                 Decrease (increase) in income tax receivable                  164               93              (257)
                 Increase (decrease) in obligation for self-insurance         (836)            (422)              486
                 Increase (decrease) in other liabilities                       50             (650)             (632)
-----------------------------------------------------------------------------------------------------------------------
                 Net cash provided by operating activities                  22,205           17,138            30,097
-----------------------------------------------------------------------------------------------------------------------
Investing activities:
       Additions to property and equipment                                  (4,390)         (16,660)          (26,473)
       Additions to intangible assets                                            -              (26)           (1,350)
       Proceeds from sale of property and equipment                            287               66                59
       Proceeds from sale of subsidiary                                          -              983                 -
-----------------------------------------------------------------------------------------------------------------------
                 Net cash used in investing activities                      (4,103)         (15,637)          (27,764)
-----------------------------------------------------------------------------------------------------------------------
Financing activities:
       Proceeds from issuance of long-term debt                                  -           95,000            10,044
       Proceeds from issuance of senior subordinated notes                       -           91,750                 -
       Proceeds from issuance of common stock                                    -                -                 7
       (Payments) borrowings under revolving line of credit, net            (9,000)           4,044             6,956
       Payments on long-term debt, including prepayment penalties           (3,370)        (104,202)           (9,407)
       Change in stock subscriptions receivable                                 44               (4)               83
       Purchase and retirement of common stock                                   -          (83,250)                -
       Purchase of treasury stock                                                -           (2,498)          (10,044)
       Issuance of treasury stock, net                                          62              156                13
-----------------------------------------------------------------------------------------------------------------------
                 Net cash provided by (used in) financing activities       (12,264)             996            (2,348)
-----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                         5,838            2,497               (15)

Cash and cash equivalents at beginning of year                               2,817              320               335
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                               $     8,655    $       2,817       $       320
=======================================================================================================================

Supplemental information:
       Interest paid                                                    $   25,198        $  14,387         $  11,430
       Income taxes paid (received)                                   $        552       $    4,091        $   (1,285)
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.


<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------

(1) BUSINESS

Carr-Gottstein Foods Co. and subsidiaries (Company) is the leading food and drug
retailer in Alaska with 42 stores primarily located in Anchorage,  as well as in
Fairbanks,  Juneau,  Kenai and other Alaska communities.  The Company operates a
chain of 15  super-combination  food, drug and general  merchandise stores under
the name Carrs Quality  Centers.  The Company also operates eight smaller stores
under  the name of  Eagle  Quality  Centers  or other  names in  smaller  Alaska
communities.  The Company is also  Alaska's  highest-volume  alcoholic  beverage
retailer  through its chain of 16 wine and liquor stores operated under the name
of Oaken Keg stores.  During 1996, the Company opened three small tobacco stores
which operate under the name of the Great Alaska Tobacco  Company.  In addition,
the Company  operates a freight  transportation  business under the names of AOL
Express and APR Forwarders,  a full-line food warehouse and distribution  center
under the name of J.B. Gottstein and a institutional  food service  distribution
business under the name of YES Foods.  The Company through CGF Properties,  Inc.
owns many of the  buildings  and shopping  centers from which its Carr and Eagle
Quality Centers operate.


(2) ACQUISITION AND BASIS OF PRESENTATION

As of  October  12,  1990,  CG  Acquisition  Co.  acquired  certain  assets  and
liabilities of Carr-Gottstein Inc. and other related entities  (Predecessor) and
changed  the  corporate  name  to  Carr-Gottstein  Foods  Co.  The  transactions
described  above are  referred  to herein  as the  Acquisition.  The cost of the
Acquisition  approximated  $280,000  and was financed  through bank  borrowings,
issuance of senior notes,  subordinated  notes and common stock. The Acquisition
was accounted  for using  purchase  accounting  in which the purchase  price was
allocated  to the  acquired  assets  and  liabilities  based on  their  relative
estimated  fair values.  The excess of the purchase price over the fair value of
assets and liabilities  acquired  resulted in identified  intangibles of $25,100
and goodwill of $105,700.


(3) CAPITALIZATION

On May 6, 1993,  the Company  reclassified  its common stock into a single class
and authorized 25,000 shares of $.01 par value common stock and 10,000 shares of
$.01 par value  preferred  stock  and a two for one  split for the  reclassified
common stock. As a result of the split,  5,678 shares were issued and additional
paid-in capital was reduced by $57.

During  1993 the  Company  undertook  an initial  public  offering of its common
stock.  The  shares  were  issued at an initial  price of $14.50 per share.  The
Company  issued  5,824 new shares of common  stock and  received net proceeds of
$77,632.  Common stock and additional  paid-in capital were increased by $58 and
$77,574, respectively.


(4) TENDER OFFER

On October 13,  1995,  the Company  announced a tender offer for 7,500 shares of
common  stock at $11.00 per share.  The Company  completed  the tender  offer on
November 15, 1996 and  repurchased and retired 7,500 shares of common stock at a
cost of $82,500 plus $750 of fees and expenses.  The Company financed the tender
offer  through the  issuance of $100,000 of 12%  unsecured  senior  subordinated
notes.  Concurrent with the tender offer,  the Company  renegotiated and amended
its bank debt and revolving line of credit.  The Company paid $8,250 of fees and
expenses to issue the senior  subordinated  notes and to amend its bank debt and
revolving  line of  credit.  The debt  amendment  is  accounted  for as an early
extinguishment of debt.


<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(5) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates and Assumptions
In preparing the consolidated  financial statements in accordance with generally
accepted  accounting  principles,  management is required to make  estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of contingent  assets and liabilities as of the date of the financial
statements  and revenue and expenses for the reporting  period.  Actual  results
could  differ  from  those  estimates  and  assumptions.  The  more  significant
estimates  and  assumptions  applied  in the  preparation  of  the  consolidated
financial statements are discussed below.

Fiscal Year
The Company's fiscal year is a 52 or 53 week year,  ending on the Sunday closest
to the calendar  year-end.  All years  presented in the  consolidated  financial
statements  consist of 52 weeks.  References to fiscal years 1996, 1995 and 1994
represent  the 52 week years ending  December  29,  1996,  December 31, 1995 and
January 1, 1995, respectively.

Consolidation
The  consolidated  financial  statements of the Company  include the accounts of
Carr-Gottstein  Foods Co.  and its  divisions,  J.B.  Gottstein,  Carrs  Quality
Centers  and  Eagle  Quality  Centers  and its  wholly-owned  subsidiaries,  AOL
Express,  Inc.,  APR  Forwarders,  Inc.,  Oaken Keg Spirit Shops,  Inc.,  Alaska
Advertisers,  Inc. and CGF  Properties,  Inc. The Company sold its  wholly-owned
computer  services  subsidiary  in  the  first  quarter  of  1995.   Significant
intercompany   transactions   and  accounts  have  been   eliminated   from  the
consolidated financial statements.

Cash Equivalents
For  purposes of the  statement  of cash flows,  short-term  investments  with a
maturity of three months or less are considered to be cash equivalents. Cash and
cash equivalents include cash on hand, checking accounts and savings accounts.

