UNITED
STATESSECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549

# FORM 10-K

Annual report pursuant
to Section 13 of theSecurities Exchange Act of 1934 for the fiscal year ended January 1,
2005 of

FRESH BRANDS, INC.
 2215 Union AvenueSheboygan, Wisconsin 53081 (920) 457-4433 A Wisconsin corporationIRS
Employer Identification No. 39-2019963 Commission file number 000-32825

We do not have any securities
registered pursuant to Section 12(b) of the Act.

We have two classes of securities
registered pursuant to Section 12(g) of the Act: our Common Stock, $0.05 par value, and
our Common Stock Purchase Rights.

We have filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months.

Disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not, to the best
of our knowledge, be contained in our definitive proxy statement incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.

We are an accelerated filer (as
defined in Rule 12b-2 of the Act).

The aggregate market value of Common
Stock held by non-affiliates as of July 17, 2004 was approximately $34,300,000 and the
aggregate market value of Common Stock held by non-affiliates as of March 15, 2005 was
approximately $34,900,000. This value includes all of the shares of our Common Stock,
except for the shares beneficially owned by our directors and the executive officers
listed in Item 1A below.

The number of shares of our Common
Stock outstanding as of both July 17, 2004 and March 15, 2005 was 4,927,414.

Portions of our definitive Proxy
Statement for our 2005 annual meeting of shareholders, which will be filed with the
Commission under Regulation 14A within 120 days after the end of our fiscal year and, upon
such filing, will be incorporated by reference into Part III to the extent indicated
therein.

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# PART I

# Special Note Regarding
Forward-Looking Statements

Certain matters discussed in this
annual report on Form 10-K, particularly in the section titled Item 7. 
Managements Discussion and Analysis of Financial Condition and Results of
Operations, are forward-looking statements intended to qualify for the
safe harbors from liability established by the Private Securities Litigation Reform Act of
1995. These forward-looking statements can generally be identified as such because the
context of the statement will include words such as we believe, anticipate, expect or
words of similar import. Similarly, statements that describe our future plans, objectives,
strategies or goals are also forward-looking statements. Specifically, forward-looking
statements include statements about: (a) our expectations regarding the anticipated
benefits of our new operational focus, particularly our new in-store value proposition and
pricing and marketing strategy, including the impact that they will have on our future
financial performance and condition, including on our net sales and gross profit margins
and comparable store sales; (b) the anticipated benefits that our new in-store value
proposition and specific marketing plans and other operating goals will have on our
underperforming corporate and franchised supermarkets and the potential consequences if
such anticipated benefits are not realized; (c) the number of expected owned and
franchisee supermarket closings in 2005, the amount of charges we expect to incur in
connection with such supermarket closings and the potential effect that such charges could
have on our future financial performance and condition; (d) the annual savings that we
expect to realize as a result of our full integration of our Dicks Supermarkets
operations; (e) the anticipated impact that our new headquarters pricing system will have
on our pricing strategy; (f) our ability to continue to grow our wholesale operations; (g)
our belief that our existing bank credit facility will provide us with sufficient
liquidity to meet our normal, expected working capital requirements, planned capital
expenditures, and term debt payments for 2005; and (h) the potential that we may incur
impairment charges for long-lived assets or goodwill and the potential magnitude of such
charges. Such forward-looking statements are subject to certain risks and uncertainties
that may materially adversely affect our anticipated results. Such risks and uncertainties
include, but are not limited to, the following: (1) our realizing the expected benefits of
our new in-store value proposition and the likely material adverse consequences to our
financial results and condition if they are not realized or not realized in a timely
manner; (2) the possibility that the our vendors may adversely change the terms on which
they extend credit to sell us products; (3) our limited liquidity under our revolving
credit facility; (4) our significant capitalized lease and guarantee amounts; (5) the
presence of intense competitive market activity in our market areas, including competition
from warehouse club stores and deep discount supercenters; (6) the cost advantages that
many of our competitors have as a result of their larger purchasing power and, in many
cases, non-union workforces; (7) our ability to identify and convert new franchisee
stores; (8) our continuing ability to obtain reasonable vendor marketing funds for
promotional purposes; (9) the potential recognition of repositioning and/or other charges
resulting from potential closures, conversions and consolidations of retail stores due
principally to the competitive nature of the industry and to the quality of our retail
store operators; (10) the potential recognition of additional charges relating to
uncollectible accounts receivable from our franchise operators; (11) the potential
recognition, if we are not able to achieve our operating plans for certain of our
corporate retail stores, of additional potentially significant impairment charges for
long-lived assets or goodwill; and (12) our costs to continue to comply with the
Sarbanes-Oxley Act of 2002. Shareholders, potential investors and other readers are urged
to consider these risks carefully in evaluating the forward-looking statements made herein
and are cautioned not to place undue reliance on such forward-looking statements. The
forward-looking statements made herein are only made as of the date of this annual report
on Form 10-K and we disclaim any obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.

# Item 1. Business.

# General

We
are a supermarket retailer and grocery wholesaler principally through corporate-owned,
franchised and independent supermarkets. At the end of 2004, we owned and operated 21
supermarkets, two convenience stores and franchised an additional 81 supermarkets. Our
corporate and franchised supermarkets are sometimes collectively referred to in this
Form 10-K as our supermarkets. Twelve of our corporate supermarkets
operate under the Piggly Wiggly® banner and nine of them operate under the
Dicks® Supermarkets banner. All of our franchised supermarkets operate under the
Piggly Wiggly banner. We are the primary supplier to all 102 supermarkets and also serve
as a wholesaler to a number of smaller, independently operated supermarkets and
convenience stores. All of our supermarkets and other wholesale customers are located in
Wisconsin, northern Illinois and northeastern Iowa.

2

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# Strategic Plan

In
December 2003, we hired Louis E. Stinebaugh, as our Executive Vice President 
Operations, and re-hired our retired long-time Chief Financial Officer, John H. Dahly. In
May 2004, Mr. Stinebaugh was promoted to the positions of President and Chief Operating
Officer. In 2004, our board and management team determined that it would be in the best
interests of our shareholders to adopt a new operational focus that places a greater
emphasis on improving the results of our current operations through focusing on our
in-store value proposition, developing specific marketing plans and other operational
goals for certain of our underperforming corporate stores, increasing our wholesale
business and reducing our debt. This marked a return to our successful strategy used for
many years prior to 2000. We believe that successful implementation of this new
operational focus will help to reinvigorate our corporate and franchise retail system and
allow us to once again generate consistent, reliable earnings and cash flows.

A
key aspect of our new operational focus is a renewed emphasis on our in-store value
proposition, which was rolled out to all of our corporate and franchised Piggly Wiggly
stores in November 2004. Our in-store value proposition focuses on our customer service
and community involvement, the quality of our products, including the best perishables
offerings in the marketplace, as well as the value represented by the every day low
prices on our center store merchandise such as our grocery, general
merchandise and health and beauty care products. In connection with our renewed emphasis
on our in-store value proposition, we have decreased the prices of many of our products.
We believe that our new pricing and marketing strategy, which focuses on center store
products such as grocery, general merchandise, and health and beauty care products, will
help to significantly increase comparable store sales of both our corporate and franchise
stores during 2005. We expect the immediate impact of our more competitive prices will
likely result in lower retail gross margins in the short term. However, we expect this
strategy will make us more price competitive in the long term and, as a result, we expect
to increase comparable store sales, achieve an improved sales mix, increase our ability to
leverage fixed store expenses, and continue to control other store operating expenses. We
expect that these anticipated results will ultimately help improve our corporate store
operating margins and reduce our provisions for potentially uncollectible franchise
receivables.

# 2004 Actions

Our
actions in 2004 included:

| |  | closing
five underperforming  corporate supermarkets and one underperforming  franchised
supermarket.  These closures resulted                   in approximately  $2.2 million of
after-tax charges in 2003 and additional  after-tax  charges of approximately  $3.6
                  million in 2004;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | increasing
promotional activities during the first half of 2004 to help increase retail sales;
| | - | ----------------------------------------------------------------------------------------------

| |  | rolling
out our new in-store value proposition to all of our corporate and franchised Piggly
Wiggly stores in November 2004;
| | - | ----------------------------------------------------------------------------------------------------------------------------

| |  | focusing
on improving our relationships  with our vendors,  franchisees  (including  through the
formation of a new franchisee                   advisory board) and other business
partners;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | adding
 William G. May, Jr. and Thomas M. Stemlar,  two new  independent  directors,  to our
board of  directors,  and further                   strengthening our management team by
hiring Jonathan B. Hoenecke as our Vice President of Finance;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

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| |  | selling
 three  corporate  supermarkets,  two of which  continue to be  operated  as
 consolidated  franchised  Piggly  Wiggly                   supermarkets;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | replacing
our bakery/deli  production  facility in Platteville,  Wisconsin with a new,
 substantially  larger facility also in                   Platteville;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | converting
three new independent operators and their seven supermarkets to Piggly Wiggly franchised
supermarkets;
| | - | -----------------------------------------------------------------------------------------------------------------

| |  | opening
a new market corporate supermarket in Maquoketa, Iowa;
| | - | --------------------------------------------------------------

| |  | further
 integrating our Dick's  Supermarkets  operations,  which we expect to result in
substantial  cost savings in 2005 and                   future years;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | purchasing
 a  leading-edge,  headquarters  pricing  application  that will  provide our stores with
a flexible,  just-in-time                   competitive pricing system;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | successfully
 implementing  the  provisions  of Section 404 of the  Sarbanes-Oxley  Act,  which
include  requirements  for our                   management and auditors to report on our
internal controls; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | entering
into a new replacement revolving credit facility.
| | - | ----------------------------------------------------------

See Item 7. 
Managements Discussion and Analysis of Financial Condition and Results of
Operations for a discussion of the expected impact that many of these actions may
have on our future results of operations and/or financial condition.

# Planned 2005 Actions

Our
planned 2005 actions include:

| |  | focusing
our efforts on increasing our sales through our renewed emphasis on our in-store value
proposition;
| | - | ------------------------------------------------------------------------------------------------------------

| |  | implementing
aggressive turn-around plans for our underperforming supermarkets;
| | - | -------------------------------------------------------------------------------

| |  | the
closing of an additional three or four underperforming franchise stores. The provision
for uncollectible franchise receivables related to these stores was $2.0 million in 2004.
Depending on the timing of these closures, we could incur additional lease exit
liabilities of up to $1.5 million related to these stores in 2005;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | attempting
to increase our wholesale business by seeking to attract new Piggly Wiggly franchisees;
| | - | --------------------------------------------------------------------------------------------------

| |  | implementing
 our new flexible,  just-in-time  competitive  pricing system and taking full advantage
of the increased  pricing                   flexibility that it will provide us;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | expanding
 the business of our new  bakery/deli  production  facility,  taking full  advantage of
its  increased  capacity and                   capabilities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | reducing
our bank debt; and
| | - | ---------------------------

| |  | completing
the integration of our Dick's Supermarkets operations.
| | - | -----------------------------------------------------------------

As
a result of our current operations, we do not anticipate purchasing or building additional
new corporate supermarkets in 2005 and our other capital expenditures are expected to be
well below our past levels. See Item 7.  Managements Discussion and
Analysis of Financial Condition and Results of Operations below for additional
information.

