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 28, 1997

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

                             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 stock - 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 5(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 10, 1998: $26,956,550

Number of Shares of Common Stock outstanding as of March 10, 1998: 8,190,796.


                   DOCUMENTS INCORPORATED BY REFERENCE
                    (To the Extent Indicated Herein)





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                          CARR-GOTTSTEIN FOODS CO.
                    INDEX TO ANNUAL REPORT ON FORM 10-K
                 For the Fiscal Year Ended December 28, 1997



                               PART I

                                                                           Page

Item 1.       Business                                                       1
              .................................................................
Item 2.       Properties                                                     7
              .................................................................
Item 3.       Legal Proceedings                                              7
              .................................................................
Item 4.       Submission of Matters to a Vote of Security Holders            8
              .....................................................


                               PART II

Item 5.       Market for Registrant's Common Equity
                       and Related Stockholder Matte                          9
              ................................................................
Item 6.       Selected Financial Information and Other Data                  10
              ..........................................................
Item 7.       Management's Discussion and Analysis of
                       Financial Condition and Results of Operations         11
              .............................................
Item 8.       Financial Statements and Supplementary Data                    14
              ............................................................
Item 9.       Changes in and Disagreements with Accountants
                       on Accounting and Financial Disclosure                14
              ........................................................


                               PART III

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


                               PART IV


Item 14.      Exhibits, Financial Statement Schedules, Reports on Form 8-K   17
              ...................................











<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;  and (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  December  30, 1996 and ending  December 28, 1997 is
referred herein as "1997").


The Company


         The Company is the leading  food and drug  retailer in Alaska,  with 45
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 nine smaller
stores,  four under the name Eagle  Quality  Centers  and two under  other trade
names  (collectively,  the "Eagle Stores"),  as well as three  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").  The Company also  operates  five 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.
         Since  1991 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, bagel bars, fresh pasta  departments,  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 two
Carrs Stores 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
<PAGE>
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.

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
three  smaller  neighborhood  stores in Big Lake,  Seldovia and  Girdwood  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,  in  which to
purchase a full range of tobacco items including a broad selection of cigars and
miscellaneous accessories.  The five Tobacco Stores range in size from 525 total
square feet to approximately 1,000 total square feet.

         Store  Expansions,  Remodels and Additions.  From 1990 through 1995 and
continuing  in 1997,  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 mid 1997, the Company  acquired a store in Girdwood,  Alaska from an
independent  operator and converted  this store into its Eagle format.  In 1995,
the Company  opened a new 70,000 square foot Carrs Store in Juneau.  The Company
completed  one major  remodel  at its Carrs  locations  during  fiscal  1997 and
substantially  completed two other major  remodels which were finalized in early
1998.  During the first quarter 1998,  the Company  entered into an agreement to
purchase  certain real estate and personal  property in Fairbanks  and the North
Pole contingent upon certain conditions.  As part of the agreement,  the Company
will lease a 58,000  square foot store in North Pole.  The Company will continue
to search for opportunities to grow its Eagle Stores 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  18 tractors  and 537  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
<PAGE>
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.

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 has allowed the Company to support  modern  database
tools and client/server technology.  The Company believes that this new flexible
systems  environment  has  enabled  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.

         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
<PAGE>
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 a few
competitive  remodels in progress  during early 1998,  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.

Year 2000 Issue

         The year 2000 issues  stems from the fact that many  computer  programs
were written  using two,  rather than four,  digits to identify  the  applicable
year. As a result,  computer programs with time-sensitive software may recognize
a two-digit  code for any year in the next  century as related to this  century.
For example,  "00" entered in a date-filed for the year 2000, may be interpreted
as  the  year  1900,   resulting  in  system  failures  or  miscalculations  and
disruptions of operations,  including, among other things, a temporary inability
to process transactions or engage in other normal business activities.

         In order to improve  operating  efficiencies and to help streamline the
Company's  administrative  operations,  the Company installed its new purchasing
and financial  system,  Project Fusion, in 1996. An ancillary benefit of Project
Fusion is that the majority of the  resulting  systems are Year 2000  compliant.
Based upon a recent assessment,  the Company has determined that the incremental
cost of ensuring that its remaining  computer systems are Year 2000 compliant is
not expected to have a material  adverse effect on the Company.  The Company has
completed a preliminary assessment of each of its operations and their Year 2000
readiness,  believes that  appropriate  actions are being taken,  and expects to
complete its overall Year 2000  remediation  prior to any anticipated  impact on
its  operations.  The Company  believes  that,  with  modifications  to existing
software  and  conversions  to new  systems,  the Year 2000  issue will not pose
significant  operational  problems  for its  computer  systems  and  that  costs
associated with Year 2000  remediation  will not be material.  However,  if such
modifications  and  conversions are not made, or are not completed  timely,  the
Year 2000 issue could have a material  impact on the operations of this Company.
The potential  impact of the Year 2000 issue on significant  customers,  vendors
and suppliers  has not yet been  assessed and cannot be reasonably  estimated at
this time. Further, while the Company has initiated formal communications with a
number  of its  significant  suppliers  to  determine  the  extent  to which the
Company's  interface  systems are vulnerable to those third parties'  failure to
remediate their own Year 2000 issues,  and will initiate  similar  communication
with the balance of its major suppliers in 1998,  there is no guarantee that the
systems of other  companies on which the  Company's  systems rely will be timely
converted and would not have an adverse effect on the Company's systems.

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  671,000 in 2000, a compound  annual growth rate of  approximately
2.0% compared to the estimated national  population growth rate of approximately
1.0%  for that  period.  Employment  in  Alaska,  which  grew  0.4% in 1997,  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  ($1,296 per eligible  resident) in Alaska's fiscal year ended June
30, 1997.

         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
3,000 people,  approximately 2,300 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
<PAGE>
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.

         In addition to its shopping  centers,  the Company owns six stand-alone
supermarkets,  one  each in  Anchorage,  Fairbanks,  Juneau,  Seward,  Nome  and
Girdwood. 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.

         During the first  quarter 1998,  the Company  entered into a definitive
sales  agreement  whereby it will sell  approximately  18 acres of  property  in
Tacoma,  Washington,  the  location  of its  current  cross-dock  and  warehouse
facility.  As part of the agreement,  a new and improved replacement  cross-dock
and warehouse  facility will be constructed and leased back to the Company.  The
lease  term  will be for 15 years and will  include  three  successive  renewal
options at the end of the initial term.

         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 1999,  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  $41.9 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 $116.8 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.
<PAGE>
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 $18.0 million to $30.0
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 28, 1997.