Inventories
Inventories  are stated at the lower of cost or market.  Retail food company and
liquor company store inventory cost is determined by reducing  inventories taken
at retail prices by estimated gross margin  percentages.  Wholesale  inventories
are valued at weighted average cost.  Inventories include direct transportation,
warehouse and allocated administrative costs.

Property, Plant and Equipment
Property,  plant and  equipment are recorded at cost.  Maintenance,  repairs and
minor  replacements  are charged to expense as  incurred.  When assets are sold,
retired or fully depreciated,  their cost and related  accumulated  depreciation
are removed from the  property,  plant and equipment  accounts,  and any gain or
loss is recorded.

Depreciation
The costs of  buildings,  equipment  and  fixtures  are  depreciated  over their
estimated useful lives on a straight-line basis. The components of buildings are
depreciated  over lives  ranging  from ten to 31.5 years or over the  respective
lease terms, if such periods are shorter. Fixtures and equipment are depreciated
over estimated lives of three to 15 years.

Intangible Assets and Amortization
Intangible  assets represent the excess of purchase price over fair value of net
assets acquired.  Goodwill is generally  amortized on a straight-line basis over
40 years.  Costs allocated to specifically  identified assets are amortized on a
straight-line  basis over three to five  years.  On an annual  basis the Company
assesses  the   recoverability  of  goodwill  and  other  intangible  assets  by
determining  whether the  amortization  of the balances over the remaining lives
can be recovered  through the  undiscounted  future  operating cash flows of the
acquired operations.

Loan Fees
Loan fees are amortized over the term of the related debt.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
Buying and Promotional Allowances
Allowances  and credits  received from vendors in connection  with the Company's
buying and merchandising activities are recognized as earned.

Investment in Affiliate
The equity method of  accounting is used to account for the Company's  ownership
of  33-1/3%  of the stock of  Denali  Commercial  Management,  Inc.  (DCM).  The
financial position and results of operations of DCM are not material.

Income Taxes
The Company  files  consolidated  federal and state income tax  returns.  Income
taxes are  accounted  for under the asset and  liability  method.  Deferred  tax
assets  and  liabilities   are  recognized  for  the  future  tax   consequences
attributable to differences  between the financial statement carrying amounts of
existing  assets and  liabilities  and their  respective tax bases and operating
loss and tax credit  carry-forwards.  Deferred  tax assets and  liabilities  are
measured  using  enacted tax rates  expected  to apply to taxable  income in the
years in which those  temporary  differences  are  expected to be  recovered  or
settled.  The effect on deferred tax assets and  liabilities  of a change in tax
rates is recognized in income in the period that includes the enactment date.

Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation,
fines and  penalties,  and other sources are recorded when it is probable that a
liability  has been  incurred  and the amount of the  assessment  or cost can be
reasonably estimated.

Earnings Per Common Share
Primary  earnings per common share are  determined by dividing net income (loss)
by the weighted average number of common shares outstanding plus dilutive common
stock equivalents,  which are stock options.  Primary and fully diluted earnings
per common share are the same.

Impairment of Long-Lived Assets
Statement  of  Financial   Accounting  Standard  No.  121,  Accounting  for  the
Impairment of  Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of,
sets forth new standards for determining when long-lived assets are impaired and
requires  impaired assets to be carried at the lower of cost or fair value.  The
Company  adopted the new  standard as of January 1, 1996 which has had no effect
on the Company's financial statements.

Stock Option Plan
Statement of Financial  Accounting  Standard No. 123, Accounting for Stock-Based
Compensation,  was adopted by the Company as of January 1, 1996.  This statement
establishes   accounting  and  reporting  standards  for  stock-based   employee
compensation  plans. As permitted by this statement,  the Company has elected to
continue to use the accounting method it is currently using, APB Opinion No. 25,
Accounting  for Stock  Issued  to  Employees,  to  determine  the  amount of any
compensation  expense related to stock options.  Consequently,  the Company will
disclose the amount of  compensation  expense and the impact on net earnings and
earnings per share had the fair value method set forth in the new statement been
used to calculate compensation.

Reclassifications
Certain  reclassifications  have  been  made to the  fiscal  year  1995 and 1994
consolidated financial statements to conform to the current period presentation.
During these years, warehousing,  transportation and the related occupancy costs
were  originally  reported as operating  and  administrative  expenses.  For the
current  year's  presentation,  these  expenses have been  classified as cost of
sales.


<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(6) ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:
<TABLE>
<CAPTION>
                                                                           December 29,             December 31,
-----------------------------------------------------------------------------------------------------------------------
                                                                               1996                     1995
<S>                                                                          <C>                     <C>
Wholesale and retail trade                                                   $ 15,267                $ 14,605
Tenant                                                                            248                     215
Other                                                                           1,378                   3,154
-----------------------------------------------------------------------------------------------------------------------
                                                                               16,893                  17,974
Less allowance for doubtful accounts                                              243                     121
-----------------------------------------------------------------------------------------------------------------------
  Accounts receivable, net                                                   $ 16,650                $ 17,853
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(7) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:
                                                                           December 29,             December 31, 
                                                                               1996                     1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                     <C>
Land                                                                       $   25,393              $   25,614
Buildings                                                                      95,458                 102,353
Fixtures and equipment                                                         93,326                  82,554
-----------------------------------------------------------------------------------------------------------------------
                                                                              214,177                 210,521
Less accumulated depreciation                                                  71,998                  57,685
-----------------------------------------------------------------------------------------------------------------------
   Property, plant and equipment, net                                       $ 142,179               $ 152,836
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(8) INTANGIBLE ASSETS

Intangible assets consist of the following:
                                                                           December 29,             December 31,
                                                                               1996                     1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                     <C>
Goodwill                                                                    $ 107,505               $ 107,505
Other intangibles                                                              18,485                  18,485
-----------------------------------------------------------------------------------------------------------------------
                                                                              125,990                 125,990
Less accumulated amortization                                                  34,259                  31,401
-----------------------------------------------------------------------------------------------------------------------
   Intangible assets, net                                                  $   91,731              $   94,589
=======================================================================================================================
</TABLE>

(9) REVOLVING LINE OF CREDIT

The Company has a $35,000  revolving  line of credit  (revolver)  available  for
working  capital  purposes.  The  revolver,  along with the bank term debt,  are
secured by substantially  all of the Company's  assets,  except for certain real
estate  assets.  The  revolver  and term  debt  agreements  contain  restrictive
covenants.  Interest is payable  quarterly on the revolver at the lower of prime
plus 1.5% or LIBOR  plus 2.5%.  Availability  under the  revolver  is reduced by
$5,000 on each  December  31,  1999 and 2000.  The Company is required to pay an
annual  commitment  fee of 0.5% per annum on the average  unused  portion of the
revolver.   The  interest  rate  on  the  revolver  at  December  31,  1996  was
approximately 8.0%.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(10) LONG-TERM DEBT