4

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# Retail Operations

Our
supermarkets stock a comprehensive selection of groceries, frozen foods, prepared foods,
fresh produce, meat, poultry, eggs and dairy products as well as non-food items, such as
health and beauty aids, housewares, magazines and periodicals, video cassette rentals,
flowers and plants, greeting cards and general merchandise. We operate our stores
emphasizing our in-store value proposition, customer service, community involvement and
the quality of our products, including the best perishable offerings in the marketplace,
as well as the value represented by the every day low prices on our
center store merchandise such as our grocery, general merchandise and health
and beauty care products.

Our
Preferred Power Pricing program targets items that shoppers have traditionally purchased
from supermarkets, but for which there has been a trend toward purchasing these items in
large quantities from alternative sources such as warehouse club stores, supercenters,
department stores or pet stores. Under our Preferred Power Pricing program, we feature
aggressive month-long sales promotions on large or mega sizes of selected
items and offer prices below those associated with weekly supermarket sales. Specific
examples of product categories that we have featured in our Preferred Power Pricing
program include paper products (such as toilet paper, napkins and paper towels), laundry
supplies, pet supplies, coffee, cereal and certain perishable items.

We
believe that many customers choose their supermarket based on the attributes of the
produce department. Our Pampered to Perfection program is a comprehensive
program designed to ensure that our supermarkets provide our customers with the highest
quality produce possible. As a part of this program, we have thoroughly analyzed our
entire process of handling fresh merchandise and created several special warehouse storage
environments to assure the proper handling of produce. In addition, we are working with
our suppliers to ensure that they share the high standards that we have established. This
ensures the Pampered to Perfection program sets rigorous standards for fresh produce from
the time it is grown to the time it is taken home by customers. Finally, we designed a
comprehensive educational program for all of our supermarket produce managers to ensure
that they are able to implement the store-level aspects of our Pampered to Perfection
program, including our rigorous 128-point produce department inspection and certification.

The
products in our supermarkets fall within a broad range of branded merchandise and
private-label store branded product alternatives. In general, the private-label products
have lower selling prices, but higher gross profit margins, than branded merchandise.
Consistent with trends generally within the retail supermarket industry, we continue to
experience increases in customer demand for store brands and believe that our
Topco-procured line of branded products is satisfying this consumer trend. See
Purchasing and Distribution below for more information. We believe that
inflation did not have a significant effect on sales between 2003 and 2004.

We
operate two customer incentive card programs, the Piggly Wiggly Preferred
Club® Card and the Dicks Savings Club® Card. We
designed our customer card programs to reward current customers and attract new customers
by offering clipless coupons on advertised specials, automatic
savings on store specials and point-of-sale coupons redeemable on future purchases. The
cards also double as check-cashing and video rental identification cards. The cards allow
us to maintain a valuable, integrated database that we use to identify our best customers
and their preferences so that our supermarkets can better serve them.

We
also operate two convenience stores with fuel stations located adjacent to two of our
supermarkets. Sales at these facilities accounted for less than 1% of our 2004 net sales.

5

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# Wholesale Operations

We
are the primary supplier to all of our supermarkets. We also serve as a wholesaler to
other smaller independent retail supermarkets, although such sales accounted for less than
1% of our 2004 net sales. We supply a variety of products to our supermarkets and other
wholesale customers, primarily from our two distribution centers in Sheboygan, Wisconsin.
In addition, we provide our supermarkets and other customers with bakery and deli items
from our centralized bakery/deli production facility in Platteville, Wisconsin and fresh,
frozen and processed meat, eggs and deli products from a third-party distribution facility
in Milwaukee, Wisconsin. Additionally, through arrangements with several vendors, we also
offer a line of carbonated soft drinks, fruit drinks and drinking and distilled water
under our Springtime® label.

A
key part of our wholesale operations is the strong partnership between us and our
franchised supermarkets established by our Fresh Brands Program. This
partnership, which results in an integrated retail food distribution system that had over
$900 million in retail sales in 2004, allows us to leverage the combined buying power of
all of our franchised and corporate supermarkets and deliver a powerful and effective
promotional vehicle for our participating vendor partners. By operating in this manner, we
are able to achieve better performance than if we did not coordinate the promotions run by
our franchisee customers.

Our
franchisees, most of which own only one or two supermarkets, benefit from our Fresh Brands
Program because it provides them with cost-effective administrative support services and
financial resources that are associated with being a part of a large organization and are
difficult for independent operators to replicate or obtain on their own. We believe that
our Fresh Brands Program provides our franchisees with the support services, including
retail performance counseling and supervision, and financial resources they need to
operate efficient, contemporary supermarkets that can compete with supermarkets owned and
operated by competitors with substantially greater resources, while retaining the
independent retail ownership, entrepreneurial spirit and community involvement that we
believe is an integral part of the success of many of our franchisees. Consistent with
industry practice, in certain situations, we also provide credit enhancements to certain
qualified franchisees, including by leasing the franchisees supermarket premises
and, in turn, subleasing the premises to the franchisee. We provide some of these services
as part of the Fresh Brands Program, while other services are provided under a separate
fee arrangement intended to cover our costs. In addition, our franchisees pay us fees
determined by the retail sales of their supermarkets. We do not charge an initial fee to
franchisees for granting a franchise.

Another
goal of our Fresh Brands Program is to present all of the supermarkets with a common
banner as operating under a unified program so that our customers can treat all such
supermarkets as a part of the same supermarket chain. We do this by
coordinating systemwide promotions and other merchandising events in which all of our
franchised and corporate supermarkets participate. For example, we control the selection
of sale items at all of our supermarkets and produce and distribute weekly newspaper
advertising inserts that advertise the same sales at all of the supermarkets operated
under the same banner. In addition, we establish various promotions that reward our
customers for aggregate amounts of selected items purchased over a period of several
weeks. These programs do not differentiate between purchases from our franchised or
corporate supermarkets. Other efforts that we undertake to present all of our supermarkets
that operate under the same banner as part of a single chain include:

| |  | outdoor
billboard advertising;
| | - | ------------------------------

| |  | television
and radio advertising; and
| | - | -------------------------------------

| |  | sponsorship
of sports entertainment and charitable events.
| | - | ----------------------------------------------------------

6

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We
are a franchisee of the Piggly Wiggly® brand name. Under our franchise
agreement, our franchise territory includes all of Wisconsin, the upper peninsula of
Michigan and designated counties in northern Illinois, southeastern Minnesota and eastern
Iowa. Our franchise rights are of unlimited duration and are not subject to any specific
termination provision. We are required to pay franchise fees to the current franchisor in
parts of our market areas. The only other material obligation imposed on us in our
franchise territory is that the supermarkets operated under the Piggly
Wiggly® name must comply with the standards imposed on supermarkets in the
Piggly Wiggly® system. We believe that our own supermarket standards exceed
the Piggly Wiggly® system standards. We own the Dicks
Supermarket® brand name.

# Our Supermarkets

Our
franchised supermarkets range in size from 10,400 square feet to 54,400 square feet, with
an average of 26,900 square feet and our corporate supermarkets range in size from 23,900
square feet to 68,500 square feet, with an average of 39,900 square feet. All of our
supermarkets contain several perishable or specialty service departments, including:

| |  | fresh
and processed meat;
| | - | -------------------------

| |  | take-home
entrees and snacks;
| | - | -----------------------------

| |  | fresh
fruits and vegetables;
| | - | ----------------------------

| |  | fresh
seafood;
| | - | --------------

| |  | delicatessen
goods;
| | - | -------------------

| |  | flowers
and plants; and
| | - | -----------------------

| |  | baked
goods.
| | - | ------------

Several
supermarkets also contain or provide one or more of the following:

| |  | wine
and spirit sales;
| | - | ----------------------

| |  | video
rentals;
| | - | --------------

| |  | lottery
sales;
| | - | --------------

| |  | photo
processing services;
| | - | --------------------------

| |  | TicketMaster® ticket
centers;
| | - | -----------------------------

| |  | in-house
banking services; and
| | - | ------------------------------

| |  | automated
teller machines.
| | - | --------------------------

7

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The
following table shows our development of, and changes in, our franchised and corporate
retail supermarkets for the periods presented:

|                                          | Franchised Supermarkets | Corporate Supermarkets
|----------------------------------------- | ----------------------- | ----------------------
|2000                                      | 2001                    | 2002                  
|Beginning of Year                         |                         |                       
|New Market Supermarkets(a)                |                         |                       
|Replacement Supermarkets(b)               |                         |                       
|Converted to/from Franchise(c)            |                         |                       
|Purchased Supermarkets(d)                 |                         |                       
|Terminated Operations(e)                  |                         |                       
|New Franchises(f)                         |                         |                       
|End of Year                               |                         |                       
|Remodeled and/or Expanded Supermarkets(g) |                         |                       

---

|(a) | New
market supermarkets are newly constructed supermarkets in market areas not
          recently served by us.
|--- | ---------------------------------------------------------------------------------------------------------------

|(b) | Replacement
supermarkets are newly constructed or purchased supermarkets whose           opening
corresponds with the closure of a nearby franchised or corporate           supermarket.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | Supermarkets
that are converted from corporate to franchise units, or vice           versa, are
included as reductions to supermarket totals in one category and           corresponding
additions to totals in the other category.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | Purchased
supermarkets are those that we purchased from a party other than one           of our
franchisees.
|--- | ------------------------------------------------------------------------------------------------------------

|(e) | Terminated
operations represent supermarkets that are no longer going concerns,           including
replaced supermarkets and supermarkets sold to parties that do not           operate them
as franchised supermarkets.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) | New
franchises are additions to our franchise group other than through           conversion
from corporate supermarkets.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(g) | Remodeled
supermarkets represent supermarkets that have undergone substantial           expansion
and/or remodeling totaling at least $300,000.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------

# Purchasing and
Distribution

We
purchase groceries in sufficient volume to qualify for favorable price brackets for most
items. We purchase brand name grocery merchandise directly from the manufacturers or
processors and purchase produce, meat and seafood from a variety of sources. We purchase
substantially all of our private label items and fresh meats through Topco Associates LLC.
Topco is a national purchasing cooperative whose member-owners consist of approximately 50
regional supermarket chains and food services organizations who collectively operate more
than 3,000 supermarkets. According to Topco data, its member-owners accounted for
approximately 15% of United States grocery store sales volume in 2004. In 2004, purchases
through Topco accounted for nearly 26% of our total wholesale purchases. We also purchase
supermarket and warehouse equipment and supplies, primarily bags and packaging material,
through Topco. Topcos size and purchasing power enable it to employ large-volume,
low-cost purchasing techniques on behalf of its member-owners.