<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 1995,  1996 and
1997 are as follows:

<TABLE>
<CAPTION>

1995                                                                                    High               Low
<S>                                                                                   <C>                 <C>    
           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.........................                                     $ 5.88              $ 3.63
           Second quarter........................                                     $ 5.38              $ 4.75
           Third quarter.........................                                     $ 5.44              $ 4.75
           Fourth quarter........................                                     $ 5.31              $ 4.75
1998
           First quarter  (through March 10, 1998)                                    $ 5.75              $ 4.81
</TABLE>
         As of March  10,  1998,  the  number of  stockholders  of record of the
Company's Common Stock was 221.

         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."






<PAGE>

<TABLE>
<CAPTION>
Item 6.           Selected Financial Information and Other Data.
(Amounts in Thousands, except for per share      Fiscal year     Fiscal year     Fiscal year     Fiscal year    Fiscal year
and store information)                              1997            1996            1995            1994            1993
---------------------------------------------- ---------------- -------------- ---------------- -------------- ---------------
<S>                                               <C>              <C>            <C>            <C>              <C>

Operating Results:
Sales                                            $  589,274       $  612,576      $  601,322     $  577,063      $  555,266

Cost of merchandise sold, including
warehousing and transportation expenses (1)         418,639          442,996         431,230        417,183         396,080

Gross profit                                        170,635          169,580         170,092        159,880         159,186

Operating and administrative expenses (1,4,6)       151,105          144,525         141,884        130,255         131,313

Operating income (4,6)                               19,530           25,055          28,208         29,625          27,873

Interest expense, net                                26,711           27,923          16,079         12,210          19,327
Income (loss) before extraordinary item and
cumulative effect of change
in accounting for income taxes                      (5,605)          (2,810)       (3) 4,650         9,211       (2)  4,244
Net income (loss)                                   (5,605)          (2,810)           3,744          9,211         (14,581)
                                                 =============== ============== =============== ============== ===============

Other Data:
Depreciation and amortization                     $  16,536        $  17,702       $  17,626      $  15,690       $  18,294
Compensation expense stock options (4)                    -                -           1,518              -               -
Non-recurring charge (6)                              8,949                -               -              -               -
Cash interest                                        25,366           26,484          15,558         12,143          18,680

Basic Income (Loss) Per Share:
   Before extraordinary items                      $  (0.71)       $  (0.36)         $  0.32        $  0.55         $  0.30
   Net income (loss)                                  (0.71)          (0.36)            0.26           0.55           (1.03)
   Weighted average shares outstanding                7,921            7,814      (5) 14,457         16,763          14,139

Diluted Income (Loss) Per Share: (7)
   Before extraordinary items                     $  (0.71)        $  (0.36)         $  0.31        $  0.53         $  0.29
   Net income (loss)                                 (0.71)           (0.36)            0.25           0.53           (1.01)
   Weighted average shares outstanding                7,921            7,814          15,112         17,233          14,435

Financial Position:
Total assets                                     $  315,466       $  330,844      $  336,620     $  326,369      $  308,912

Long-term debt, excluding current maturities        215,421          227,640         234,740        136,339         137,456

Stockholders' equity                                 24,314           29,598          32,302        112,636         113,366

Capital expenditures                                  7,010            4,390          16,660         26,473          27,949

Other Year End Statistics:
   Number of stores                                      45               42              39             36              33
   Number of employees                                3,040            3,243           3,568          3,597           3,525
</TABLE>


(1)  Reclassifications  have been made to fiscal years 1993 through 1995. During
     these years,  warehousing,  transportation  and the related occupancy costs
     were originally  reported as operating and administrative  expenses.  For 
     the current presentation,  these  expenses  have been  classified  as cost
     of sales.  
(2)  In fiscal year 1993  extraordinary  item  consisted of a $21,100  ($1.49 
     per share) charge  resulting  from  early  retirement  of debt.  
(3)  In fiscal  year 1995, extraordinary  item consisted of a $906 ($0.06 per 
     share) charge  resulting from early retirement of debt.
(4)  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.
(5)  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.
(6)  In 1997, the Company recognized a non-recurring  charge of $8.9 million
     for expenses principally  associated with its decision to close its YES
     foods  institutional food service business and discontinue  wholesaling
     services to a Russian export business.
(7)  Diluted earnings per share data for fiscal years 1993 through 1996 have 
     been restated to conform with Statement of Financial Accounting Standard 
     No. 128, Earnings Per Share.


<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 1992 through 1997, 11 of the 15 Carrs Stores have
been  remodeled or expanded,  and two new Carrs Stores and four new Eagle Stores
have been added.

The table below sets forth certain income  statement  components as a percentage
of sales.
<TABLE>
<CAPTION>
                                                                                  Fiscal Year
                                                                   ------------------------------------------
                                                                         1997            1996       1995
                                                                         ----      -     ----  -    ----
<S>                                                                      <C>            <C>         <C>        
      Sales..............................................                100.0%         100.0%      100.0%

      Cost of merchandise sold, including warehousing
            and transportation expenses...............................    71.0                       71.7
                                                                                         72.3
      Gross profit....................................................    29.0           27.7        28.3

      Operating and administrative expenses...........................    25.7           23.6        23.6
                                                                          ----           ----        ----
      Operating income................................................     3.3            4.1         4.7
                                                                           ===            ===         ===
</TABLE>
Results of Operations

         Fiscal 1997 Compared to Fiscal 1996

         Sales.  Sales for fiscal  1997 were $589.3  million  compared to $612.6
million for fiscal 1996.  The 3.8%  decrease was due  primarily to the Company's
decision  to  close  its YES  Foods  institutional  food  service  business  and
discontinue  its  wholesaling  services to a Russian export  business as well as
generally softer  comparable store sales at the retail division during the first
half of 1997.  The decrease in sales for 1997  reflects a 1.4% decrease in total
retail  comparable  store sales.  Sales at the retail  division were impacted by
increased competitive activity and less promotional spending by the Company.

         Gross Profit.  Gross profit for fiscal 1997 was $170.6 million compared
to $169.6  million for fiscal  1996.  The  increase in gross  margin  dollars is
primarily  attributable to improved buying practices,  reductions in promotional
spending as well as improved gross margins achieved at the wholesale and freight
divisions.  As a percentage of sales,  gross profit was 29.0% for fiscal 1997 as
compared to 27.7% for fiscal 1996.  Gross  profit as a  percentage  of sales for
fiscal 1997 increased as a result of improved  buying  practices,  reductions in
promotional  spending during 1997 and the closure of YES Foods which operated at
lower gross margin rates.