Long-term debt consist of the following:
<TABLE>
<CAPTION>
                                                                          December 31,              December 31,
                                                                              1996                      1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                     <C>
First mortgage notes payable in monthly payments of $426; 
    including interest at 10.55%; unpaid  balance due at maturity
    of June 1, 2001; prepayments prohibited through 1996; 
    prepayment penalties apply; secured by real estate                    $    42,532             $    43,080
Senior subordinated notes with interest payable semiannually at
     12%; entire balance due at maturity of November 15, 2005;
     prepayment penalties apply; unsecured                                    100,000                 100,000
Bank term note payable with varying semiannual principal
     payments; interest payable quarterly at the lower of
     prime plus 1.5% or LIBOR plus 2.5%, approximately
     8.0% at December 29, 1996; maturity of June 30, 2001                      32,500                  35,000
Bank term note payable with varying semiannual principal
     payments; interest payable quarterly at the lower of
     prime plus 2.0% or LIBOR plus 3.0%, approximately
     8.5% at December 31, 1996; maturity December 31, 2002                     59,700                  60,000
Other notes payable                                                               189                     211
-----------------------------------------------------------------------------------------------------------------------
                                                                              234,921                 238,291
Less current maturities of long-term debt                                       7,281                   3,551
-----------------------------------------------------------------------------------------------------------------------
     Total long-term debt                                                   $ 227,640               $ 234,740
=======================================================================================================================
</TABLE>
The Company's debt agreements contain various restrictive  covenants  pertaining
to  net  worth  levels,  limitations  on  additional  indebtedness  and  capital
expenditures,  financial  ratios and  monthly,  quarterly  and annual  reporting
requirements.  In addition, the agreements require certain mandatory pre-payment
of  amounts  resulting  from real  estate or fixed  asset  sales,  increases  in
outstanding  cash  balances,  issuance of stock,  or the issuance of  additional
debt. Substantially all of the assets of the Company are pledged as security for
long-term debt. The Company is in compliance with all debt agreements.

The aggregate  maturities of long-term  debt for periods  subsequent to December
29, 1996 are as follows:

                   Fiscal year                                Amount
--------------------------------------------------------------------------------

                      1997                                  $     7,281
                      1998                                       12,155
                      1999                                        4,637
                      2000                                        7,632
                      2001                                       46,216
                      Thereafter                                157,000
--------------------------------------------------------------------------------
                                                              $ 234,921
================================================================================


<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
Interest expense consists of the following:
<TABLE>
<CAPTION>
                                                                              Fiscal year
-----------------------------------------------------------------------------------------------------------------------
                                                         1996                     1995                  1994
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                       <C>                  <C>
Interest on debt                                      $ 26,484                  $ 15,558             $ 12,143
Amortization of loan fees                                1,439                       696                  510
-----------------------------------------------------------------------------------------------------------------------
                                                        27,923                    16,254               12,653
Less capitalized interest                                    -                       175                  443
-----------------------------------------------------------------------------------------------------------------------
   Interest expense, net                              $ 27,923                  $ 16,079             $ 12,210
=======================================================================================================================
</TABLE>
Loan fees are  classified  as other assets and total  $7,879 and $9,318,  net of
amortization,  at December  29, 1996 and December  31,  1995,  respectively.  In
fiscal  year 1995 the Company  incurred  $8,250 of loan fees to issue the senior
subordinated notes and to amend its bank debt and revolver.

The  amendment  and  renegotiation  of the  Company's  bank debt and revolver in
fiscal year 1995 is considered an early extinguishment of debt. This transaction
resulted in an  extraordinary  loss of $906,  from the write-off of  unamortized
loan fees of $1,539, net of income tax benefit of $633.


(11) OTHER LIABILITIES

Other long-term obligations consist primarily of installment obligations payable
to former or current employees arising from deferred compensation  agreements of
the Predecessor  which were assumed in the  Acquisition.  These  obligations are
payable over a ten-year period,  without interest,  commencing on the employee's
termination from the Company.  Each employee's principal balance,  which accrues
interest  at 8% to the  date of  termination,  is  discounted  from the date the
employee  attains the age of 65 for current  employees or the  remaining  payoff
period for terminated employees.


(12) INCOME TAXES

Income tax expense (benefit) for continuing operations before extraordinary item
consist of the following:
<TABLE>
<CAPTION>
                                                                              Fiscal year
-----------------------------------------------------------------------------------------------------------------------
                                                         1996                     1995                  1994
-----------------------------------------------------------------------------------------------------------------------

Current:
<S>                                                   <C>                        <C>                 <C>
Federal                                               $    782                   $ 3,546             $ (1,313)
State                                                      232                       638                 (229)
-----------------------------------------------------------------------------------------------------------------------
                                                         1,014                     4,184               (1,542)
-----------------------------------------------------------------------------------------------------------------------
Deferred:
Federal                                                   (759)                      871                8,307
State                                                     (225)                      152                1,450
-----------------------------------------------------------------------------------------------------------------------
                                                          (984)                    1,023                9,757
-----------------------------------------------------------------------------------------------------------------------
   Income tax expense                                $      30                  $  5,207             $  8,215
=======================================================================================================================
</TABLE>

A reconciliation  of income taxes expense (benefit) at the statutory rate of 35%
applied to earnings before income taxes and extraordinary  item to the Company's
effective rate is as follows:

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                                              Fiscal year
-----------------------------------------------------------------------------------------------------------------------
                                                         1996                     1995                  1994
-----------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                      <C>                   <C>
Computed "expected" tax expense (benefit)              $  (973)                 $  3,450              $ 6,099
State income taxes, net of federal benefit                   4                       764                1,231
Nondeductible goodwill amortization                        925                       925                  925
Other                                                       74                        68                  (40)
-----------------------------------------------------------------------------------------------------------------------
                                                      $     30                  $  5,207              $ 8,215
=======================================================================================================================
</TABLE>
Total tax expense for fiscal year 1996 is $30. Total tax expense for fiscal year
1995 is $4,576,  which reflects tax expense for continuing  operations of $5,207
and a tax benefit of $633 for the extraordinary loss.

In August,  1995, an examination by the Internal  Revenue Service ("IRS") of the
Company's  federal tax returns for fiscal years 1990 through 1993 was  finalized
resulting in a settlement  that  decreased  the  Company's  net  operating  loss
carry-forwards,  modified  the timing  and  deductibility  of certain  items and
required an immaterial cash payment.
The settlement had no effect on previously recorded expense or net income.

The Company  fiscal year 1995 and 1994 federal tax returns are  currently  under
examination by the IRS. The IRS has proposed tentative adjustments to the timing
of  deductibility  of certain  amounts.  The Company  believes that the ultimate
resolution of the examination  will not have a material effect on the results of
operations or financial condition of the Company.