We
also participate in Topcos World Brands program. World Brands is a Topco
division dedicated to using the combined purchasing power and marketing strength of its
members to obtain favorable treatment from national brand manufacturers. To attain this
goal, World Brands, together with its members, negotiates with each vendor for the benefit
of all of its members in a manner similar to the way that a retailer would do on behalf of
its entire organization. There are currently 26 participants in the World Brands program,
each of which is a member of Topco. According to World Brands data, the combined retail
sales of its members surpasses that of all but five of the grocery retailers in the United
States. We believe that World Brands presents us with an opportunity to qualify for more
favorable prices and promotions than we could attain on our own.

8

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We
and our direct-contract, third-party distribution center supplied most of the products
supplied to our supermarkets in 2004. The remainder of products sold by our supermarkets
were supplied by direct store delivery vendors. We operate two distribution centers in
Sheboygan, Wisconsin with a total of approximately 425,000 square feet. We supply deli and
bakery products from our 46,000 square foot centralized bakery/deli production facility
located in Platteville, Wisconsin. While we perform the buying function, a third-party
contractor in Milwaukee, Wisconsin performs the distribution services for our meat and
dairy operations. We believe that this arrangement provides us with operating cost
efficiencies and the ability to expand our wholesale product offerings and better satisfy
wholesale customer delivery schedules through improved capacity.

We
operate a leased, full-service trucking fleet, which consists of 25 tractors and 44
refrigerated trailers. We augment our transportation requirements with temporary leasing
arrangements as conditions warrant. PW Trucking, Inc., our subsidiary, provides contract
and common carrier services throughout our operating territory. Revenues from unrelated
parties generated by this business were nominal in 2004 and are expected to be nominal in
2005.

# Competition

The
wholesale and retail food industry is highly competitive. At the wholesale level, we
compete with regional and national wholesalers, such as Supervalu Inc., Roundys,
Inc. and Nash Finch Co. We believe that key competitive factors include the provision of
the following services to franchised customers:

| |  | advertising;
| | - | ------------

| |  | retail
performance and supervision counseling;
| | - | ----------------------------------------------

| |  | accounting
and financial services;
| | - | ----------------------------------

| |  | merchandising;
| | - | --------------

| |  | facilities
engineering;
| | - | -----------------------

| |  | design
and project management;
| | - | ------------------------------

| |  | retail
technology support; and
| | - | ------------------------------

| |  | credit
enhancements and working capital support.
| | - | ------------------------------------------------

We
believe that our distribution and production facilities and the wide range of support and
marketing services provided to our supermarkets (including pursuant to the Fresh Brands
Program) allow us to provide prompt and efficient, low-priced, high-quality products and
important supplemental services to our supermarkets and other customers.

The
degree of competition at the retail level varies with supermarket location. Most of our
supermarkets compete primarily with local retail operators, virtually all of whom are
affiliated with competing wholesalers through arrangements similar to those we have with
our franchisees. In some of our supermarket locations, however, we also compete with
national and regional retail chain supermarkets, including Pick N Save, Cub Foods,
Jewel Food Stores, Sentry Food Stores, Dominicks Finer Foods, Festival Foods,
Woodmans Stores and Copps Supermarkets. Other competitors include the general
merchandise, wholesale club and supercenter format stores, including Wal-Mart
Supercenters, Big Kmart stores, SuperTarget stores and ShopKo stores and limited
assortment grocery stores, including Aldi and Sav-A-Lot stores. We believe that the
principal retail competitive factors include:

| |  | product
quality and variety;
| | - | ----------------------------

| |  | the
quality of a supermarket's perishable product and service departments;
| | - | --------------------------------------------------------------------------

9

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| |  | price;
and
| | - | ----------

| |  | supermarket
location and appearance.
| | - | ------------------------------------

We
believe our supermarkets emphasis on low-cost, high-quality products,
community-based multi-media marketing and merchandising programs and a high degree of
in-store customer service and friendliness provide our franchised and corporate
supermarkets with a competitive advantage in many retail market areas.

Certain
of our competitors at both the wholesale and retail level may have a competitive advantage
resulting from utilizing lower-cost, non-union workforces. Certain of our competitors have
greater financial resources and marketing budgets than we do. Also, certain competitors
using the limited assortment grocery store format, general merchandise format, wholesale
club format or supercenter format may choose to carry and market a less extensive variety
of products, which may allow them to sell such items at a lower per unit cost than we do.

# Employees

As
of January 1, 2005, we employed approximately 2,400 persons, including approximately 1,650
in the operation of our corporate retail supermarkets. A majority of our corporate retail
supermarket employees are employed on a part-time basis. Of our remaining employees,
approximately 250 work at our centralized bakery/deli production facility, approximately
200 are engaged in warehousing and/or trucking activities and approximately 300 are
corporate and administrative personnel. We have seven collective bargaining agreements
that cover approximately 45% of our employees. None of our collective bargaining
agreements are expiring in 2005.

# Web Site Information

Our
corporate web site is www.fresh-brands.com. All of our Form 10-Ks, Form 10-Qs and
Form 8-Ks, and amendments thereto, are available free of charge on this web site at
www.fresh-brands.com/Investorfame.html as soon as practical after they have been filed
with the SEC. We are not including the information contained on our web site as part of,
or incorporating it by reference into, this annual report on Form 10-K.

# Risks and Uncertainties

As
noted above in Part I  Special Note Regarding Forward-Looking Statements, this
annual report contains statements that are forward-looking. These statements are based on
current expectations and assumptions that are subject to risks and uncertainties. Actual
results could differ materially because of risks and uncertainties such as those listed
below, which, among others, should be considered in evaluating our financial outlook.

Our
Success Is Substantially Dependent On Our Realizing The Benefits Of Our New In-Store Value
Proposition. During the past several years, our profitability and the profitability of
certain of our franchised supermarkets has decreased considerably. As a result, we closed
six underperforming supermarkets in 2004 and, in both 2003 and 2004, we reported
significant net losses. In addition, our aggregate debt, lease and guaranty obligations
have increased significantly over the past several years. Due to these and other factors,
we recently adopted an operational focus that places a greater emphasis on improving the
results of our current operations through focusing on our in-store value proposition and
developing specific marketing plans and other operational goals for our underperforming
stores. Our success is substantially dependent upon our realizing the benefits of our new
in-store value proposition. There can be no assurance that we will fully realize the
expected benefits from our in-store value proposition. If our sales and operating results,
particularly at several of our underperforming corporate supermarkets, do not improve
substantially, then we could incur significant long-lived asset and other non-cash
impairment charges. If sales and operating results at several of our underperforming
franchised supermarkets do not improve, then we may incur additional significant losses
for potentially uncollectible franchise receivables due to (i) amounts owed to us by
our franchisees; (ii) our guarantees of the bank debt of some of our franchisees; and
(iii) the fact that, as a credit enhancement arrangement, we lease some of our
franchisees supermarkets from the landlord and sublease them to our franchisees,
making us liable for all rent payments that our franchisees cannot pay. In addition, we
could decide that we need to close or sell additional stores, which could result in
additional charges related to remaining operating lease obligations. Such potential
charges could have a material adverse effect on our financial results in the quarter and
year that they are incurred, could have a material adverse effect on our cash flow,
results of operations, financial condition and/or prevailing stock price. These charges
could also cause our vendors to adversely change the terms pursuant to which they are
willing to sell us products. Any such significant change in our liquidity could cause us
to violate the financial covenants in our bank loan facility and have a material adverse
effect on our results of operations and financial condition.

10

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We
May Need To Seek Additional Sources Of Debt Capital. If we do not realize the expected
benefits of our new operational focus, we may need to obtain additional debt capital.
There can be no assurances that we could borrow such amounts from our bank lenders, either
because our current bank facility would be insufficient to fund such additional borrowings
or because such additional borrowings could violate the financial covenants in our bank
loan facility. Other sources of capital may not be available at all. If such additional
capital is available, it would likely require us to (i) pay significantly increased
interest rates; (ii) issue stock, or grant options or issue warrants to purchase our
stock, at prices substantially below the prevailing market price for our stock; and/or
(iii) comply with financial and other covenants that would likely be substantially more
restrictive than those in our current revolving credit facility. Such terms could have a
material adverse effect on our cash flow, results of operations and financial condition,
dilute the relative ownership percentage of our existing shareholders and restrict our
ability to take the steps that we believe are required to successfully implement our
operational focus.

We
May Explore Strategic Alternatives To Secure Additional Capital. If do not realize the
expected benefits of our new operational focus, we may need to explore various potential
strategic alternatives to raise capital, reduce our debt or otherwise help achieve our
strategic goals and objectives. Such potential alternatives could include sales of some of
our assets, supermarkets or operations, outsourcing various operations, a corporate
restructuring or a business combination with another company. There can be no assurance
that we would be able to successfully complete any such strategic alternative. Such
potential strategic alternatives could have a material adverse effect on our cash flow,
results of operations, financial condition, prevailing stock price and/or result in our
incurring impairment or other charges, including potential charges associated with
goodwill impairment.

We
May Issue Additional Shares, Options or Warrants To Obtain Additional Equity Capital Or In
Connection With Our Efforts To Secure Additional Debt Capital. If we are unable to
borrow additional debt capital, we may need to attempt to issue additional common stock to
raise equity capital to reduce our debt. Alternatively, we may be required to sell stock
or issue options or warrants in connection with our future efforts to obtain additional
debt capital. Such actions would either have a dilutive effect on the relative percentage
ownership interests of our existing shareholders or, if our shareholders were allowed to
participate in such offerings, would require our shareholders to invest additional funds
to prevent this dilution. In addition, such issuances would decrease our earnings per
share unless our earnings increase by the amount required to offset the decrease in our
earnings per share due to the additional shares of our common stock. A decrease in our
earnings per share may have a material adverse effect on the prevailing market price of
our common stock. There can be no assurance that we either would, or would be able to,
raise additional equity funds. A failure to raise equity funds may limit our ability to
implement our operational focus and may have a material adverse effect on our financial
condition. If we are successful in raising additional equity capital, the purchasers of
our common stock may require us to comply with operational or financial covenants.

11

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Our
Loan Facility Requires Collateral And Imposes Restrictive Covenants. Due to, among
other things, our recent financial results, current financial condition and the increases
in our aggregate debt, lease and guaranty obligations, when we entered into our new loan
facility our banks required us to pledge all of our assets as collateral under our bank
loan facility, guaranty additional amounts owed by our franchisees, obtain a letter of
credit to ensure repayment of some of our franchisee loan guarantees, grant a second
security interest in all of our assets to a bank that has made the majority of the
franchisee loans that we have guaranteed and increased our interest rate. In addition, our
bank loan facility contains covenants that require us to meet certain financial
performance targets and prohibits us from taking certain other actions. Certain
covenants prohibit us from guaranteeing additional franchisee bank debt and from entering
into new arrangements pursuant to which we lease a new franchisees supermarket
premises and, in turn, sublease the premises to the franchisee. The covenants in our bank
loan facility also limit our ability to incur additional debt and other obligations,
including capital lease obligations. Finally, our bank loan facility requires us to meet
financial covenants, including covenants regarding our Fixed Charge Coverage Ratio, Total
Senior Debt Cash Flow Leverage Ratio and Paid Sublease Ratio (all as defined in our bank
credit facility). These restrictions could limit our ability to implement our operational
focus, which may have a material impact on our results of operations and financial
condition. In addition, if we violate the financial or other covenants in our bank loan
facility and we are unable to repay the amounts owed to them or obtain other capital or
amend or obtain waivers to our credit agreement, our bank lenders could accelerate our
obligations under our credit agreement and foreclose on substantially all of our assets.