         Operating and  Administrative  Expenses.  Operating expenses for fiscal
1997,  before  a one time  pre-tax  non-recurring  charge  of $8.9  million  for
expenses  principally  associated  with the Company's  decision to close its YES
Foods  institutional  food service  business  and  discontinue  its  wholesaling
services to a Russian export  business,  were $142.2 million  compared to $144.5
million for fiscal 1996. Excluding the non-recurring charge,  operating expenses
as a  percentage  of sales were 24.1% for fiscal 1997 and 23.6% for fiscal 1996.
Including the non-recurring  charge,  operating expenses were 151.1 million,  or
25.7% of sales.

         Operating  Income.   Operating  income  for  fiscal  1997,  before  the
non-recurring  pre-tax charge of $8.9 million recognized in June 1997, increased
$3.4 million from $25.1 million,  or 4.1% of sales, in 1996 to $28.5 million, or
4.8% of sales,  in 1997.  The increase was due  primarily to the improved  gross
margin rate and dollars during 1997.

         Other Income and Expense.  Net interest  expense was $26.7  million for
fiscal 1997  compared to $27.9 million for fiscal  1996.  The  decrease in 
interest expense reflects the lower average debt balances during 1997.  See
"Liquidity and Capital Resources."

<PAGE>
         Income  Taxes.  The Company  recognized  an income tax benefit for 
fiscal 1997 of $1.9 million  compared to an expense of $30,000 for fiscal 1996.

         Net Loss.  Net loss was $5.6  million,  or $0.71 per share,  for fiscal
1997  compared  to a net loss of $2.8  million,  or $0.36 per share,  for fiscal
1996. The net loss for fiscal 1997 reflects a $8.9 million pre-tax non-recurring
charge ($5.3  million,  or $0.67 per share on an  after-tax  basis) for expenses
principally  associated  with the  Company's  decision  to close  its YES  Foods
institutional food service business and discontinue its wholesaling  services to
a Russian export business.

         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 0.5%  increase in total
retail comparable store sales.

         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."

         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.

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.
<PAGE>
         Net cash provided by operating  activities was $22.2 million for fiscal
1997  compared to $22.2  million  for fiscal  1996 and $17.1  million for fiscal
1995. 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 $7.0 million,  $4.4 million and $16.7
million on capital expenditures during fiscal 1997, 1996 and 1995, respectively.
During fiscal 1997 the Company  completed  one major  remodel and  substantially
completed  the remodels at two  additional  Carrs  locations and added two Great
Alaska Tobacco Company stores.  Management anticipates that capital expenditures
for fiscal 1998 will be approximately $7.0 to $12.0 million.

         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 1997. 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        62,572
1991         7       --        --        1     --       --             --       5,240         407,446        62,572
1992        --       --         2       --     --       --         38,581          --         446,027        62,572
1993         5        2         2       --      1       --         50,450          --         496,477        62,572
1994         3       --         2       --     --        3          5,320      67,184         501,797       129,756
1995        --       --         1       --      1       --         43,976          --         543,725       129,756
1996        --       --        --       --     --       --             --          --         543,725       129,756
1997         3       --        --       --     --        1            520       2,255         544,245       132,011
</TABLE>
         Net cash used by  financing  activities  was $14.0  million  for fiscal
1997. The cash used was principally for scheduled debt amortization payments and
payments against the Company's working capital revolver. 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.

         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.
<PAGE>
         At  December  28,  1997  there  were  no  borrowings  on the  Company's
revolving  credit  facility.  The Company had available  unused credit of $35.0
million.  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.   In  February  1997,  the  Financial
Accounting  Standards  Board (FASB)  issued SFAS No. 128,  "Earnings Per Share."
This new standard  simplifies the earnings per share (EPS) calculation and makes
the  U.S.  standard  for  computing  EPS  more  consistent  with   international
accounting  standards.  The Company  adopted SFAS 128 at year-end  1997. EPS for
prior years has been restated where necessary to comply with SFAS 128.

         Under SFAS 128,  primary EPS was  replaced  with a simpler  calculation
called basic EPS. Basic EPS is calculated by dividing income available to common
shareholders  by the weighted  average  common shares  outstanding.  Previously,
primary EPS was based on the weighted  average of both  outstanding and issuable
shares assuming all dilutive  options had been exercised.  Under SFAS 128, fully
diluted EPS has not changed  significantly,  but has been  renamed  diluted EPS.
Diluted EPS includes the effect of all potentially dilutive securities,  such as
options. The Company's basic and diluted EPS are materially the same.

         In June 1997,  the FASB issued SFAS No. 130,  "Reporting  Comprehensive
Income."  SFAS 130  establishes  standards  for the  reporting  and  display  of
comprehensive  income and its  components.  Comprehensive  income  includes  all
changes in equity  during a period  except  those due to owner  investments  and
distributions.   It  includes  items  such  as  foreign   currency   translation
adjustments,  and unrealized gains and losses on available-for-sale  securities.
This  standard does not changes the display or  components  of  present-day  net
income.  The Company  will  present the required  disclosures  in its  financial
statements  beginning in the 1998 first quarter.  This statement is not expected
to have a material impact on the Company.

         Also in June 1997,  the FASB  issued SFAS No.  131,  "Disclosure  about
Segments of an Enterprise and Related  Information."  This new standard requires
companies to disclose segment data based on how management makes decisions about
allocating resources to segments and how it measures segment  performance.  SFAS
131  requires  companies  to  disclose  a  measure  of  segment  profit  or loss
(operating  income,  for  example),   segment  assets,  and  reconciliations  to
consolidated totals. It also requires entity-wide  disclosures about a company's
products and services,  its major customers and the material  countries in which
it holds  assets and reports  revenues.  The Company  will adopt SFAS 131 in its
1998 year-end  financial  statements.  This  statement is not expected to have a
significant effect on the Company's financial statements.

         In February 1998, the FASB issued SFAS No 132, "Employers'  Disclosures
about Pensions and Other  Postretirement  Benefits." SFAS 132  standardizes  the
disclosure   requirements  for  pensions  and   postretirement   benefits  where
practical.  It also  eliminates  certain  disclosures  and  requires  additional
information  on changes in benefit  obligations  and fair values of plan assets.
The Company will adopt SFAS 132 in its 1998 year-end financial statements.  This
statement is not expected to have a significant  effect on the Company's pension
plan disclosures.


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,  70, 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.