The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
                                                                            December 29,            December 31,
                                                                                1996                    1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                        <C>
Deferred tax assets:
       Net operating loss carry-forward                                  $          -               $     736
       Alternative minimum tax credit carry-forward                             4,949                   4,637
       Intangible assets, due to differences in
          amortization                                                            460                     922
       Financial statement accrual of self-
          insurance costs                                                       1,436                   1,780
       Financial statement accrual for compensated
          absences                                                                826                     663
       Revenues received in advance, amortized
          for financial reporting                                                 452                       -
       Financial statement expense  for stock options                             612                     624
       Inventory capitalized for taxes                                            497                     389
       Other                                                                      100                      51
-----------------------------------------------------------------------------------------------------------------------
             Total gross deferred tax assets                                    9,332                   9,802
-----------------------------------------------------------------------------------------------------------------------

Deferred tax liabilities:
       Property, plant, equipment, due to
          differences in depreciation                                          (7,055)                 (8,249)
       Other                                                                      (25)                   (285)
-----------------------------------------------------------------------------------------------------------------------
             Total gross deferred tax liabilities                              (7,080)                 (8,534)
-----------------------------------------------------------------------------------------------------------------------

             Net deferred tax asset                                          $  2,252                $  1,268
=======================================================================================================================
</TABLE>
At December 29, 1996 the Company has alternative  minimum tax credit  
carry-forwards  of approximately  $4,188 and $761 for federal and state income 
taxes, respectively, which carry-forward indefinitely.
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
A  valuation  allowance  is  provided  when it is more likely than not that some
portion of the deferred tax asset will not be realized.  Based on the  Company's
historical taxable income, adjusted for significant items such as, the loss from
early retirement of debt and utilization of net operating  losses,  and expected
future taxable income,  management  believes it is more likely than not that the
Company will realize the benefit of deferred tax assets existing at December 29,
1996.  Further,  management  believes  the  existing  net  deductible  temporary
differences  will  reverse  during  periods in which the Company  generates  net
taxable income.  Therefore,  the Company has not provided a valuation allowance.
However,  the amount of the deferred tax asset  considered  realizable  could be
reduced in the near term if estimates of future taxable income are reduced.


(13) LEASE COMMITMENTS

The Company leases (as lessee) land, buildings, fixtures and equipment primarily
for retail  stores and its  headquarters  under  operating  leases  expiring  at
various dates through 2029. Generally,  these leases include options to renew at
the end of the initial lease period.  Commitments  for future  minimum  payments
under  non-cancelable  operating  leases for periods  subsequent to December 29,
1996 are as follows:

                      Fiscal Year                        Amount
--------------------------------------------------------------------------------

                         1997                         $   7,802
                         1998                             6,801
                         1999                             6,702
                         2000                             6,632
                         2001                             6,612
                         Thereafter                      49,420
--------------------------------------------------------------------------------
                                                       $ 83,969
================================================================================

Rental expense under  operating lease  agreements  include  contingency  rentals
which are based on a certain  percentage  of sales that are achieved  over a set
amount of sales  determined on an individual  store basis.  Rental expense is as
follows:

  Fiscal year        Minimum payments             Percentage rents       Total
--------------------------------------------------------------------------------

   1994                 $  9,355                  $     999           $  10,354
   1995                    9,426                      1,024              10,450
   1996                    9,338                        355               9,693
================================================================================


In  May  1995,  the  Company   entered  into  letters  of  intent   regarding  a
sale-leaseback transaction which would have encompassed substantially all of the
real estate owned by the Company.  In August  1995,  the Company  elected not to
pursue the sale-leaseback transaction and expensed $2,249 of non-recurring costs
related to this transaction.

<PAGE>
ARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(14) LESSOR

The Company is the lessor of commercial and office facilities.  Generally, these
operating  leases  include  options  to  renew at the end of the  initial  lease
period.  Substantially all of the leases for commercial  facilities  provide for
minimum  rentals and contingent  rentals while leases for office  facilities are
generally  for  fixed  rentals.  Minimum  annual  rentals  under  non-cancelable
operating leases for periods subsequent to December 29, 1996 are as follows:

             Fiscal year                         Amount
--------------------------------------------------------------------------------

                 1997                          $  1,048
                 1998                             1,032
                 1999                               866
                 2000                               605
                 2001                               500
                 Thereafter                         788
--------------------------------------------------------------------------------
                                               $  4,839
================================================================================
<TABLE>
<CAPTION>
Net rental income related to these operating leases is as follows:

    Fiscal year           Minimum rents          Percentage rents        Related expenses              Net rental income
------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                     <C>                     <C>                          <C>
        1994                   1,391                   96                      715                          772
        1995                   1,266                   48                      582                          732
        1996                   1,582                   19                      661                          940
========================================================================================================================
</TABLE>

(15) RETIREMENT AND UNION PENSION PLANS

The  Company   contributes   to  401(k)   retirement   savings  plans   covering
substantially  all  employees  qualified  by age and length of  service,  except
employees  covered by union  contracts.  The Company employs  approximately  3.4
people  of which  2.4 or 73% are  covered  by union  contracts.  The  retirement
savings plan allows  participant  contributions in an amount equal to 15% of the
participant's   compensation,   not  to   exceed   federal   statutory   maximum
contributions.  The amount of discretionary  Company contributions is determined
by the  Board of  Directors,  subject  to  Internal  Revenue  Code  limitations.
Participants are 100% vested in Company contributions.  In addition, the Company
contributes to union sponsored  multi-employer  pension plans on behalf of union
employees. Contributions to retirement savings and pension plans are as follows:

      Fiscal year              401(k) plans           Pension plans
--------------------------------------------------------------------------------

         1994                      622                    2,743
         1995                      636                    3,367
         1996                      611                    3,445
================================================================================


(16) INCENTIVE BONUS PLAN

The Company has an incentive bonus plan for key employees. The amount of bonuses
distributed to eligible  employees and individual  bonus awards are based on the
Company's financial  performance and other criteria set by a committee appointed
by the Board of Directors.  The cost of this plan  approximated $0, $0, and $920
for fiscal years 1996, 1995 and 1994, respectively.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(17) STOCK OPTIONS

Outside Director Plan
The Company has an outside  director stock option plan for directors who are not
for three years prior to  appointment  to the Board of  Directors an employee of
the Company or a partner or employee of Leonard Green & Associates, L.P., (LGA),
Green  Equity  Investors,  L.P.  (GEI)  or any  partnership  controlled  by such
partnerships.  Each  outside  director  is  automatically  granted the option to
purchase 20 shares of common  stock at the then fair market value on the date of
such  appointment  or election to the Board of Directors.  The options are fully
vested  upon grant.  The plan  permits  awards with  respect to a maximum of 100
shares.  As of December 31, 1996 two directors  each have been granted an option
to purchase 20 shares of common stock at $5.25 per share.