Unfavorable
Treatment By Our Vendors, Including A Decrease In Our Vendors Promotional Funds, May
Lower Our Earnings. Some of our vendors have been consolidating. This consolidation
could decrease the total amount of vendor funds available to grocery wholesalers and
retailers. In addition, vendors are trying to ensure that their promotional fees and
allowances are used more effectively to directly increase the vendors sales. As a
result of such efforts, we believe that vendors are increasingly directing the majority of
their promotional dollars to larger self-distributing supermarket chains. In addition,
vendors sometimes offer our larger competitors promotions, packaging, payment terms and
products that are not made available to us. We expect these trends to continue. If we
cannot at least maintain our existing level of these funds, our financial results will be
materially adversely affected.

The
Benefits Provided To Our Retail Union Workforce Results In A Cost Disadvantage. As of
January 1, 2005, approximately 57% of our retail employees were covered by union
contracts. Our costs associated with our union employees, including particularly the costs
of the benefits provided to our union employees, have increased significantly over the
past several years. There can be no assurances that our labor costs, including
particularly our employee benefit costs, will not continue to increase significantly. We
have been unable to recover recent significant cost increases associated with our union
employees by increasing the prices charged to our customers. We are unlikely to be able to
recover any future cost increases because several of our competitors have a competitive
advantage resulting from utilizing lower-cost, non-union workforces. As a result, these
increases have, and any future increases will likely continue to have, a material adverse
effect on our financial results. In addition, several companies in our industry have
recently experienced prolonged strikes that have had significant adverse effects on their
results of operations and financial condition. We cannot assure you that we will not
suffer business interruptions as a result of strikes or other work stoppages. Any
significant labor stoppage or disruption would have a material adverse effect on our cash
flow, results of operations and financial condition, prevailing stock price and/or, could
cause us to violate the financial covenants in our bank loan facility.

Increasing
Health Care Costs Have Lowered, And May Continue To Lower, Our Earnings. Like many
other companies, we have experienced significant increases in our employee health care
expenses during the past few years. We believe that these cost increases are likely to
continue in the future. For example, we provide some of our union employees with benefits
through a health, welfare and benefits plan. From time to time, this plan may experience
shortfalls because its costs exceed the payments that it receives from the companies that
participate in the plan. When this happens, we are required to make a supplemental payment
to fund a portion of the shortfall. Since the beginning of 2001, we have made supplemental
payments of $666,000 to cover shortfalls in this plan and one other plan that we formerly
participated in. Because we have not been able to recover these cost increases from our
customers, these increases have had, and any similar future costs likely will have, a
material adverse effect on our financial results.

12

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We
May Incur Additional Charges Associated With One Of Our Multi-Employer Health And Welfare
Benefit Plans. Several employers of one of our multi-employer health and welfare
benefit plans have withdrawn from the plan. Because the plan is underfunded, we may be
required to pay a portion of the underfunded liabilities. In such event, we estimate that
our obligations, which we have recorded, would be approximately $930,000. If we are
required to pay significantly more than this amount, the related charges may materially
affect our financial results in the quarter and year that they are incurred.

We
Experience Intense, Ongoing Competition. We compete with other national, regional and
local food wholesalers for new franchised supermarket operations, as well as independent
customers. Our wholesale competitors include Supervalu Inc., Roundys, Inc. and Nash
Finch Co. Most of our supermarkets are located close to, and compete with, other
supermarkets. Competing supermarkets include Pick N Save, Cub Foods, Jewel Food
Stores, Sentry Food Stores and Copps Supermarkets. Our supermarkets also compete with
alternative format food stores, including warehouse club stores, such as
Sams Clubs, deep discount supercenters, such as Wal-Mart Supercenters,
and limited assortment grocery stores, such as Aldi and Sav-A-Lot stores. In addition to
existing competitors, Wal-Mart has announced plans to substantially increase the number of
Wal-Mart Supercenters in our market areas in 2005 and 2006. Many of our competitors have
substantially greater financial, marketing and other resources than we have. Additionally,
these competitors have cost advantages compared to us related to their greater purchasing
power and, in many cases, non-union labor workforces. These competitors have had, and will
likely continue to have, a material adverse effect on our results of operations and
financial condition. The opening of additional new supermarkets and other competitive
stores, and remodelings of existing competitive stores, in our markets may have a material
adverse effect on our results of operations and financial condition.

Trends
In Consumers Purchasing Patterns Have Led, And May Continue To Lead, To Reduced
Sales, Margins And Profitability.Traditionally, many consumers have purchased most or
all of their paper products (such as toilet paper, napkins and paper towels), laundry
supplies, pet supplies, coffee, cereal and perishable items from traditional supermarkets
such as our supermarkets. However, there has been a trend toward purchasing these items in
large quantities from alternative sources such as warehouse club stores, supercenters,
discount stores or pet stores. In addition, many consumers have increased the number of
meals that they eat away from home and decreased their purchases from supermarkets.
Finally, many of our customers have been trading down their purchases over the
past several years, buying fewer and lower priced items than in the past. We believe that
these trends have reduced the sales, margins and profitability of our supermarkets and our
wholesale operations. If the strategies we have developed in response to these trends are
not successful, these trends could continue to have a material adverse effect on our
financial results.

We
Are Susceptible To Localized Economic Downturns. All of our operations are located in
Wisconsin, northern Illinois and northeastern Iowa. As a result, downturns in the general
economy in this geographic region may have a material adverse effect on our financial
results. Over the past several years, the economic conditions in our markets have led
consumers to buy fewer and lower priced items from our supermarkets. There can be no
assurance that our customers will return to their historical purchasing patterns or that
we will be able to open or acquire additional wholesale distribution facilities or retail
supermarkets in the number of new markets necessary to achieve geographic diversification.

13

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Potential
Future Sales Of Our Franchised Supermarkets May Reduce Our Sales And Earnings. The
majority of our supermarkets are owned and operated by franchisees, most of whom own only
one or two supermarkets. Certain of our franchisees are approaching retirement age and
may, within the next few years, decide to sell their supermarkets. Historically, most of
our franchisees have sold their supermarkets to parties that want to continue to operate
the supermarkets as our franchisees. However, in some instances, our franchisees may be
able to sell the supermarkets for a higher price if they sell them to parties that do not
want to operate them as our franchisees. We have a right to purchase our franchised
supermarkets upon termination of our franchise agreements, but as a result of our
financial condition and restrictions on such transactions in our loan facility, we may not
be able to borrow the funds required to exercise such rights. If we do not exercise our
right of first refusal and allow franchised supermarkets to be sold to parties that do not
want to operate them as our franchisees, we will lose the wholesale sales, earnings and
cash flow associated with these supermarkets. If we exercise our option to purchase a
significant number of such franchised supermarkets during a relatively short period, we
would likely be required to spend substantial amounts, probably funded through increased
borrowing. If we attempt to resell some or all such supermarkets to parties that want to
continue to operate them as our franchisees, we would retain the wholesale sales and
earnings associated with such supermarkets. However, we may be required to sell them for a
lower price than we paid for them, which would require us to incur losses, increase our
debt and interest expense. Any significant increased debt levels that would result from
such transactions would increase our interest expense, may make our financial condition
more risky and susceptible to a downturn in our business and may limit our ability to
pursue other franchise acquisition opportunities.

Our
Success Is Dependent On Our Senior Management. Our existing senior executives have
many years of experience in both the supermarket retail and grocery wholesale industries.
We do not have employment contracts or noncompetition agreements with any of our senior
executives and we do not have key-man insurance on any of our senior executives. If we
were to lose the services of one or more of our key senior executives, our financial
results may be materially adversely affected.

Significant
Sales Of Our Common Stock May Adversely Affect The Prevailing Market Price For Our Common
Stock. The average daily trading volume for our common stock on the Nasdaq National
Market is very low. As a result, significant purchases or sales of our common stock within
a short time period in the public market may result in significant changes in the
prevailing market price of our common stock. This relative lack of trading volume makes it
difficult to sell significant quantities of our common stock within a short time period in
the public market. Sales of significant quantities of our common stock by any of our
shareholders within a short period of time may have a material adverse effect on the
prevailing market price of our common stock.

Certain
Wisconsin Laws May Discourage Certain Takeover Proposals. Wisconsin corporate law
contains several provisions which may discourage non-negotiated takeover proposals for us
or limit or block certain business combinations between us and one of our major
shareholders. Such provisions include (i) limiting the voting power of certain persons
owning in excess of 20% of our voting power; (ii) requiring a supermajority vote of
shareholders to approve certain business combinations not meeting certain price standards;
and (iii) prohibiting certain business combinations between us and one of our major
shareholders for a period of three years, unless such acquisition has been approved in
advance by our board of directors. Because these provisions may discourage certain
acquisition proposals, our shareholders who wish to participate in such a transaction may
not have an opportunity to do so.

Our
Shareholder Rights Plan Could Discourage Certain Takeover Proposals. Our shareholder
rights plan may discourage a third party from making a proposal to acquire us which we
have not solicited or do not approve, even if the acquisition would be beneficial to our
shareholders. As a result, our shareholders who wish to participate in such a transaction
may not have an opportunity to do so.

14

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Our
Articles Of Incorporation And Bylaws Contain Certain Anti-Takeover Provisions. Our
Articles of Incorporation and Bylaws contain certain provisions that, among other things,
provide for staggered terms for members of our board of directors, place certain
restrictions on the removal of directors, authorize our board of directors to issue
undesignated preferred stock in one or more series without shareholder approval, establish
certain procedures to call a special meeting of shareholders, require advance notice for
director nominations and certain other matters to be considered at meetings of
shareholders and impose supermajority voting requirements on certain amendments to our
Articles and Bylaws. These provisions could have the effect of delaying, deferring or
preventing a change of control of us or the removal of our board of directors or our
existing management, even if such actions would be beneficial to our shareholders.

# Item 1A. Executive
Officers of the Registrant.

|Name and Age             | Positions and Offices                                                     
|------------------------ | --------------------------------------------------------------------------
|Louis E. Stinebaugh, 48  | President and Chief Operating Officer(a)                                  
|John H. Dahly, 64        | Executive Vice President, Chief Financial Officer, Secretary and Treasurer
|Jonathan B. Hoenecke, 46 | Vice President of Finance                                                 

---

|(a) | Mr.
Stinebaugh is also a member of our board of directors.
|--- | ----------------------------------------------------------

Louis
E. Stinebaugh became our President and Chief Operating Officer in May 2004, served as our
Executive Vice President  Operations from December 2003 to May 2004, was the
President of the Sentry division of Supervalu, Inc. from September 2003 to December 2003,
was the President of the Sentry Division in Milwaukee of Fleming Companies, Inc. from
March 2001 to September 2003 and was a Vice President of Merchandising/Marketing at
Fleming prior to March 2001.