         Lawrence H. Hayward,  43, 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 1981 until 1990,  Mr.  Hayward  served in various  corporate
positions at American Stores Company headquartered in Salt Lake City, Utah. 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,  37, 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 where he
was  Program  Manager  for  the  financial  portion  of a  multi-million  dollar
re-engineering program.

         Jeff L. Philipps,  42, 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.

         Leonard I. Green,  64, 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 Rite-Aid  Corporation,  Communications  & Power
Industries, Inc., and Hechinger Company.
<PAGE>
         Jonathan D.  Sokoloff,  40, 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 TwinLab 
Corporation, Gart Sports Company and Hechinger Company.

         Gregory J. Annick,  34, 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  Communications  &
Power Industries,  Incs., Leslie's Poolmart, Inc., Hechinger Company and Liberty
Group Publishing, Inc.

         E. Dean Werries,  68, 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 
Chairman of the Board of Sonic Corp.

         Donald E.  Gallegos,  63,  became a director of CGF in 1994.  He is the
retired President of King Soopers, a retail grocery chain owned by Kroger,  Inc.
On April 1, 1997,  after serving seven years as President,  Mr. Gallegos retired
from that position and became 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 28, 1997.


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 F-27.

      (b)     No reports on Form 8-K were filed during the fourth quarter of the
              fiscal year ended December 28, 1997.





<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 16th day of
March, 1998.

                                    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 16th day of March, 1997.

PRINCIPAL EXECUTIVE OFFICERS                         DIRECTORS
 

                                                   /S/  Leonard I. Green
/S/  Lawrence H. Hayward                          -----------------------
--------------------------                         Leonard I. Green
Lawrence H. Hayward, President and Chief
Executive Officer; Director
                                                    /S/  Jonathan Sokoloff
                                                    ------------------------
                                                    Jonathan Sokoloff
PRINCIPAL FINANCIAL OFFICER
and ACCOUNTING OFFICER
                                                    /S/  Gregory Annick
                                                    ------------------------
/S/ Donald J. Anderson                              Gregory Annick
--------------------------
Donald J. Anderson, Chief Financial Officer  
and Accounting Officer                              /S/  John J. Cairns
                                                    ------------------------
                                                    John J. Cairns


                                                    /S/  Lawrence H. Hayward
                                                    --------------------------
                                                    Lawrence H. Hayward


                                                    /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 28, 1997,
     December 29, 1996 and December 31, 1995                               F-3
 ...............................................................................

Consolidated Balance Sheets as of December 28, 1997 and December 29, 1996  F-4
 ...............................................................................

Consolidated Statements of Stockholders' Equity for the years ended
     December 28, 1997, December 29, 1996, December 31, 1995.............  F-5

Consolidated Statements of Cash Flows for the years ended December 28, 
1997, December 29, 1996, and December 31, 1995                             F-6
 ...............................................................................

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



<PAGE>



-------------------------------------------------------------------------------
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 28, 1997 and December
29,  1996 and the results of their  operations  and their cash flows for each of
the years in the three-year  period ended  December 28, 1997 in conformity  with
generally accepted accounting principles.




KPMG Peat Marwick LLP



Anchorage, Alaska
February 12, 1998

<PAGE>


CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES

  Consolidated Statements of Operations
<TABLE>
<CAPTION>
                                                                                       Years ended
-----------------------------------------------------------------------------------------------------------------------
                                                                  December 28, 1997     December 29,      December 31,
Amounts In Thousands (except per share data)                                                1996             1995
----------------------------------------------------------------- ------------------ ----------------- -----------------
<S>                                                                     <C>              <C>                <C>    
Sales                                                                  $  589,274        $  612,576         $  601,322
Cost of merchandise sold, including warehousing
     and transportation expenses                                          418,639           442,996            431,230
----------------------------------------------------------------- ----------------- ------------------ -----------------
         Gross profit                                                     170,635           169,580            170,092

Operating and administrative expenses                                     142,156           144,525            140,366
Compensation expense for stock options                                          -                 -              1,518
Non-recurring charge                                                        8,949                 -                  -
----------------------------------------------------------------- ----------------- ------------------ -------------------
         Operating income                                                  19,530            25,055             28,208

Other income (expense):
         Interest expense, net                                            (26,711)          (27,923)           (16,079)
         Other income (expense)                                              (373)               88                (23)
         Non-recurring costs related to sale-leaseback                          -                 -             (2,249)
----------------------------------------------------------------- ----------------- ------------------ -------------------
         Income (loss) before income tax expense,
            and extraordinary item                                         (7,554)           (2,780)             9,857

Income tax benefit (expense)                                                1,949               (30)            (5,207)
----------------------------------------------------------------- ----------------- ------------------ -------------------
         Income (loss) before extraordinary item                           (5,605)           (2,810)             4,650

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

         Net income (loss)                                             $   (5,605)      $    (2,810)        $    3,744
================================================================= ================= ================== ===================

Basic income (loss) per common share:
         Income (loss) before extraordinary item                   $        (0.71)    $       (0.36)        $      0.32
         Extraordinary item                                                    -                  -               (0.06)
----------------------------------------------------------------- ----------------- ------------------ -------------------
         Net income (loss) per share                                $       (0.71)     $      (0.36)        $      0.26
================================================================= ================= ================== ===================

Diluted income (loss) per common share:
         Income (loss) before extraordinary item                     $      (0.71)     $      (0.36)        $      0.31
         Extraordinary item                                                    -                  -               (0.06)
----------------------------------------------------------------- ----------------- ------------------ -------------------

         Net income (loss) per share                                 $      (0.71)     $      (0.36)        $      0.25
================================================================= ================= ================== ===================

Weighted average common shares outstanding - basic                          7,921             7,814              14,457

Weighted average common shares outstanding - diluted                        7,921             7,814              15,112
================================================================= ================= ================== ===================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                       December 28,       December 29,
Amounts in Thousands                                                                       1997               1996
-----------------------------------------------------------------------------------------------------------------------

                                      Assets
Current assets:
<S>                                                                                     <C>                <C>    
         Cash and cash equivalents                                                     $     11,081       $     8,655
         Accounts receivable, net                                                            11,513            16,650
         Income taxes receivable                                                                949                 -
         Inventories                                                                         51,471            54,232
         Deferred taxes                                                                       2,690             1,918
         Prepaid expenses and other current assets                                            2,380             2,809
----------------------------------------------------------------------------------- ----------------- ------------------
               Total current assets                                                          80,084            84,264

Property, plant and equipment, at cost, net of accumulated depreciation                     134,090           142,179
Intangible assets, net of accumulated amortization                                           88,973            91,731
Deferred taxes                                                                                  783               334
Other assets                                                                                 11,535            12,336
----------------------------------------------------------------------------------- ----------------- ------------------
                                                                                         $  315,465         $ 330,844
=================================================================================== ================= ==================