Employee Performance Plan
The Company has a  non-qualified  performance  stock option plan,  under which a
committee of the Board of Directors may award key employees  options to purchase
common stock in the Company.  The plan permits  awards with respect to a maximum
of 1,312  shares.  As of  December  29,  1996,  options  for  1,157  shares  are
outstanding,  of which 1,077 options are fully vested. The committee  determines
the  exercise  price of the options  and the period over which the options  will
vest.  Options are generally awarded at fair market value of the Company's stock
as of the  date of the  award.  On  December  20,  1995 the  Board of  Directors
canceled 749 options for common shares with  exercise  prices of $5.00 to $10.63
per share and immediately  reissued 749 options with exercise prices of $2.88 or
$5.25 per share. The Board of Directors  undertook this action to compensate key
employees  who held  unvested  options  and were  unable to  participate  in the
Company's  tender offer for 7,500 shares of common stock in November  1995.  See
note 4. The  Company  recognized  $1,518 of  compensation  expense  for  certain
options that were reissued at an exercise price of $2.88 per share as this price
was  below  the fair  market  value of  Company's  common  stock of $5.25 on the
reissuance date.

At December 26, 1996, there were 155 additional shares available for grant under
the Plan.  The per share  weighted-average  fair value of stock options  granted
during  1996 and 1995 was $1.34 and $2.86 on the date of grant using a qualified
option-pricing  model with the following  weighted-average  assumptions.  1996 -
expected  dividend yield 0.0%,  risk-free  interest rate of 7.1% and an expected
life of 9 years; 1995 - expected dividend yield 0.0%.
risk-free interest rate of 6.8%, and an expected life of 10 years.

The  Company  applies  APB  Opinion  No.  25 in  accounting  for its  Plan  and,
accordingly, compensation expense is only recognized for stock options which the
exercise  price is less than fair  value on the date of grant.  Had the  Company
determined  compensation  cost based on the fair value at the grant date for its
options  under SFAS No. 123, the Company's net income would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                                  1996                1995
                                                                                  ----                ----
<S>                                                                            <C>                 <C>
                  Net income (loss)                  As reported               $ (2,810)           $  3,744
                                                     Pro forma                   (3,066)              3,613

                  Net income (loss) per share        As reported                $ (0.36)             $ 0.26
                                                     Pro forma                    (0.39)               0.25
</TABLE>

Pro forma net income reflects only options granted in 1996 and 1995.  Therefore,
the full impact of  calculating  compensation  cost for stock options under SFAS
No. 123 is not  reflected in the pro forma net income  amounts  presented  above
because  compensation  cost is reflected  over the options'  vesting period of 3
years and compensation  cost for options granted prior to January 1, 1995 is not
considered.



<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
                                                                       Number of                Weighted-Average
                                                                        Shares                  Exercise Price
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                     <C>
                  Balance at January 2, 1994                                 661                   $   6.06
                           Granted                                            84                       6.62
                           Exercised                                          (2)                      5.39
                           Forfeited                                          (3)                      5.39
                           Canceled                                            -                          -
                           Expired                                            (1)                      5.41
-----------------------------------------------------------------------------------------------------------------------
                  Balance at January 1, 1995                                 739                   $   6.13
                           Granted                                         1,075                       3.89
                           Exercised                                         (27)                      5.69
                           Forfeited                                         (39)                      6.30
                           Canceled                                         (749)                      6.11
                           Expired                                            (9)                      6.07
-----------------------------------------------------------------------------------------------------------------------
                  Balance at December 31, 1995                               990                   $   3.72
                           Granted                                           235                       3.62
                           Exercised                                         (21)                      2.88
                           Forfeited                                          (7)                      5.12
                           Canceled                                          (35)                      5.88
                           Expired                                            (5)                      4.30
-----------------------------------------------------------------------------------------------------------------------

                  Balance at December 29, 1996                             1,157                   $   3.66
=======================================================================================================================
</TABLE>
At  December  29,  1996,  the  range of  exercise  prices  and  weighted-average
remaining contractual life of outstanding options was $2.88 - $5.25 and 9 years,
respectively.

The number of options  exercisable  was  1,078,  813 and 601 at fiscal  year-end
1996, 1995 and 1994,  respectively,  and the weighted-average  exercise price of
those options was $3.54, $3.38 and $6.14, respectively.


(18) RELATED PARTY TRANSACTIONS

GEI owns  approximately  37% of the Company's  common stock.  LGA is the general
partner  of GEI.  The  Company  paid LGA fees of $450,  $577 and $577 for fiscal
years 1996, 1995 and 1994,  respectively for management  consulting and advisory
services.  The Company also engaged LGA to provide  financial  advisory services
with  respect to the 1995 tender offer and  negotiating  the terms of the senior
subordinated  notes,  revolver and bank term debt.  LGA was paid $1,500 for such
financial advisory services.


(19) COMMITMENTS AND CONTINGENCIES

Shared Appreciation Agreement
The  Company  has  entered  into  a  shared  appreciation   agreement  with  the
Predecessor  which  requires the Company to pay the  Predecessor  50% of certain
proceeds in excess of $65,500  from the  financing,  refinancing,  condemnation,
sale or other  disposition or  realization of value of certain real  properties.
The  cumulative  maximum  amount  payable under the agreement was $7,300 through
fiscal year 1994.  Beginning in fiscal year 1995,  the maximum amount payable is
increased by 10% per annum of any remaining unpaid portion of the maximum. As of
December 29, 1996 the maximum  amount  payable is $8,760,  of which no amount is
currently due as the conditions of the agreement have not been met.

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
Self-Insurance
The Company is self-insured for basic automobile, workers' compensation, general
liability and employee health  benefits,  and purchases  insurance  coverage for
amounts in excess of the basic self-insurance program.  Reserves are established
to cover estimated  reported losses,  estimated  unreported losses based on past
experience modified for current trends, and estimated expenses for investigating
and settling  claims.  Actual  losses will vary from the  established  reserves.
While  management uses what it believes is pertinent  information and factors in
determining  the amount of  reserves,  future  additions  to the reserves may be
necessary due to changes in the information and factors used.

Environmental Remediation
The Company,  along with other parties, has been identified by the Environmental
Protection Agency (EPA) as a potentially responsible party (PRP) for the cleanup
of a site in Tacoma, Washington. The EPA has estimated primarily the cost of the
required   remediation   to  range   from   $8,000  to   $13,800.   Based  on  a
Company-commissioned  environmental investigation,  management believes that the
Company is not  responsible  for the  subject  contamination.  Accordingly,  the
Company has made no accrual for  liability in  connection  with this site and is
seeking  dismissal from the proceedings  both directly and indirectly  through a
group  of  PRPs  who are  responsible  for a  minimal  amount,  if  any,  of the
contamination.  While  there  can be no  assurance  that  the  Company  will  be
dismissed from these proceedings and an estimate of the portion,  if any, of the
cost allocable to the Company is uncertain,  based on the Company's  findings to
date, management believes that any liability the Company may incur in connection
with these  proceedings will not have a material adverse impact on the financial
condition, results of operations or business of the Company.

Legal Proceedings
The  Company is  subject to legal  proceedings  and claims  which  arisen in the
ordinary  course  of its  business  that are not fully  adjudicated.  Management
believes,  after  consultation  with legal  counsel,  these actions when finally
concluded  and  determined  will  not  have a  material  adverse  effect  on the
Company's financial position.