John
H. Dahly, became our Executive Vice President, Chief Financial Officer, Secretary and
Treasurer in December 2003, served as our Chief Financial Officer and Secretary from 1984
to 1990, served as our Executive Vice President, Chief Financial Officer and Secretary
from 1990 to January 2001 and served as a consultant to us from January 2001 to December
2003.

Jonathan
B. Hoenecke became our Vice President of Finance in June 2004, provided consulting
services to us from November 2003 through June 2004, was the Vice President  Finance
for the Retail Division of Roundys, Inc. from 2000 through 2003 and was the Chief
Financial Officer of Mega Marts, Inc. from 1998 through 2000, when Mega Marts was acquired
by Roundys.

Executive
officers are generally elected annually at the annual meeting of our board of directors
held on the date of our annual meeting of shareholders. Each executive officer holds
office until his successor has been elected or until his death, resignation or removal.

# Item 2. Properties.

As
is typical in our industry, all of our supermarkets are leased. We generally lease our
supermarkets from nonaffiliated real estate developers under long-term leases. Such leases
generally contain initial terms of 15 to 20 years, with several five-year renewal
options. None of our lease arrangements contain repurchase options and we do not own the
land underlying any of such supermarkets. A few of our leases, however, include rights of
first offer running in our favor, which give us the right to advance notice of
the land owners desire to sell its property, as well as an exclusive right to submit
offers to purchase these properties prior to them being made available to the general
public.

15

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As
of January 1, 2005, we leased all of our corporate supermarkets. As of January 1, 2005, we
subleased 60 of our leased supermarkets to independent operators who are our wholesale
customers and franchisees and one other supermarket to an independent operator.

We
own our combined distribution center and our headquarters complex in Sheboygan, Wisconsin
which occupies approximately nine acres of a 16-acre site. The facility provides
approximately 30,500 square feet of space for offices and related activities and
approximately 364,000 square feet of distribution center space. We lease:

| |  | an
additional  14,500 square feet of office space in Sheboygan  used for customer  support
 services under a lease expiring in                   August 2006;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | a
46,000 square foot centralized  bakery/deli  production  facility in Platteville,
 Wisconsin under a lease expiring in 2024;                   and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | approximately
55,000 square feet of distribution center space in Sheboygan.
| | - | ---------------------------------------------------------------------------

# Item 3. Legal
Proceedings.

There
are no material legal proceedings to which we are a party or to which any of our property
is subject, other than routine litigation incidental to our business. No material legal
proceedings were terminated during the fourth quarter of 2004.

# Item 4.  Submission of
Matters to a Vote of Security Holders.

No
matters were submitted to a vote of our shareholders during the fourth quarter of 2004.

# PART II

# Item 5.  Market for Our
Common Stock, Related Shareholder Matters and Issuer Repurchases of Equity Securities.

On February
24, 2005, pursuant to our program for compensating our independent directors, we issued
904 shares of our common stock to each of our five directors who were not employed by us
or one of our service providers as a retainer for service on our board of directors in
2005. We issued these shares in reliance upon the exemption from registration provided by
Section 4(2) under the Securities Act because the issuance did not involve a public
offering.

Our
common stock is traded over-the-counter on the Nasdaq Stock Market under the symbol FRSH.
There are approximately 2,100 beneficial shareholders of our common stock. An analysis of
high and low stock prices by quarter for the last three years is as follows:

|    
|----
|High
|2004
|2003
|2002
|    

In
2004, we indefinitely suspended payment of our cash dividends. Our recent cash dividends
paid per share were:

|    
|----
|2004
|2003
|2002
|    

Due
to credit facility restrictions, the recent results of our operations and our focus on
reducing our debt, we did not repurchase any shares during 2004 and do not currently
anticipate making any additional corporate stock repurchases during 2005.

16

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# Item 6. Selected
Financial Data.

|Five-Year Financial Summary                             
|--------------------------------------------------------
|(Dollars and shares in thousands, except per
share data)
|2004                                                    
|Consolidated statements of operations data:             
|Net sales                                               
|Operating income                                        
|Income from continuing operations                       
|Net income (loss)                                       
|Diluted earnings per share:                             
|Continuing operations                                   
|Net income (loss)                                       
|Cash dividends per share                                
|Weighted average shares and equivalents                 
|outstanding - diluted                                   
|Consolidated balance sheet data                         
|(at fiscal year-end):                                   
|Working capital                                         
|Total assets                                            
|Current maturities of capital lease                     
|obligations and long-term debt                          
|Current portion of revolving credit facility (d)        
|Long-term debt                                          
|Capital lease obligations                               
|Total shareholders' investment                          
|Other data:                                             
|Capital expenditures                                    
|Depreciation and amortization                           

|NOTES: | (a) | Our fiscal year ends on the Saturday closest to December 31.  The 2003 fiscal year was
a 53-week                 period.  All other fiscal years presented were 52-week periods.
|------ | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | In
2004, we adopted the requirements of FIN 46R under which we were required to
          consolidate the financial statements of certain of our franchise entities in
our           consolidated financial statements. These entities were consolidated on a
          prospective basis from January 4, 2004 and prior years were not restated. See
          Note 3 of Item 8  Financial Statements and Supplementary Data           Notes
to Consolidated Financial Statements for the impact on operating results           for
2004.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | All
data should be read in conjunction with our audited consolidated financial
          statements and Managements discussion and analysis of financial
          condition and results of operations as set forth in this Annual Report.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (d) | We
have  classified  $5,000,000 of amounts we owed under our revolving  credit  facility on
January 1,                 2005 as  current  based on the  amounts we have paid down
 subsequent  to January 1, 2005.                 Our borrowings  throughout  2005 will
vary based on operating cash flows and the timing of                 capital
expenditures, term debt repayments and seasonal working capital requirements.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17

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

# Our Business

We
are a grocery wholesaler and supermarket retailer principally through corporate-owned,
franchised and independent supermarkets. At the end of 2004, we owned and operated 21
supermarkets, two convenience stores, and we franchised an additional 81 supermarkets. Our
corporate and franchised supermarkets are sometimes collectively referred to as
our supermarkets. Twelve of our corporate supermarkets operate under the
Piggly Wiggly banner and nine of them operate under the Dicks Supermarkets banner.
All of our franchised supermarkets operate under the Piggly Wiggly banner. We are the
primary supplier to all 102 of our supermarkets. We also serve as a wholesaler to a number
of smaller, independently operated supermarkets and convenience stores. All of our
supermarkets and other wholesale customers are located in Wisconsin, northern Illinois,
and northeastern Iowa.

Our
operations are classified into three segments, wholesale, corporate retail, and franchise
retail. Our wholesale business derives its revenues primarily from the sale of groceries
and other products to our corporate and franchised supermarkets and independent retail
customers through two distribution centers in Sheboygan, Wisconsin and through a
third-party distribution facility in Milwaukee, Wisconsin. Additionally, we distribute
items made in our Platteville, Wisconsin bakery/deli production facility to our corporate
supermarkets, franchisees and independent customers.

Our
retail business consists of our 21 corporate supermarkets and our two convenience stores.
Our convenience stores include fuel stations and are located on properties adjacent to our
stores. We earn our retail revenues by selling products purchased from our wholesale
segment and other merchandise to retail consumers. Compared to our wholesale segment, our
retail segment generates higher gross profit margins, but has higher operating expenses.

As
discussed in the notes to the condensed consolidated financial statements, we were
required to consolidate the financial statements of certain of our franchise entities in
our consolidated financial statements as of January 4, 2004 even though we have no equity
interests in these franchises. There are currently 17 franchise entities that comprise our
franchise retail segment. Similar to our corporate retail segment, our franchise retail
segment generates revenue by selling products purchased from our wholesale segment and
other merchandise to retail consumers and has higher gross profit margins, but has higher
operating expenses compared to our wholesale segment.

Our
fiscal year ends on the Saturday closest to December 31. Our 2004 fiscal year was a
52-week period, our 2003 fiscal year was a 53-week period and our 2002 fiscal year was a
52-week period.

# Overview of 2004 and
Current Plans

In
2004, our board and management team determined that it would be in the best interests of
our shareholders to adopt a new operational focus that places a greater emphasis on
improving the results of our current operations through focusing on our in-store value
proposition, developing specific marketing plans and other operational goals for our
underperforming corporate stores, increasing our wholesale business and reducing our debt.
We believe that successful implementation and execution of this new operational focus will
help to reinvigorate our corporate and franchise retail system and allow us to once again
generate consistent, reliable earnings and cash flows.

18

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Focusing
on the long-term, in early 2004, we decided to close five underperforming corporate
stores and one underperforming franchised store and to sell three other underperforming
corporate stores (including two to a consolidated franchisee). These closures and sales
resulted in significant charges related to asset impairments and lease exit liabilities
in both 2003 and 2004. In part due to these charges, in both 2003 and 2004 we reported
significant net losses. The following table reflects retail repositioning and other selected
impairment charges in 2002, 2003 and 2004 (in thousands):

|                                             
|---------------------------------------------
|
|Repositioning and other impairment charges   
|Wholesale segment                            
|Franchise store closure lease exit liability 
|Software writeoff (impairment)               
|Other                                        
|Corporate retail segment                     
|Store impairment in connection with sale to a
|consolidated franchisee                      
|Store relocation lease exit liability        
|Other store asset impairments                
|                                             
|Total repositioning and impairment charges   
|                                             

An
important part of our objective to improve our operating results is the reestablishment of
our in-store value proposition. We believe this is a key component to reinvigorating our
corporate and franchised store program and enabling us to more efficiently compete against
other conventional operators and compete with those whose primary focus is price. We
devoted significant effort in 2004 to refine our program to both better appeal to the
budget-minded consumer and maintain the high quality of our perishables and service.
During the first half of 2004, we increased promotional activities at the wholesale and
retail levels to help increase retail sales. At the same time, we also refined our
competitive pricing and marketing strategy. In addition, we have developed specific
marketing plans and other operational goals for certain of our underperforming corporate
stores. In November 2004, we rolled out our new in-store value proposition to all of our
corporate and franchised Piggly Wiggly stores. We believe that our new pricing and
marketing strategy, which focuses on center store products such as grocery, general
merchandise, and health and beauty care products, will help to significantly increase
comparable store sales of both our corporate and franchise stores during 2005. We expect
the immediate impact of our more competitive prices will likely result in lower retail
gross margins in the short term. However, we expect this strategy will make us more price
competitive in the long term and, as a result, we expect to increase comparable store
sales, achieve an improved sales mix, increase our ability to leverage fixed store
expenses, and continue to control other store operating expenses. We expect that these
anticipated results will ultimately help improve our corporate store operating margins and
reduce our provisions for potentially uncollectible franchise receivables.