                       Liabilities and Stockholders' Equity
Current liabilities:
         Accounts payable                                                               $    37,187        $   38,467
         Accrued expenses                                                                    20,621            15,145
         Income taxes payable                                                                     -               298
         Current maturities of long-term debt                                                12,220             7,281
         Revolving line of credit                                                                 -             7,000
         Estimated obligation for self-insurance                                              2,176             1,958
----------------------------------------------------------------------------------- ----------------- ------------------
               Total current liabilities                                                     72,204            70,149

Long-term debt, excluding current maturities                                                215,420           227,640
Estimated obligation for self-insurance                                                       1,536             1,536
Other liabilities                                                                             1,991             1,921
----------------------------------------------------------------------------------- ----------------- ------------------
               Total liabilities                                                            291,151           301,246
----------------------------------------------------------------------------------- ----------------- ------------------

Stockholders' equity:
         Common stock, $.01 par value, authorized 25,000 shares,
            issued 9,680 shares at 1997 and 1996, respectively                                   97                97
         Additional paid in capital                                                          52,088            52,513
         Deficit                                                                            (16,149)          (10,544)
----------------------------------------------------------------------------------- ----------------- ------------------
                                                                                             36,036            42,066

         Less treasury stock, 1,741 shares and 1,853 shares, respectively, at 
            cost                                                                             11,722            12,468

----------------------------------------------------------------------------------- ----------------- ------------------
               Total stockholders' equity                                                    24,314            29,598
----------------------------------------------------------------------------------- ----------------- ------------------

Commitments and contingencies
=================================================================================== ================= ==================
                                                                                         $  315,465         $ 330,844
=================================================================================== ================= ==================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>



Consolidated Statements of Stockholders' Equity

Years ended December 28, 1997
December 29, 1996, and   
December 31, 1995
<TABLE>
<CAPTION>
                                                                                                                Total       
                                                      Additional                   Stock                     Stock-holders'
                                           Common      Paid-In                Subscriptions      Treasury      Equity
Amounts in Thousands                       Stock       capital       Deficit     Receivable       Stock
--------------------------------------- ------------ ------------- ---------- ----------------- ------------ -----------
<S>                                        <C>      <C>          <C>            <C>             <C>        <C>
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

Issuance of treasury stock                       -         (425)            -            -            746           321
Net loss                                         -            -        (5,605)           -              -        (5,605)
---------------------------------------- ---------- ------------ ------------- ------------ -------------- -------------
Balance at December 29, 1997              $     97  $    52,088    $  (16,149) $         -    $   (11,722)  $    24,314
======================================== ========== ============ ============= ============ ============== =============
</TABLE>


See accompanying notes to consolidated financial statements.

<PAGE>



Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
                                                                                          Years ended
-----------------------------------------------------------------------------------------------------------------------
                                                                       December 28,      December 29,       December 31,
Amounts in Thousands                                                        1997               1996            1995
-----------------------------------------------------------------------------------------------------------------------
Operating activities:
<S>                                                                  <C>               <C>                 <C>    
       Net income (loss)                                            $       (5,605)    $     (2,810)       $    3,744
       Adjustments to reconcile net income (loss) to net cash
          provided by operating activities:
              Extraordinary loss before income tax benefit                       -                -             1,539
              Depreciation                                                  13,678           14,844            14,141
              Amortization of intangibles                                    2,858            2,858             3,485
              Amortization of loan fees                                      1,345            1,439               696
              Loss (gain) on disposal of property and equipment                115              (84)               23
              Compensation recognized for stock options                          -                -             1,518
              Changes in assets and liabilities:
                 Decrease (increase) in receivables                          5,137            1,203            (2,244)
                 Decrease (increase) in inventories                          2,761           (3,727)           (1,111)
                 Decrease in prepaid expenses and other current assets         429               72               564
                 Increase in other assets                                     (544)            (556)           (1,284)
                 Increase (decrease) in income taxes payable                  (298)             298                 -
                 Decrease (increase) in deferred taxes                      (1,221)            (984)              390
                 Increase (decrease) in accounts payable                    (1,280)           2,481            (4,368)
                 Increase in accrued expenses                                5,476            7,793             1,024
                 Decrease (increase) in income tax receivable                 (949)             164                93
                 Increase (decrease) in obligation for self-insurance          218             (836)             (422)
                 Increase (decrease) in other liabilities                       70               50              (650)
-----------------------------------------------------------------------------------------------------------------------
                 Net cash provided by operating activities                  22,190           22,205            17,138
-----------------------------------------------------------------------------------------------------------------------
Investing activities:
       Additions to property and equipment                                  (6,910)          (4,390)          (16,660)
       Additions to intangible assets                                         (100)               -               (26)
       Proceeds from sale of property and equipment                          1,206              287                66
       Proceeds from sale of subsidiary                                          -                -               983
-----------------------------------------------------------------------------------------------------------------------
                 Net cash used in investing activities                      (5,804)          (4,103)          (15,637)
-----------------------------------------------------------------------------------------------------------------------
Financing activities:
       Proceeds from issuance of long-term debt                                  -                -            95,000
       Proceeds from issuance of senior subordinated notes                       -                -            91,750
       (Payments) borrowings under revolving line of credit, net            (7,000)          (9,000)            4,044
       Payments on long-term debt, including prepayment penalties           (7,281)          (3,370)         (104,202)
       Change in stock subscriptions receivable                                  -               44                (4)
       Purchase and retirement of common stock                                   -                -           (83,250)
       Purchase of treasury stock                                                -                -            (2,498)
       Issuance of treasury stock, net                                         321               62               156
-----------------------------------------------------------------------------------------------------------------------
                 Net cash provided by (used in) financing activities       (13,960)         (12,264)              996
-----------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                    2,426            5,838             2,497

Cash and cash equivalents at beginning of year                               8,655            2,817               320
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                              $     11,081    $       8,655        $    2,817
=======================================================================================================================

Supplemental information:
       Interest paid                                                  $     25,064        $  25,198         $  14,387
       Income taxes paid                                              $        956          $   552         $   4,091
=======================================================================================================================
</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 45 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 nine 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.  The  Company  operates  five 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.  The Company,  through CGF Properties,  Inc.,
owns many of the buildings  and shopping  centers from which its Carrs 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, 1995 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>
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 1997, 1996 and 1995
represent  the 52 week years ending  December  28,  1997,  December 29, 1996 and
December 31, 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>
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
Statement of Financial  Accounting  Standard No. 128, Earnings Per Share,  which
simplifies the earnings per share  calculation and makes the U.S.  standard more
consistent with international  accounting standards,  was adopted at year-end by
the  Company.  Earnings  per share data for 1996 and 1995 has been  restated  to
conform with the provisions of SFAS No. 128. Basic earnings per common share are
determined  by dividing  net income  (loss) by the  weighted  average  number of
common shares  outstanding.  Diluted earnings per common share are determined by
dividing  net income  (loss) by the  weighted  average  number of common  shares
outstanding,  including common stock options which are dilutive. For purposes of
calculating  diluted  earnings  per share for the year ended  December 31, 1995,
weighted average shares outstanding have been increased by 655 to reflect common
stock options which were  dilutive.  At December 28, 1997 and December 29, 1996,
options to purchase 1,072 and 1,157 shares of common stock,  respectively,  were
not included in the computation of diluted  earnings per share because they were
not dilutive.