(20) GEOGRAPHIC CONCENTRATION

All of the  Company's  retail  outlets are in Alaska,  with nine of its 15 Carrs
Quality  Centers  and nine of its 16 Oaken  Keg  Stores  located  in  Anchorage,
Alaska. In addition the Company's wholesale  distribution  business is conducted
in Alaska.  As a result of this geographic  concentration,  the Company's growth
and operations depend upon economic conditions in Alaska. Because the economy of
Alaska is dependent on the natural resources industry, particularly oil, as well
as on tourism,  commercial fishing,  government and U.S. military spending,  any
deterioration  or improvements  in these markets could affect the Company.  This
geographic  concentration  is somewhat  offset by the large  number of customers
that the Company has and that no single  customer  accounts  for more than 5% of
the Company's sales.


(21) FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and Accounts Receivable
The carrying amount  approximates  fair value due to the short maturity of these
instruments.

Short and Long-Term Debt
The carrying amount of the Company's  borrowings under the revolver  approximate
fair  value.  The fair value of  long-term  debt is based on the  current  rates
offered to the Company for debt with similar terms and average  maturities.  The
carrying amount of long-term debt of $241,921 and $254,291 has approximate  fair
values of $245,020  and  $256,214,  at December  29, 1996 and December 31, 1995,
respectively.




<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
(22) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
Following  is a  presentation  of selected  financial  data for each of the four quarters of fiscal year 1996 and 1995:

                                                        First           Second            Third           Fourth
                                                       quarter          quarter          quarter         quarter
-----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>               <C>              <C>            <C>
         1996:
                Sales                                $ 142,809         $ 160,953        $ 158,506      $ 150,308
                Gross profit                            40,103            43,836           44,273         41,368
                Operating income                         4,668             6,827            7,172          6,388
                Net loss                                (1,633)             (415)             (64)          (698)
                Loss per share                          (0.21)            (0.05)           (0.01)          (0.09)
                Average shares outstanding               7,805             7,808            7,815          7,825

         1995:
                Sales                                $ 139,069         $ 154,648        $ 155,653      $ 151,952
                Gross profit                            39,368            44,571           44,281         41,872
                Operating income                         5,975             8,777            8,690          4,766
                Net income (loss) before
                   extraordinary item                    1,204             2,726            1,469           (749)
                Extraordinary loss, net of tax               -                 -                -            906
                Net income (loss)                        1,204             2,726            1,469         (1,655)
                Earnings (loss) per share                 0.08              0.18             0.09          (0.14)
                Average shares outstanding              15,701            15,414           15,286         11,427

=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------

(23) CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The Company issued $100,000 of senior  subordinated  unsecured notes on November
15, 1995.  CGF  Properties,  Inc. has not  guaranteed  the  unsecured  notes and
financial information for this wholly-owned  subsidiary is presented separately.
All of the Company's other direct and indirect subsidiaries,  AOL Express, Inc.,
APR Forwarders, Inc., Oaken Keg Spirit Shops, Inc. and Alaska Advertisers,  Inc.
are  wholly-owned  and have fully and  unconditionally  guaranteed the unsecured
notes on a joint and several basis and, accordingly, are presented on a combined
basis.  Parent company only  information is presented for  Carr-Gottstein  Foods
Co., which reflect only its business activity and its wholly-owned  subsidiaries
accounted for using the equity method.  Separate financial  statements and other
disclosures  for the guarantor  subsidiaries  are not  presented  because in the
opinion of management such information is not material.

The following are condensed consolidating balance sheets:
<TABLE>
<CAPTION>
Balance Sheet                          Non-Guarantor         Guarantor        Parent
                                         Subsidiary         Subsidiaries                           Company
December 29, 1996                      CGF Properties                        (Combined)                    Only          
Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>            <C>            <C>             <C>
                Assets
Inventories                             $           -        $   4,690      $   49,542$             -      $   54,232
Other current assets                            5,526           63,389           6,117        (45,000)         30,032
-----------------------------------------------------------------------------------------------------------------------
         Total current assets                   5,526           68,079          55,659        (45,000)         84,264

Property, plant and equipment, net             65,191            5,725          71,263              -         142,179
Intangible, net                                     -                -          91,731              -          91,731
Investments in subsidiaries                         -                -         101,920       (101,920)              -
Other assets                                       32              483          12,155              -          12,670
-----------------------------------------------------------------------------------------------------------------------
                                             $ 70,749         $ 74,287       $ 332,728     $ (146,920)      $ 330,844
=======================================================================================================================

Liabilities and Stockholders' Equity

Current liabilities                           $   966    $         279       $ 113,904     $  (45,000)     $   70,149
Long-term debt, excluding current
   maturities                                  41,871                -         185,769              -         227,640
Other liabilities                                   -                -           3,457              -           3,457
-----------------------------------------------------------------------------------------------------------------------
         Total liabilities                     42,837                -         303,130        (45,000)        301,246
-----------------------------------------------------------------------------------------------------------------------

Common stock                                       10               44              97            (54)             97
Additional paid-in capital                     28,966           39,381          52,513        (68,347)         52,513
Stock subscription receivable                       -                -               -              -               -
Retained earnings (deficit)                    (1,064)          34,583         (10,544)       (33,519)        (10,544)
-----------------------------------------------------------------------------------------------------------------------
                                               27,912           74,008          42,066       (101,920)         42,066

Less treasury stock                                 -                -          12,468              -          12,468
-----------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity            27,912           74,008          29,598       (101,920)         29,598
-----------------------------------------------------------------------------------------------------------------------
                                             $ 70,749         $ 74,287       $ 332,728     $ (146,920)      $ 330,844
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Balance Sheet                          Non-Guarantor         Guarantor        Parent
                                         Subsidiary         Subsidiaries                           Company
December 31, 1995                      CGF Properties                        (Combined)                    Only          
Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>            <C>            <C>             <C>
                Assets
Inventories                             $           -        $   3,986      $   46,519$             -      $   50,505
Other current assets                            5,397           57,859           7,261        (45,046)         25,471
-----------------------------------------------------------------------------------------------------------------------
         Total current assets                   5,397           61,845          53,780        (45,046)         75,976

Property, plant and equipment, net             67,921            6,336          78,579              -         152,836
Intangible, net                                     -                -          94,589              -          94,589
Investments in subsidiaries                         -                -          96,229        (96,229)              -
Other assets                                       33              509          12,677              -          13,219
-----------------------------------------------------------------------------------------------------------------------
                                             $ 73,351         $ 68,690       $ 335,854     $ (141,275)      $ 336,620
=======================================================================================================================

Liabilities and Stockholders' Equity

Current liabilities                         $   3,332     $          -       $ 107,397     $  (45,046)     $   65,683
Long-term debt, excluding current
   maturities                                  42,480                -         192,260              -         234,740
Other liabilities                                   -                -           3,895              -           3,895
-----------------------------------------------------------------------------------------------------------------------
         Total liabilities                     45,812                -         303,552        (45,046)        304,318
-----------------------------------------------------------------------------------------------------------------------