19

---

In
connection with the development of our competitive pricing and marketing strategy, we
changed advertising agencies and developed a comprehensive media campaign to roll out our
new in-store value proposition. As a result of these marketing activities, our advertising
expense increased by $1.5 million in 2004. Also, in 2004, we purchased a leading-edge,
headquarters pricing systems application that we anticipate will be a key component to
maximizing the effectiveness of our pricing strategy and providing our corporate and
franchised stores with a flexible, just-in-time competitive pricing system. We have begun
the discovery and testing phases of this new system and expect to implement various
components throughout 2005. Expected completion of the implementation process is scheduled
for the first quarter of 2006.

Due
to our renewed focus on increasing our wholesale operations, we converted seven additional
stores to the Piggly Wiggly banner in 2004. These stores contributed an additional $9.1
million in wholesale sales volume in 2004. We believe we can continue to increase our
wholesale business through additional conversions to our Piggly Wiggly banner, as well as
through secondary supply arrangements with other independent operators.

In
the fourth quarter of 2004, we began integrating the remaining redundant support functions
of our Dicks Supermarkets operations in Platteville, Wisconsin. This initiative will
be completed in the first quarter of 2005 and, once completed, is expected to save us over
$1.0 million in selling and administrative expenses annually. We incurred $0.2 million in
severance obligations in 2004 as a result of this integration effort.

In
March 2004, we entered into a new, secured three-year $40.0 million revolving credit
facility. While the new facility has slightly higher interest rates, we believe it gives
us the liquidity we will need over the near term to rebuild our competitive program.
However, in order to facilitate obtaining this facility on the most favorable terms, and
in view of our recent results and financial condition and our focus on reducing our debt,
we indefinitely suspended our quarterly cash dividend and our stock repurchase program.

Finally,
during 2004 we implemented the provisions of Section 404 of the Sarbanes-Oxley Act, which
required our management and auditors to report on our internal controls. This
implementation process was expensive both in terms of professional and other service
provider fees and management time and focus. Our professional fees increased from $1.8
million in 2002, to $2.4 million in 2003, and $2.9 million in 2004. The professional fees in 2004
were largely driven by our Section 404 implementation efforts.

20

---

# Results of Operations

The
following tables set forth certain selected items from our results of operations for 2002
through 2004:

|                                                         
|---------------------------------------------------------
|(In thousands, except percentages)                       
|Net sales                                                
|Gross profit(3)                                          
|Operating income                                         
|Interest expense                                         
|Minority interest in earnings of consolidated franchisees
|Income from continuing operations before income taxes    
|Income tax provision                                     
|Income from continuing operations                        
|Loss from discontinued operations, net of tax            
|Cumulative effect of change in accounting principle      
|Net income (loss)                                        
|                                                         
|Net sales by segment:                                    
|Wholesale segment                                        
|Corporate retail segment                                 
|Franchise retail segment                                 
|Intersegment eliminations:                               
|Sales to corporate retail                                
|Sales to franchise retail                                
|                                                         
|Net sales                                                
|                                                         
|Operating income (loss) by segment:                      
|Wholesale segment                                        
|Corporate retail segment                                 
|Franchise retail segment                                 
|Intersegment eliminations                                
|                                                         
|Operating income                                         
|                                                         
|Comparable store sales increases(4):                     
|Corporate stores                                         
|Consolidated franchise stores                            
|Other franchise stores(5)                                
|Combined corporate and franchised stores(5)              

| | (1) | In
2004, we adopted the requirements of FIN 46R under which we were required to
          consolidate the financial statements of certain of our franchise entities in
our           consolidated financial statements. These entities were consolidated on a
          prospective basis from January 4, 2004 and prior years were not restated. See
          Note 3 of Item 8  Financial Statements and Supplementary Data           Notes
to Consolidated Financial Statements for the impact on operating           results
for 2004.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Our
2003 was a 53-week year. Our 2004 and 2002 were 52-week years.
| | --- | ------------------------------------------------------------------

| | (3) | Our
gross profits may not be comparable to others in our industry because some
          entities may include all of the costs related to their distribution network in
          cost of products sold and others exclude all or a portion of such costs from
          gross profit, instead including them in an operating expense category such as
          selling and administrative expenses. Our cost of products sold includes product
          costs and the production labor in our bakery/deli production facility. Other
          costs, including purchasing and receiving costs, inspection costs, warehousing
          costs, internal transfer costs, and other costs of our distribution network are
          included in our selling and administrative expenses.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Comparable
store sales increases are computed after adjusting for the additional           week in
fiscal 2003.
| | --- | ---------------------------------------------------------------------------------------------------------------

| | (5) | While
franchised store sales are not recorded as revenue by us, we believe they           are
important in understanding our financial performance because their sales
          volumes generate additional wholesale sales volume and franchise fees and they
          are indicative of the financial health of our franchise base and the
          effectiveness of our in-store value proposition.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

# Wholesale segment

|                                          
|------------------------------------------
|(In thousands, except percentages)        
|Sales                                     
|Gross profit                              
|Gross margin                              
|Selling and administrative expenses       
|As a percent of sales                     
|Repositioning and other impairment charges
|As a percent of sales                     
|Depreciation and amortization             
|As a percent of sales                     
|Operating income                          
|Operating margin                          

In
2004, our wholesale sales decreased $19.5 million compared to 2003. This decrease
primarily reflected the additional week in 2003 and the impact of closing one franchise
store and five corporate stores during the first half of 2004 and selling one corporate
store in August 2004. In addition, in 2003 we also realized $7.1 million in sales from a
temporary supply arrangement with a group of local supermarkets previously supplied by
Fleming Companies. Partially offsetting these decreases were sales to seven additional
stores that we converted to the Piggly Wiggly banner in 2004.

In
2003, our wholesales sales increased by $28.0 million compared to 2002 due primarily to
the additional week in 2003 and the temporary supply arrangement with the group of local
supermarkets previously supplied by Fleming Companies. In addition, our wholesale sales
increased as a result of two new corporate stores, the replacement of two corporate
stores, and the replacement of two franchise stores in 2003.

Our
decreased gross margin in 2004, compared to 2003, was primarily due to our increased
promotional activities during the first half of 2004. Our increased gross profit and gross
margin in 2003, compared to 2002, reflected certain adjustments to wholesale prices in
2003.

During
2003 and 2004, we completed several initiatives to improve the productivity of our
distribution processes, including facility upgrades, installation of a new warehouse
management system and voice selection technology, and new engineered labor standards,
which more than offset ongoing wage, fuel and freight cost increases. Despite these
improvements, selling and administrative expenses have increased since 2002 primarily due
to significant increases in our provisions for uncollectible franchise receivables,
professional fees to comply with the provisions of Section 404 of the Sarbanes-Oxley Act,
costs for group health coverage, and advertising expenses in connection with the roll out
of our value proposition and marketing program in 2004.

Our
provision for potentially uncollectible franchise receivables was $4.9 million in 2004,
compared to $6.3 million in 2003, and $1.5 million in 2002. These increases in 2004 and
2003 reflected the increased operating losses at several of our franchised supermarkets
due to industry and market conditions. During 2004, we saw improvement in the operating
performance of some of these franchisees principally resulting from becoming more price
competitive in these markets through promotion in the first half of 2004 and the roll out
of our value proposition in the fall of 2004. We continue to work with our franchisees to
increase their sales volumes and improve their operating results through effective cost
controls. The provision for 2004 also included $1.7 million related to those franchises
that are now consolidated in our results of operations. This amount was eliminated in
consolidation. We believe it is likely that an additional three or four underperforming
franchise stores will be closed in 2005. The provision for uncollectible franchise
receivables related to these stores was $2.0 million in 2004. Depending on the timing of
these likely closures, we could incur additional lease exit liabilities of up to $1.5
million related to these stores in 2005.

22

---

Our
repositioning and other impairment charges in 2004 included $1.3 million for a lease
obligation related to the franchised store closed in 2004 and $0.2 million for severance
obligations incurred in December 2004 in connection with the integration of redundant
management support functions for our Dicks Supermarkets operations. We expect to
save over $1.0 million in administrative expenses annually as a result of this
integration. The repositioning and other impairment charges in 2003 primarily reflected
the write off of the entire value of certain financial reporting and accounting software
that was abandoned in 2003.

Our
depreciation and amortization charges have increased as result of capital expenditures
(including capital leases) to improve the efficiency of our distribution facilities and
opening our new bakery/deli production facility in Platteville, Wisconsin in 2004.

During
2004, in connection with our change in management and the shift in our operational focus
to our wholesale operations, we reevaluated our approach to reporting the results of our
operating segments and decided to no longer allocate wholesale operating profits to our
retail segment. This approach is consistent with how our management reviews the results of
operations for our operating units. As a result of this change in our definition of
segment operating profit, we also reassessed the allocation of goodwill that arose in
connection with the Dicks Supermarkets acquisition and allocated $11.5 million of
goodwill to our wholesale segment. Prior year segment information has been restated to
conform to the 2004 presentation.

# Corporate retail segment

|                                          
|------------------------------------------
|(In thousands, except percentages)        
|Sales                                     
|Gross profit                              
|Gross margin                              
|Selling and administrative expenses       
|As a percent of sales                     
|Repositioning and other impairment charges
|As a percent of sales                     
|Depreciation and amortization             
|As a percent of sales                     
|Operating income (loss)                   
|Operating margin                          

For
2004, corporate retail sales increased $8.5 million, or 3.1%, compared to fiscal 2003.
This increase was attributable to a $16.2 million increase in sales from two new
supermarkets and two new convenience stores and a 1.6% increase in comparable store sales
compared to 2003, after adjusting for the additional week in 2003. These increases were
partially offset by a $6.6 million decrease resulting from the sale of two of our
corporate stores to a franchisee.

23

---

For
2003, corporate retail sales increased $25.7 million, or 10.3%, compared to 2002 as a
result of an additional week in 2003, $15.5 million from two new or replacement stores,
and a comparable store sales increase of 1.9% compared to 2002, after adjusting for the
additional week in fiscal 2003.

Our
reduced gross margins in 2004 and 2003 reflect our efforts to become more consumer price
competitive in our markets, especially those where we opened new or replacement stores,
which generally have higher operating expenses than our other stores. Additionally, our
reduced gross margins reflect increased promotional activities over the latter part of
2003 and the first half of 2004. In November 2004, we completed the roll out of our new
value proposition and marketing strategy to our corporate Piggly Wiggly stores. We expect
that this strategy will reduce our gross margins in the short term. However, we expect
this strategy will make us more price competitive in the long term and, as a result, we
expect to increase comparable store sales, achieve an improved sales mix, increase our
ability to leverage fixed store expenses, and continue to control other store operating
expenses. We expect that these anticipated results will ultimately help improve our
corporate store operating margins.