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 account for stock options 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  consolidated
financial statements to conform to the current period presentation. During 1995,
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>
Notes to Consolidated Financial Statements

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

Accounts receivable consist of the following:
<TABLE>
<CAPTION>

                                                                           December 28,             December 29,
                                                                               1997                     1996
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>    
Wholesale and retail trade                                                  $  10,593                $ 15,267
Tenant                                                                            127                     248
Other                                                                           1,492                   1,378
-----------------------------------------------------------------------------------------------------------------------
                                                                               12,212                  16,893
Less allowance for doubtful accounts                                              699                     243
-----------------------------------------------------------------------------------------------------------------------
  Accounts receivable, net                                                  $  11,513                $ 16,650
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(7) PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:
                                                                           December 28,             December 29,
                                                                               1997                     1996
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                      <C>    
Land                                                                      $    24,932              $   25,393
Buildings                                                                      95,624                  95,458
Fixtures and equipment                                                         98,087                  93,326
-----------------------------------------------------------------------------------------------------------------------
                                                                              218,643                 214,177
Less accumulated depreciation                                                  84,553                  71,998
-----------------------------------------------------------------------------------------------------------------------
   Property, plant and equipment, net                                      $  134,090               $ 142,179
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(8) INTANGIBLE ASSETS

Intangible assets consist of the following:
                                                                           December 28,             December 29,
                                                                               1997                     1996
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                       <C>    
Goodwill                                                                  $   107,605               $ 107,505
Other intangibles                                                              18,485                  18,485
-----------------------------------------------------------------------------------------------------------------------
                                                                              126,090                 125,990
Less accumulated amortization                                                  37,117                  34,259
-----------------------------------------------------------------------------------------------------------------------
   Intangible assets, net                                                 $    88,973              $   91,731
=======================================================================================================================
</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. There was no outstanding balance on the revolver at December 28, 1997.
The  interest  rate on the  revolver  at  revolver at  December  31,  1996,  was
approximately 8.0%.



<PAGE>
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 28,              December 29,
                                                                              1997                      1996
----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                      <C>    
Firstmortgage 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                  $     41,871             $    42,532
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
     8.4% at December 28, 1997; maturity of June 30, 2001                      26,500                  32,500
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
     8.9% at December 28, 1997; maturity December 31, 2002                     59,100                  59,700
Other notes payable                                                               169                     189
-----------------------------------------------------------------------------------------------------------------------
                                                                              227,640                 234,921
Less current maturities of long-term debt                                      12,220                   7,281
-----------------------------------------------------------------------------------------------------------------------
     Total long-term debt                                                 $   215,420               $ 227,640
=======================================================================================================================
</TABLE>
The Company's debt agreements contain various restrictive  covenants  pertaining
to net worth levels and dividends,  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. During 1997, the Company amended its bank agreement
whereby  its  restrictive  covenants  excluded  the impact of the  non-recurring
charge taken for expenses principally  associated with its decision to close YES
Foods and discontinue it wholesaling services to a Russian export business.  The
Company is currently in the process of further  amending its existing  agreement
to modify some of the existing covenant levels. This amendment will be completed
during the second  quarter  1998.  The  Company is in  compliance  with all debt
agreements.

The aggregate  maturities of long-term  debt for periods  subsequent to December
28, 1997 are as follows:

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

                   1998                                   $   12,220
                   1999                                        8,570
                   2000                                        3,634
                   2001                                       46,216
                   2002                                       36,000
                   Thereafter                                121,000
-------------------------------------------------------------------------------
                                                           $ 227,640
===============================================================================




<PAGE>
Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
------------------------------------------------
Interest expense consists of the following:
<TABLE>
<CAPTION>
                                                                              Fiscal year
-----------------------------------------------------------------------------------------------------------------------
                                                         1997                     1996                  1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                         <C>                  <C>    
Interest on debt                                    $   25,306                  $ 26,484             $ 15,558
Amortization of loan fees                                1,345                     1,439                  696
-----------------------------------------------------------------------------------------------------------------------
                                                        26,711                    27,923               16,254
Less capitalized interest                                    -                         -                  175
-----------------------------------------------------------------------------------------------------------------------
   Interest expense, net                            $   26,711                  $ 27,923             $ 16,079
=======================================================================================================================
</TABLE>
Loan fees are  classified  as other assets and total  $6,513 and $7,856,  net of
amortization,  at December  28, 1997 and December  29,  1996,  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
-----------------------------------------------------------------------------------------------------------------------
                                                         1997                     1996                  1995
-----------------------------------------------------------------------------------------------------------------------

Current:
<S>                                                   <C>                       <C>                   <C>    
Federal                                              $    (562)                 $    782              $ 3,546
State                                                     (166)                      232                  638
-----------------------------------------------------------------------------------------------------------------------
                                                          (728)                    1,014                4,184
-----------------------------------------------------------------------------------------------------------------------
Deferred:
Federal                                                   (942)                     (759)                 871
State                                                     (279)                     (225)                 152
-----------------------------------------------------------------------------------------------------------------------
                                                        (1,221)                     (984)               1,023
-----------------------------------------------------------------------------------------------------------------------
   Income tax expense                                $  (1,949)                $      30             $  5,207
=======================================================================================================================
</TABLE>

A  reconciliation  of income tax 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>
Notes to Consolidated Financial Statements

Amounts in Thousands (except for per share data)
------------------------------------------------
<TABLE>
<CAPTION>
                                                                              Fiscal year
-----------------------------------------------------------------------------------------------------------------------
                                                         1997                     1996                  1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>                        <C>                 <C>    
Computed "expected" tax expense (benefit)            $  (2,644)                  $  (973)            $  3,450
State income taxes, net of federal benefit                (290)                        4                  764
Nondeductible goodwill amortization                        925                       925                  925
Other                                                       60                        74                   68
----------------------------------------------------------------------------------------------------------------------
                                                     $  (1,949)                 $     30             $  5,207
=======================================================================================================================
</TABLE>

Total tax benefit for  fiscal year 1997 is $1,949.  Total tax expense for fiscal
year 1996 is $30.