Common stock                                       10               44              97            (54)             97
Additional paid-in capital                     28,966           39,381          52,595        (68,347)         52,595
Stock subscription receivable                       -                -             (44)             -             (44)
Retained earnings (deficit)                    (1,437)          29,265          (7,734)       (27,828)         (7,734)
-----------------------------------------------------------------------------------------------------------------------
                                               27,539           68,690          44,914        (96,229)         44,914

Less treasury stock                                 -                -          12,612              -          12,612
-----------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity            27,539           68,690          32,302        (96,229)         32,302
-----------------------------------------------------------------------------------------------------------------------
                                             $ 73,351         $ 68,690       $ 335,854     $ (141,275)      $ 336,620
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The following are condensed consolidating statements of operations:

Statement of Operations                Non-Guarantor         Guarantor        Parent
                                         Subsidiary         Subsidiaries                           Company
Fiscal year 1996                       CGF Properties                        (Combined)                    Only          
Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                    <C>            <C>            <C>             <C>
Sales                                  $          -           $ 75,159       $ 574,182      $ (36,765)      $ 612,576
Cost of merchandise sold, including
   warehousing and transportation                 -             54,261         425,500        (36,765)        442,996
-----------------------------------------------------------------------------------------------------------------------
         Gross profit                             -             28,898         148,682              -         169,580

Operating and administrative
   (income) expenses                         (5,155)            11,884         137,796              -         144,525
-----------------------------------------------------------------------------------------------------------------------
         Operating income                     5,155              9,014          10,886              -          25,055

Interest expense, net                        (4,522)                 -         (23,401)             -         (27,923)
Other income (expense)                            -                  -              88              -              88
Equity in subsidiary earnings                     -                  -           5,691         (5,691)              -
-----------------------------------------------------------------------------------------------------------------------
         Income before income tax               633              9,014          (6,736)        (5,691)         (2,780)

Income tax (expense) benefit                   (260)            (3,696)          3,926              -             (30)
-----------------------------------------------------------------------------------------------------------------------
         Net income (loss)                $     373          $   5,318     $    (2,810)     $  (5,691)     $   (2,810)
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Statement of Operations                Non-Guarantor         Guarantor       Parent
                                         Subsidiary         Subsidiaries    Company
Fiscal year 1995                       CGF Properties       (Combined)       Only          Elimination     Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                     <C>            <C>            <C>             <C>
Sales                                 $           -           $ 78,302       $ 562,830      $ (39,810)      $ 601,322
Cost of merchandise sold, including
   warehousing and transportation                 -             56,359         414,777        (39,810)        431,230
-----------------------------------------------------------------------------------------------------------------------
         Gross profit                             -             21,943         148,053              -         170,092

Operating and administrative
   (income) expenses                         (4,981)            10,439         136,330              -         141,884
-----------------------------------------------------------------------------------------------------------------------
         Operating income                     4,981             11,504          11,723              -          28,208

Interest expense, net                        (4,589)                 -         (11,490)             -         (16,079)
Gain (loss) on disposal of fixed assets           2                 12             (37)             -             (23)
Equity in subsidiary earnings                     -                  -           7,015         (7,015)              -
Non-recurring costs related to sale-leaseback     -                  -          (2,249)             -          (2,249)
-----------------------------------------------------------------------------------------------------------------------
         Income before income tax
         and extraordinary item                 394             11,516           4,962         (7,015)          9,857

Income tax expense                             (162)            (4,733)           (312)             -          (5,207)
-----------------------------------------------------------------------------------------------------------------------
         Income before extraordinary
         item                                   232              6,783           4,650         (7,015)          4,650

Extraordinary item - loss on early
   retirement of debt, net of tax benefit         -                  -            (906)             -            (906)
-----------------------------------------------------------------------------------------------------------------------
         Net income                     $       232          $   6,783       $   3,744      $  (7,015)      $   3,744
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Statement of Operations                Non-Guarantor         Guarantor       Parent
                                         Subsidiary         Subsidiaries    Company
Fiscal year 1994                       CGF Properties       (Combined)       Only          Elimination     Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                   <C>            <C>            <C>             <C>
Sales                                   $         -           $ 77,613       $ 539,964      $ (40,514)      $ 577,063
Cost of merchandise sold, including
   warehousing and transportation                 -             56,234         401,463        (40,514)        417,183
-----------------------------------------------------------------------------------------------------------------------
         Gross profit                             -             21,379         138,501              -         159,880

Operating and administrative
   (income) expenses                         (5,122)             9,144         126,233              -         130,255
-----------------------------------------------------------------------------------------------------------------------
         Operating income                     5,122             12,235          12,268              -          29,625

Interest expense, net                        (4,645)                 -          (7,565)             -         (12,210)
Other income (expense)                           (3)                 -              14              -              11
Equity in subsidiary earnings                     -                  -           7,485         (7,485)              -
-----------------------------------------------------------------------------------------------------------------------
         Income before income tax               474             12,235          12,202         (7,485)         17,426

Income tax (expense) benefit                   (195)            (5,029)         (2,991)             -          (8,215)
-----------------------------------------------------------------------------------------------------------------------
         Net income                       $     279          $   7,206      $    9,211      $  (7,485)      $   9,211
=======================================================================================================================
</TABLE>


<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------


The following is condensed consolidating cash flow information. The consolidated
Company's  cash and cash  equivalents  is positive at each balance sheet date so
negative balances for individual subsidiaries are not classified as liabilities.
The net cash  provided  by  operating  activities  fluctuates  due to changes in
intercompany  receivables and payables from the transfer of cash to and from the
parent company.

<TABLE>
<CAPTION>
Statement of Cash Flows                                    Non-Guarantor       Guarantor       Parent
                                                            Subsidiary       Subsidiaries      Company
Fiscal year 1996                                          CGF Properties      (Combined)        Only      Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                <C>        <C>             <C>
Net cash provided by operating activities                    $      548         $  417     $   21,240      $   22,205
-----------------------------------------------------------------------------------------------------------------------

Investing activities
         Addition to property and equipment                           -           (368)        (4,022)         (4,390)
         Proceeds from sale of property and equipment                 -              -            287             287
         Other                                                        -              -              -               -
-----------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                     -           (368)        (3,735)         (4,103)
-----------------------------------------------------------------------------------------------------------------------

Financing activities
         Net payments under line of credit                            -              -         (9,000)         (9,000)
         Payments on long-term debt                                (548)             -         (2,822)         (3,370)
         Purchase of treasury stock                                   -              -             62              62
         Change in stock subscriptions receivable                     -              -             44              44
-----------------------------------------------------------------------------------------------------------------------
            Net cash used by financing activities                  (548)             -        (11,716)        (12,264)
-----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                  -             49          5,789           5,838

-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                       53             57          2,707           2,817
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                     $       53       $    106    $     8,496      $    8,655
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Cash Flows                                    Non-Guarantor       Guarantor       Parent
                                                            Subsidiary       Subsidiaries      Company
Fiscal year 1995                                          CGF Properties      (Combined)        Only      Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>              <C>        <C>             <C>
Net cash provided by (used in) operating activities            $ (1,336)        $  605     $   17,869      $   17,138
-----------------------------------------------------------------------------------------------------------------------