Our
selling and administrative expense rate has increased since 2002 primarily as a result of
our new and replacement stores, some of which do not currently have the sales volumes
required for us to operate them efficiently. In addition, union health and welfare
benefits have increased by approximately 25 basis points, or $0.5 million annually, since
2002.

During
the third quarter of 2004, we sold our three remaining corporate Piggly Wiggly stores in
Illinois. We no longer supply one of these stores and, as a result, its results of
operations have been reclassified as discontinued operations. The proceeds from the sale
of this store were $1.1 million which approximated the book values of the assets sold. The
other two stores were sold to a new consolidated franchisee and will continue to be supplied by our
wholesale operations. In connection with the sale of these stores, we recognized an
impairment of charge of $1.3 million ($0.8 million after-tax, or $0.16 per diluted share)
in the second quarter of 2004 which was included in our repositioning and other impairment
charges.

Our
repositioning and impairment charges of $1.2 million ($0.7 million, or $0.15 per diluted
share) incurred in 2003 reflected the exit liability for a lease obligation related to a
relocated store and an asset impairment charge for a corporate store. In March 2005, we
will close one of our three corporate stores in Sheboygan, Wisconsin in order to
consolidate our business in the two remaining corporate stores. We do not expect to have
any further significant repositioning charges in connection with this closure.

Depreciation
and amortization charges reflect the impact of capital expenditures (including capital
leases) incurred in connection with six new or replacement stores completed in 2002
through 2004.

In
2003 and 2004, our corporate retail segment has incurred significant operating losses
primarily resulting from several new stores opened in 2003 and 2004. In addition to the
expected long-term improvements to operating results from the value proposition, we have
developed specific marketing plans and other operational goals for these stores. With
these action plans, we have developed long-term projections of the estimated cash flows
for each of these stores and for our corporate retail segment, as a whole.

We
had long-lived assets (including capital lease assets) of $21.6 million related to these
stores and $8.8 million of goodwill related to the corporate retail segment at January 1,
2005. Our end review for potential impairment of these assets indicated there was no
impairment of the long-lived assets or goodwill at January 1, 2005 based largely on these
long-term projections. While any assessment of long-lived asset impairment or goodwill
impairment is inherently subjective and dependent on projections of future operating
results, we believe that we conducted a thorough and competent valuation of these specific
asset groups and the corporate retail segment, as a whole, at January 1, 2005 in support
of these assessments.

24

---

We
will review the results of these initiatives throughout 2005 and monitor the valuation of
our long-lived assets of these stores and the corporate retail segment, as a whole. To the
extent that these stores, in particular, and the corporate retail segment, as a whole, are
not able to substantially achieve expected sales and operating income performance, we
could be required to record asset impairment charges and goodwill impairment charges. The
range of any such potential charges, which could be significant, would be based on a
number of factors, including the stores operating performance, future required
capital expenditures, interest rates, and long-term growth assumptions.

# Franchise retail segment

Our
franchise retail segment is comprised of our franchise entities that, under generally
accepted accounting principles, we are required to consolidate with our own operations as
of January 4, 2004 primarily because of our loan guarantees to these entities and their
financial condition at the time the loan guarantees were made. These entities were
consolidated on a prospective basis from January 4, 2004 and prior year results have not
been restated. Prior to 2004, our exposure to the operating losses of these entities was
recognized through our provision for uncollectible franchisee receivables, which is
included in the wholesale segment operating results. The following table shows the impact
that these consolidations had upon our financial results in 2004:

|                                   
|-----------------------------------
|(In thousands, except percentages) 
|Sales                              
|Gross profit                       
|Gross margin                       
|Selling and administrative expenses
|As a percent of sales              
|Depreciation and amortization      
|As a percent of sales              
|Operating loss                     
|Operating margin                   

Comparable
store sales for our consolidated franchise retail stores increased 4.0% in 2004, after
adjusting for the additional week in 2003. These increases were driven by the impact of
two replacement stores completed in 2003, our additional promotional efforts in the first
half of 2004, and the closure of competitive stores in certain markets. While the
operating results of these franchise entities improved during 2004 as the operators and
our retail operations management worked to leverage their sales growth and improve other
operational expense controls, additional increases in sales volumes are needed to improve
these stores operating results. Subject to local market competitive conditions and
industry factors, we believe the operating results for these franchise entities may
continue to improve over time with further sales growth and the continued close management
of operational expenses.

25

---

The
losses of these 17 entities included in our 2004 income from continuing operations before
income taxes was as follows:

|                                                          
|----------------------------------------------------------
|(In thousands)                                            
|Franchise retail sales                                    
|Eliminations in consolidation                             
|                                                          
|Net impact on consolidated net sales                      
|                                                          
|                                                          
|Operating loss of consolidated franchise entities         
|Interest expense of consolidated franchise entities       
|                                                          
|Net losses of consolidated franchise entities             
|Minority interest in earnings                             
|                                                          
|Losses included in consolidated income before income taxes
|                                                          

# Interest Expense

The following table sets forth the
components of our net interest expense for 2002 through 2004.

|                                                              
|--------------------------------------------------------------
|(In thousands)                                                
|Capital lease obligations                                     
|Long-term debt of Fresh Brands                                
|Amortization of deferred issuance costs                       
|Debt and capital lease obligations of consolidated franchisees
|Other                                                         
|                                                              
|Total interest expense, net                                   
|                                                              

Interest
expense in 2004 increased by $2.0 million primarily as a result of our consolidation of 17
franchise entities pursuant to FIN 46R, increased interest expense on our revolving loan
facility primarily due to higher rates, and the amortization of the deferred issuance
costs incurred in connection with the execution of the new revolving loan facility. In
addition, the interest on capital lease obligations increased as a result of the
additional capital lease obligations incurred in connection with our new corporate store
in Iowa and the new bakery/deli production facility.

Interest
expense in 2003 increased by $0.4 million primarily as a result of the additional capital
lease obligations incurred in connection with the opening of two new corporate stores in
2003.

# Income Tax Provision

Our
effective tax rate for income from continuing operations was 56.2% for 2004, 30.0% for
2003 and 38.6% for 2002. The higher effective tax rate in 2004 reflected certain state tax
losses in 2004 for which no benefits were recorded.

# Discontinued Operations

Discontinued
operations include the operating results for stores that we have closed or sold and as to
which we will have no continuing involvement in those specific markets. They include the
operating results of one store that we closed in December 2003, five stores that we closed
in May 2004 and one store that we sold in August 2004 that we will no longer supply. The
loss on discontinued operations for 2004 included charges of $3.0 million ($1.9 million
after-tax, or $0.38 per diluted share) relating to the remaining lease obligations for the
five stores closed in May 2004. The loss on discontinued operations for 2003 included
charges of $2.0 million ($1.2 million after-tax, or $0.24 per diluted share) related to
the impairment of capital lease assets and other equipment at these stores.

26

---

# Cumulative Effect of
Accounting Change

The
cumulative effect of accounting change reflects our adoption of the consolidation
provisions of FIN 46R as of January 4, 2004. The cumulative effect adjustment of $136,000
reflects the difference between consolidating the 16 franchises required to be
consolidated as of January 4, 2004 and the eliminations of the allowance for doubtful
accounts that had been provided for those franchises at that date.

# LIQUIDITY AND CAPITAL
RESOURCES

# Summary

The
following tables summarize our cash flow during 2003 and 2004 and other information
related to our liquidity and capital resources (in thousands, except for ratios):

|                                                             
|-------------------------------------------------------------
|
|Cash and cash equivalents at beginning of year               
|                                                             
|Cash provided by operating activities                        
|Cash provided by (used for) investing activities             
|Cash provided by (used for) financing activities             
|Cash of consolidated franchises at beginning of year         
|                                                             
|Cash and cash equivalents at end of year                     
|                                                             
|                                                             
|
|Working capital (current assets minus current liabilities)   
|Current ratio (current assets divided by current liabilities)
|Ratio of total liabilities to shareholders' investment       
|                                                             

The
 classification  of $5 million of the amounts owed under our revolving  credit  facility
on January 1, 2005 as current  (based on the  amounts  we have paid down  subsequent  to
 January  1,  2005)  caused the changes in our  working  capital and current  ratio at
the end of 2004,  compared to the end of 2003.  Our borrowings  throughout  2005  will
 vary  based  on  operating  cash  flows  and  the  timing  of  capital expenditures,
term debt repayments and seasonal working capital requirements.

The
consolidation of 17 franchise entities was a significant cause of the increase in our
ratio of total liabilities to shareholders investment at the end of 2004,
compared to the end of 2003.

In
March 2004, we entered into a secured three-year, $40.0 million revolving credit facility
with LaSalle Bank and U.S. Bank, which replaced our former unsecured $35.0 million
revolving credit facility. In order to obtain our new credit facility, we were required to
pledge all of our assets as collateral and agree to increased interest rates of 25 to 50
basis points compared to the weighted average interest rate that we paid in 2003. In
addition, our new credit facility includes covenants that prohibit us from taking certain
other actions. These covenants include:

| |  | a
prohibition on us from guaranteeing additional franchisee bank debt;
| | - | ----------------------------------------------------------------------

| |  | a
prohibition on us from paying cash dividends on our common stock; and
| | - | -----------------------------------------------------------------------

| |  | a
limit on our ability to repurchase our common stock.
| | - | ------------------------------------------------------

27

---

The
covenants in our new credit facility also limit our ability to incur additional debt and
other obligations, including capital lease obligations. In addition, our new credit
facility requires us to comply with the following financial covenants at the end of each
quarter:

|                                             
|---------------------------------------------
|
|Fixed Charge Coverage Ratio(2)               
|                                             
|Total Senior Debt Cash Flow Leverage Ratio(3)
|                                             
|Paid Sublease Ratio(4)                       
|                                             

|(1) | Each
of these ratios is defined in our revolving credit agreement.
|--- | ------------------------------------------------------------------

|(2) | Our
Fixed Charge Coverage Ratio is a measure of our cash flow compared to our
               fixed charges.
|--- | -----------------------------------------------------------------------------------------------------------

|(3) | Our
Total Senior Debt Cash Flow Leverage Ratio is a measure of our senior debt
               compared to our cash flow.
|--- | ------------------------------------------------------------------------------------------------------------------------

|(4) | Our
Paid Sublease Ratio is a measure of the number of our franchisees who
               sublease their stores from us who are current on their rent payments.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

As
of January 1, 2005, we had $9.7 million of availability under our revolving credit
facility. We believe that our cash flow from operations and availability under our
revolving credit facility will be sufficient to meet our normal, expected working capital
requirements, planned capital expenditures, and term debt payments for 2005.

# Cash Flows From
Operating Activities

Cash
provided by operating activities was $6.2 million in 2004 compared to $19.3 million in
2003. This change was largely the result of cash generated in 2003 from reduced levels of
inventory and significant decreases in accounts payable and accrued liabilities in 2004.
The 2004 reduction in inventory levels was primarily in connection with the closure or
sale of six corporate stores. Cash provided by operating activities before changes in
operating assets and liabilities was $18.6 million in 2004, compared to $20.0 million and
$17.5 million in 2003 and 2002, respectively.