In July 1997, an  examination  by the Internal  Revenue  Service  ("IRS") of the
Company's  federal  tax returns  for fiscal  years 1994 and 1995 was  finalized,
resulting  in no  material  effect on the  results of  operations  or  financial
condition of the Company.  The examination had no effect on previously  recorded
expense or net income.

The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
                                                                            December 28,            December 29,
                                                                                1997                    1996
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>                      <C>    
Deferred tax assets:
       Alternative minimum tax credit carryforward                          $   4,535                $  4,949
       Intangible assets, due to differences in
          amortization                                                             69                     460
       Financial statement accrual of self-
          insurance costs                                                       1,427                   1,436
       Financial statement accrual for compensated
          absences                                                                671                     826
       Revenues received in advance, amortized
          for financial reporting                                                 638                     452
       Financial statement expense for stock options                              496                     612
       Inventory capitalized for taxes                                            638                     497
       Other                                                                      287                     100
-----------------------------------------------------------------------------------------------------------------------
             Total gross deferred tax assets                                    8,761                   9,332
-----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
       Property, plant, and equipment, due to
          differences in depreciation                                          (5,798)                 (7,055)
       Other                                                                      510                     (25)
-----------------------------------------------------------------------------------------------------------------------
             Total gross deferred tax liabilities                              (5,288)                 (7,080)
-----------------------------------------------------------------------------------------------------------------------
             Net deferred tax asset                                          $  3,473                $  2,252
=======================================================================================================================
</TABLE>

At December 28, 1997 the Company had alternative  minimum tax credit  carry
forwards  of  approximately  $3,843 and $692 for federal and state income taxes,
respectively, which carry forward indefinitely.


<PAGE>
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 28,
1997.  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 2019. 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 28,
1997 are as follows:

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

                1998                         $   6,518
                1999                             6,463
                2000                             6,355
                2001                             6,316
                2002                             6,252
                Thereafter                      41,747
-------------------------------------------------------------------------------
                                              $ 73,651
===============================================================================

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
-------------------------------------------------------------------------------
   1995           $  9,426                  $  1,024             $  10,450
   1996              9,338                       355                 9,693
   1997              9,549                        71                 9,620
===============================================================================

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.

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.

During the first  quarter  1998,  the Company  entered into a  definitive  sales
agreement  whereby it will sell  approximately  18 acres of  property in Tacoma,
Washington.  A new  cross-dock and warehouse  facility will be  constructed  and
leased back to the  Company.  The lease term will be 15 years and will  included
three successive renewal options.

During the first quarter 1998, the Company entered into an agreement to purchase
certain  real  estate and  personal  property  in  Fairbanks  and the North Pole
contingent upon certain conditions.  As part of the agreement,  the Company will
lease a 58,000  square foot store in North Pole for an initial  lease term of 15
years followed by four successive renewal options.

<PAGE>

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 28, 1997 are as follows:

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

              1998                          $  1,141
              1999                               958
              2000                               691
              2001                               360
              2002                               331
              Thereafter                         616
-------------------------------------------------------------------------------
                                            $  4,097
===============================================================================
<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>                       <C>    

        1995                $  1,266              $  48                   $  582                    $  732
        1996                   1,582                 19                      661                       940
        1997                   1,454                 72                      996                       530
=======================================================================================================================
</TABLE>
(15) RETIREMENT AND UNION PENSION PLANS

The  Company   contributes  to  a  401(k)   retirement   savings  plan  covering
substantially  all  employees  qualified  by age and length of  service,  except
employees  covered by union  contracts.  The Company employs  approximately  3.0
people  of which  2.3 or 77% 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) plan            Pension plans
-------------------------------------------------------------------------------

         1995                     $  636               $  3,367
         1996                        611                  3,445
         1997                        589                  3,505
===============================================================================


(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 $1,455, $0, and $0
for fiscal years 1997, 1996 and 1995, respectively.
<PAGE>
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 28, 1997,  two directors each had 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  28,  1997,  options  for 1,072  shares  were
outstanding,  of which  options with respect to 1,049 shares were 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  options for 749 common shares with exercise prices
of $5.00 to $10.63 per share and  immediately  reissued  options  for 749 common
shares 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 28, 1997, there were 77 additional  shares available for grant under
the plan.  The per share  weighted-average  fair value of stock options  granted
during 1997, 1996 and 1995 was $1.84, $1.34 and $2.86 respectively,  on the date
of  grant   using  a   qualified   option-pricing   model  with  the   following
weighted-average  assumptions:  1997 - expected  dividend yield 0.0%,  risk-free
interest rate of 6.0%, volatility of 39.2% and an expected life of 7 years; 1996
- expected dividend yield 0.0%,  risk-free interest rate of 7.1%,  volatility of
38.6% and an  expected  life of 9 years;  1995 - expected  dividend  yield 0.0%,
risk-free  interest rate of 6.8%  volatility of 28.9% 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  (loss) would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                       1997             1996              1995
-----------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>              <C>               <C>    

     Net income (loss)                      As reported             $  ( 5,605)     $   (2,810)        $  3,744
                                            Pro forma                   (5,727)         (3,066)           3,613

     Basic net income (loss) per share      As reported             $    (0.71)     $    (0.36)        $   0.26
                                            Pro forma                    (0.72)          (0.39)            0.25

     Diluted net income (loss) per share    As reported             $    (0.71)     $    (0.36)        $   0.25
                                            Pro forma                    (0.72)          (0.39)            0.24
=======================================================================================================================
</TABLE>

Pro forma net income  reflects  only  options  granted  in 1997,  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  (loss)  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>
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 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
                           Granted                                           110                       4.20
                           Exercised                                        (111)                      2.89
                           Forfeited                                         (19)                      5.25
                           Canceled                                          (35)                      5.25
                           Expired                                           (30)                      5.09
-----------------------------------------------------------------------------------------------------------------------
                  Balance at December 28, 1997                             1,072                   $   3.67
=======================================================================================================================
</TABLE>
At  December  28,  1997,  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 shares subject to exercisable  options was 1,049, 1,078 and 813 at
fiscal  year-end 1997,  1996 and 1995,  respectively,  and the  weighted-average
exercise price of those options was $3.64, $3.54 and $3.38, 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,  $450 and $577 for fiscal
years 1997, 1996 and 1995,  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 Company's
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 is party to 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 28,
1997 the maximum amount  payable is $9,490,  of which no amount is currently due
as the conditions of the agreement have not been met.
<PAGE>
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   $18,000  to   $30,800.   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 have 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.