Investing activities
         Addition to property and equipment                        (139)          (637)       (15,884)        (16,660)
         Addition to intangible assets                                -              -            (26)            (26)
         Proceeds from sale of subsidiary                             -              -            983             983
         Other                                                        2             12             52              66
-----------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                  (137)          (625)       (14,875)        (15,637)
-----------------------------------------------------------------------------------------------------------------------

Financing activities
         Proceeds from issuance of debt                               -              -        186,750         186,750
         Net borrowings under line of credit                          -              -          4,044           4,044
         Payments on long-term debt                                (540)             -       (103,662)       (104,202)
         Purchase and retirement of common stock  -                   -              -        (83,250)        (83,250)
         Purchase of treasury stock                                   -              -         (2,498)         (2,498)
         Other                                                        -              -            152             152
-----------------------------------------------------------------------------------------------------------------------
            Net cash used by financing activities                  (540)             -          1,536             996
-----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents             (2,013)           (20)         4,530           2,497

-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                    2,066             77         (1,823)            320
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                     $       53       $     57    $     2,707      $    2,817
=======================================================================================================================
</TABLE>

<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>

Statement of Cash Flows                                    Non-Guarantor       Guarantor       Parent
                                                            Subsidiary       Subsidiaries      Company
Fiscal year 1994                                          CGF Properties      (Combined)        Only      Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>           <C>              <C>
Net cash provided by operating activities                       $ 2,560      $   1,043     $   26,494       $  30,097
-----------------------------------------------------------------------------------------------------------------------

Investing activities
         Addition to property and equipment                         (17)        (1,008)       (25,448)        (26,473)
         Addition to intangible assets                                -              -         (1,350)         (1,350)
         Other                                                        9              -             50              59
-----------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                    (8)        (1,008)       (26,748)        (27,764)
-----------------------------------------------------------------------------------------------------------------------

Financing activities
         Proceeds from issuance of long-term debt                     -              -         10,044          10,044
         Net borrowings under line of credit                          -              -          6,956           6,956
         Payments on long-term debt                                (486)             -         (8,921)         (9,407)
         Purchase of treasury stock                                   -              -        (10,044)        (10,044)
         Other                                                        -              -            103             103
-----------------------------------------------------------------------------------------------------------------------
            Net cash used in financing activities                  (486)             -         (1,862)         (2,348)
-----------------------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents              2,066             35         (2,116)            (15)

-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                        -             42            293             335
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                        $ 2,066       $     77       $ (1,823)     $      320
=======================================================================================================================
</TABLE>

<PAGE>
                   CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

                               Index to Exhibits
================================================================================



                                                                    Sequentially
Exhibit No.                     Description                             Numbered

3.1(1)          Restated Certificate of Incorporation
3.3(2)          Restated Bylaws
4.1(3)          Indenture dated as of November 15, 1995 among 
                Registrant, the certain subsidiaries of Registrant 
                and U.S. Trust company of California, N.A., as Trustee
4.2(3)          Registration Rights Agreement dated as of 
                November 15, 1995 among Registrant, certain subsidiaries
                of  Registrant, and Donaldson, Lufkin, & Jenrette 
                Securities Corporation, BT Securities Corporation and
                Goldman, Sachs & Co.
4.3             Form of Note Certificate (included in Exhibit 4.1)
4.4             First Supplemental Indenture dated as of March 14, 1996
                among Carr-Gottstein Foods Co., the guarantors named
                therein and U.S. Trust Company of California, N.A., as
                Trustee
10.1(4)         Deed of Trust, Assignment of Rents, Security Agreement
                and Fixture filing dated October 11, 1991 by and 
                between CGF Properties, Inc., Stewart Title Company of
                Alaska, Inc., and Teachers Insurance and Annuity 
                Association of America
10.2(4)         Assignment of Lessor's Interest in lease dated 
                October 11, 1991 by Registrant in  favor of 
                Teachers Insurance and Annuity Association of America
10.3(4)         Environmental Indemnity dated October 11, 1991 by 
                Registrant payable to Teachers Insurance and 
                Annuity Association of America
10.8(4)         Carr-Gottstein Foods Co. 1991 Stock Option Plan
10.14(4)        Shared Appreciation Agreement dated October 12, 1990
                between Carr-Gottstein Foods Co. and Registrant
10.22(4)        Amended and Restated Retail Lease 
                (Huffman Shopping Center) dated October 12, 1990
                between Labar Co. and Registrant
10.65(5)        Carr-Gottstein Foods Co. Retirement Savings & 
                Investment Plan and Trust as Amended  and 
                Restated July 1, 1991
10.66(5)        Oaken Keg Spirit Shops Retirement Savings & 
                Investment Plan and Trust as Amended and
                Restated July 1, 1991
10.67(5)        Amendment to the Carr-Gottstein 1991 Stock Option Plan
10.71(6)        Form of Assignment and Assumption Agreement
10.72(6)        Form of Assignment of Leases and Rents
10.73(6)        Form of Environmental Indemnity Agreement
10.74(6)        Form of Fee Mortgage
10.75(6)        Form of Leasehold Mortgage
10.79(6)        Swing Line Loan Promissory Note ($5,000,000) between
                Registrant and Bankers Trust Company
10.80(6)        Guaranty Agreement
10.81(6)        Security Agreement
10.82(6)        Pledge Agreement
10.83(6)        Collateral Account Agreement
10.97(7)        1991 Outside Directors Stock Option Plan
10.98(8)        Agreement by and between CGF and United Food & 
                Commercial Workers Union Local 1496, effective 
                as of June 1, 1994
10.99(8)        Employment Agreement - Lawrence Hayward
10.101(9)       Employment Agreement - Donald Anderson
10.102(10)      Amended and Restated Credit Agreement,  
                Dated as of November 15, 1995 among Registrant,
                Certain lenders and Bankers Trust Company, as agent
10.103(11)      Management Service Agreement between Registrant 
                and  Leonard Green & Associates, L.P.
21(11)          Subsidiaries of Registrant

<PAGE>
                   CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

                               Index to Exhibits
================================================================================

(1)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended July 4, 1993.
(2)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for
            the quarter ended October 3, 1993
(3)         Incorporated by reference to the exhibit filed with the Registrant's
            Amendment Number 2 to Schedule
            13E-4 first published on October 13, 1995
(4)         Incorporated by reference to the exhibit filed with the Registrant's
            Form S-1 Registration Statement filed on May 21, 1993.
(5)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended July 4, 1993.
(6)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended October 3, 1993.
(7)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended July 3, 1994.
(8)         Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended October 2, 1994.
(9)         Incorporated by reference to the exhibit filed with the Registrant's
            Annual  Report on Form 10-K for the  fiscal  year  ended  January 1,
            1995.
(10)        Incorporated by reference to the exhibit filed with the Registrant's
            Quarterly Report on Form 10-Q for the quarter ended July 2, 1995.
(11)        Incorporated by reference to the exhibit filed with the Registrant's
            Registration Statement on Form S-4 on December 19, 1995.