(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 $227,641 and $234,921 has approximate  fair
values of $230,437  and  $239,020,  at December  28, 1997 and December 29, 1996,
respectively.





<PAGE>
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 1997 and 1996:

                                                        First           Second            Third           Fourth
                                                       quarter          quarter          quarter         quarter
-----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>              <C>            <C>    
     1997:
         Sales                                      $  141,467        $  152,029       $  152,007     $  143,771
         Gross profit                                   40,992            43,700           43,431         42,512
         Operating income                                5,478            (1,422)           7,964          7,510
         Net income (loss)                              (1,019)           (5,075)             339            150
         Basic net income (loss) per share               (0.13)           (0.64)              .04            .02
         Diluted net income (loss) per share             (0.13)           (0.64)              .04            .02
         Average shares outstanding                      7,883             7,932            7,934          7,937
         Average shares outstanding-diluted              7,883             7,932            8,653          8,482

     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)
         Basic loss per share                           (0.21)            (0.05)           (0.01)          (0.09)
         Diluted loss per share                         (0.21)            (0.05)           (0.01)          (0.09)
         Average shares outstanding                      7,805             7,808            7,815          7,825
         Average shares outstanding-diluted              7,805             7,808            7,815          7,825

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

<PAGE>

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 reflects 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 28, 1997                      CGF Properties       (Combined)         Only       Elimination    Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                  <C>            <C>              <C>           <C>    
                Assets
Inventories                             $           -        $   3,837      $   47,634$             -      $   51,471
Other current assets                            8,323           74,760           5,230        (59,700)         28,613
-----------------------------------------------------------------------------------------------------------------------
         Total current assets                   8,323           78,597          52,864        (59,700)         80,084

Property, plant and equipment, net             62,671            4,951          66,468              -         134,090
Intangible, net                                     -                -          88,973              -          88,973
Investments in subsidiaries                         -                -         108,207       (108,207)              -
Other assets                                       32              573          11,713              -          12,318
-----------------------------------------------------------------------------------------------------------------------
                                             $ 71,026         $ 84,121       $ 328,225     $ (167,907)      $ 315,465
=======================================================================================================================

Liabilities and Stockholders' Equity

Current liabilities                         $   1,591       $    4,276       $ 126,037     $  (59,700)     $   72,204
Long-term debt, excluding current
   maturities                                  41,073                -         174,347              -         215,420
Other liabilities                                   -                -           3,527              -           3,527
-----------------------------------------------------------------------------------------------------------------------
         Total liabilities                     42,664            4,276         303,911        (59,700)        291,151
-----------------------------------------------------------------------------------------------------------------------

Common stock                                       10               44              97            (54)             97
Additional paid-in capital                     28,966           39,381          52,088        (68,347)         52,088
Retained earnings (deficit)                      (614)          40,420         (16,149)       (39,806)        (16,149)
-----------------------------------------------------------------------------------------------------------------------
                                               28,362           79,845          36,036       (108,207)         36,036

Less treasury stock                                 -                -          11,722              -          11,722
-----------------------------------------------------------------------------------------------------------------------
         Total stockholders' equity            28,362           79,845          24,314       (108,207)         24,314
-----------------------------------------------------------------------------------------------------------------------

                                             $ 71,026         $ 84,121       $ 328,225     $ (167,907)      $ 315,465
=======================================================================================================================
</TABLE>



<PAGE>
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 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              279         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>
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 1997                       CGF Properties       (Combined)         Only          Elimination  Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                    <C>                    <C>            <C>            <C>             <C>   
Sales                                  $          -           $ 78,176       $ 551,205      $ (40,107)      $ 589,274
Cost of merchandise sold, including
   warehousing and transportation                 -             57,142         401,604        (40,107)        418,639

-----------------------------------------------------------------------------------------------------------------------
         Gross profit                             -             21,034         149,601              -         170,635

Operating and administrative
   (income) expenses                         (5,218)            11,141         145,182              -         151,105
-----------------------------------------------------------------------------------------------------------------------
         Operating income                     5,218              9,893           4,419              -          19,530

Interest expense, net                        (4,456)                 -         (22,255)             -         (26,711)
Other income (expense)                            -                  -            (373)             -            (373)
Equity in subsidiary earnings                     -                  -           6,287         (6,287)              -
-----------------------------------------------------------------------------------------------------------------------
         Income before income tax               762              9,893         (11,922)        (6,287)         (7,554)

Income tax (expense) benefit                   (312)            (4,056)          6,317              -           1,949
-----------------------------------------------------------------------------------------------------------------------

=======================================================================================================================
         Net income (loss)                $     450          $   5,837     $    (5,605)     $  (6,287)     $   (5,605)
=======================================================================================================================
</TABLE>



<PAGE>
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 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>
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>

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 1997                                          CGF Properties      (Combined)        Only      Consolidated
-----------------------------------------------------------------------------------------------------------------------
<S>                                                          <C>                 <C>       <C>             <C>    
Net cash provided by operating activities                    $      661          $  43     $   21,486      $   22,190
-----------------------------------------------------------------------------------------------------------------------

Investing activities
         Addition to property and equipment                           -            (43)        (6,967)         (7,010)
         Proceeds from sale of property and equipment                 -              -          1,206           1,206
-----------------------------------------------------------------------------------------------------------------------
            Net cash used in investing activities                     -            (43)        (5,761)         (5,804)
-----------------------------------------------------------------------------------------------------------------------

Financing activities
         Net payments under line of credit                            -              -         (7,000)         (7,000)
         Payments on long-term debt                                (661)             -         (6,620)         (7,281)
         Purchase of treasury stock                                   -              -            321             321
-------------------------------------------------------------------------------------------------------------------------
            Net cash used by financing activities                  (661)             -        (13,299)        (13,960)
-----------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                             -              -          2,426           2,426

Cash and cash equivalents at beginning of year                       53            106          8,496           8,655
---------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                     $       53       $    106   $     10,922     $    11,081
=======================================================================================================================
</TABLE>



<PAGE>

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 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
-----------------------------------------------------------------------------------------------------------------------
            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 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>

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
                              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
10.99(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>
Footnotes 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.