# Cash Flows From
Investing Activities

For
2004, aggregate capital expenditures were $6.3 million, compared to $12.7 million and
$13.7 million for 2003 and 2002, respectively. Our 2004 capital expenditures included $1.5
million for retail equipment and fixtures related to new store openings, $1.5 million for
equipment for our replacement bakery/deli production facility, $0.8 for retail pricing
technology to support our in-store value proposition, $1.9 million for various other
retail store and distribution center improvements, and $0.6 million for other corporate
office technology and hardware.

We
have used sale and leaseback arrangements to finance substantially all of our retail
facility projects. Under these arrangements, we capitalize the costs incurred for land and
buildings under development until project completion. Upon completion, the facilities are
sold and lease arrangements are established. In 2004, we completed the sale and leaseback
for the corporate store opened in January 2004 and we were reimbursed for some interim
funding related to the replacement bakery/deli production facility. In 2003, we completed
sale and leaseback arrangements for two corporate stores and two franchised stores. We
currently have no further commitments for any additional new or replacement facilities
that will require any interim funding by us.

Our
2005 capital budget is approximately $6.1 million. Approximately $1.7 million of our 2005
budget has been committed for implementing our retail pricing technology that will allow
us to more strategically manage competitive prices and ultimately enhance our gross
margins. Our remaining capital budget has been allocated as follows: $2.2 million for
remodeling and maintaining our corporate stores, $0.8 million for our distribution centers
and our new bakery/deli manufacturing facility, and $1.4 million for other
technology-related projects and office renovations. We are not currently anticipating the
purchase of any unaffiliated retail stores in 2005, but we may acquire supermarkets from
one or more of our franchisees that may decide to exit the supermarket business. Any
amounts that we spend in such transactions would be in addition to our current 2005
capital budget.

28

---

# Cash Flows From
Financing Activities

Cash
used for financing activities primarily reflects net borrowing or repayments under our
revolving credit facility, payments of capital lease obligations and term debt, treasury
stock purchases and cash dividends. During 2004, we used cash to pay $5.3 million in
capital lease obligations and term debt, while borrowing an additional $3.2 million under
our revolving credit facility. In 2003, we paid $2.6 million for capital lease obligations
and term debt and reduced our borrowings under our revolving credit facility by $8.3
million. In addition, during 2003, we repurchased approximately 250,000 shares of our
common stock, primarily to provide liquidity to our shareholders in our retirement savings
plan, for an aggregate price of $3.5 million (an average per share price of $13.58),
compared to no repurchases in 2004. Due to credit facility restrictions, our recent
results of our operations and our focus on reducing our debt, we do not currently
anticipate paying any dividends or making any additional repurchases under our stock
repurchase plan during 2005.

# OTHER CAPITAL
COMMITMENTS  CONTRACTUAL OBLIGATIONS

The
following chart sets forth information regarding our contractual obligations and explains
our significant related assets that offset many of these contractual obligations (in
thousands):

|                                                             
|-------------------------------------------------------------
|
|Total
Contractual
Obligation                                 
|Revolving credit facility borrowings(1)                      
|                                                             
|Other notes payable                                          
|                                                             
|Consolidated franchisee debt, including annual interest costs
|                                                             
|Capital lease obligations(2)                                 
|                                                             
|Operating lease obligations(3)                               
|                                                             
|Purchase obligations(4)                                      
|                                                             
|Total contractual obligations                                
|                                                             

|(1) | The
interest rate on revolving credit facility borrowings is based on either a
          defined base rate or the London Interbank Offered Rate (LIBOR) plus applicable
          margins based on a senior debt to cash flow ratio.  At January 1, 2005,
our           borrowing rates were LIBOR plus 2.00% (4.40%) or base plus 0.50% (5.75%).           Based
on our weighted average rate of 4.82% and average outstanding borrowings           of
$20.0 million, our annual interest cost would be approximately $960,000.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Our
capital lease obligations are for one of our warehouses, our bakery/deli
          production facility, 10 corporate stores, 15 franchise stores which we lease
          from the landlord and sublease to our franchisees and two closed stores. A
total           of $50.0 million of our capital lease obligations are offset by sublease
          obligations owed to us by our franchisees.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Our
operating lease obligations include 27 corporate stores, 31 franchise stores
          which we lease from the landlord and sublease to our franchisees and three
          closed stores. A total of $59.9 million of our operating lease obligations are
          offset by sublease obligations owed to us by our franchisees.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | We
have two contracts with our vendors pursuant to which we receive significant upfront
          payments in return for a commitment to purchase a minimum amount of products
          during the term of the contract. If we fail to meet the minimum purchase
          requirements, we are typically required to repay some or all of the payments
          received from our vendor. These amounts are included as other liabilities on
our           consolidated balance sheets and reduce our cost of products sold ratably
over           the length of the contracts. The amounts listed in the table above
represent the           amounts that we may be required to pay if we do not meet the
minimum purchase           requirements of contracts expiring during the applicable
periods.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

29

---

# OFF-BALANCE SHEET
ARRANGEMENTS

The
following chart sets forth information regarding off-balance sheet arrangements as of
January 1, 2005 (in thousands):

|                                    
|------------------------------------
|
|Total
Contingent
Obligation         
|Standby letters of credit(1)        
|                                    
|Franchisee guarantees(2)            
|                                    
|Total off-balance sheet arrangements
|                                    

|(1) | Our
letters of credit are in support of the self-insured portion of our workers
          compensation and general liability insurance programs, our guarantees of bank
          loans to our franchisees and other amounts we owe. Under accounting principles
          generally accepted in the United States, our letters of credit obligations are
          not recorded as liabilities on our financial statements because they are
          contingent obligations that we do not expect to pay.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | As
is common in our industry, we guarantee a portion of the bank debt of certain
          of our franchisees to support the growth of our franchisees and wholesale
          operations. All of these loan guarantees are collateralized, principally by
          equipment and inventory and, in some cases, with building facilities, corporate
          indemnification agreements and personal guarantees. Beginning in 2003, we
          adopted the provisions of FIN 45 and began recording a liability for the
          estimated fair value of all new guarantees. Our franchisees enter into a
          purchase commitment with us to purchase items from our wholesale segment in
          exchange for our guarantee of their debt; accordingly, we record in other
          non-current assets a purchase commitment asset equal to the estimated fair
value           of the guarantee obligation. We amortize the estimated fair value of the
          guarantees on a systematic basis as our guarantee exposure is reduced and we
          amortize our purchase commitment asset on a straight-line basis over the life
of           the purchase commitment.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# CRITICAL ACCOUNTING
POLICIES

The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates and
assumptions that affect the amounts of assets and liabilities reported in the consolidated
financial statements, the disclosure of contingent assets and liabilities as of the date
of the financial statements and reported amounts of revenues and expenses during the
reporting period. We believe our estimates and assumptions are reasonable; however, future
results could differ from those estimates under different assumptions or conditions.

Our
significant accounting policies are discussed in the section titled Item 8 
Financial Statements and Supplementary Data  Notes to Financial Statements. We
believe that the following accounting policies are most critical in the preparation of our
financial statements because they involve the most difficult, subjective or complex
judgments about the effect of matters that are inherently uncertain.

# Allowance for Doubtful
Accounts

We
make estimates of the uncollectibility of our accounts and capital sublease receivable
portfolios. We determine the adequacy of the allowance by analyzing the aging of
receivables, customer financial statements, historical collection experience, value of
collateral, other credit exposure with the customer including loan guarantees, and other
economic and industry factors. It is possible that the accuracy of the estimation process
could be materially impacted by different judgments as to collectibility based on the
information considered and further deterioration of the accounts.

# Inventories

Inventories,
substantially all of which consist of food, groceries and related products for resale, are
stated at the lower of cost or market value. Cost is determined primarily on the last-in,
first-out (LIFO) method. At January 1, 2005 and January 3, 2004, 74% and 88%,
respectively, of all inventories were accounted for under the LIFO method. The excess of
current cost over the stated LIFO cost of inventory was $11.3 million and
$10.5 million at January 1, 2005 and January 3, 2004, respectively.

30

---

# Retail Repositioning
Reserve and Asset Impairment

We
recognize liabilities for estimated repositioning and termination losses associated with
the closure, replacement, or disposal of stores, consisting primarily of lease payments,
net of anticipated sublease income, and severance payments. Calculating the estimated
losses requires significant judgments and estimates that could be impacted by factors such
as the extent of interested buyers, the ability to obtain subleases, the creditworthiness
of sublessees, and our success at negotiating early termination agreements with lessors.
These factors are significantly dependent on general economic conditions and resultant
demand for commercial property.

Impairment
charges for long-lived assets are recognized when expected undiscounted future cash flows
are less than the assets carrying value (including capital lease assets). The
impairment loss is estimated based on the excess of the assets carrying value over
the fair market value of those assets. The timing and extent of impairment losses are
significantly impacted by the estimates of future operating cash flows, the expectations
on timing of disposition or sublease and the estimated sales price or sublease income.
These factors are estimated by management based on its experience and knowledge of the
markets in which they operate, inflation, general economic conditions, and resultant
demand for commercial property.

# Goodwill and Long-Lived Assets

We
assess the value of our goodwill on at least an annual basis by comparing the fair value
of each segment with its carrying value. Fair value is determined primarily based on
valuation analysis performed by management, which uses a discounted cash flow methodology.
The valuation analysis requires significant judgments and estimates to be made regarding
future operating cash flows, capital expenditures, and changes in working capital. Our
estimates could be materially impacted by factors such as competitive forces, customer
behavior, changes in growth trends, specific industry factors, and changes in interest
rates. Significant deviations from our planned operating cash flows for 2005 could trigger
another assessment of the value of our goodwill prior to our annual assessment, which is
performed as of the end of our third quarter.

In
2003 and 2004, our corporate retail segment has incurred significant operating losses
primarily resulting from several of the stores opened in 2003 and 2004. In addition to the
expected long-term improvements to operating results from the value proposition, we have
developed specific marketing plans and other operational goals for these stores. With
these action plans, we have developed long-term projections of estimated cash flows for
each of these stores and for the corporate retail segment, as a whole.

We
have long-lived assets (including capital lease assets) of $21.6 million related to these
stores and $8.8 million of goodwill related to the corporate retail segment at January 1,
2005. Our review for potential impairment of these assets indicated there was no
impairment of the long-lived assets or goodwill at January 1, 2005 based largely on these
long-term projections. While any assessment of long-lived asset impairment or goodwill
impairment is inherently subjective and dependent on projections of future operating
results, we believe that we conducted a thorough and competent valuation of these specific
asset groups and the corporate retail segment, as a whole, at January 1, 2005 in support
of these assessments.

We
will review the results of these initiatives throughout 2005 and monitor the valuation of
the long-lived assets of these stores and the corporate retail segment, as a whole. To the
extent that these stores, in particular, and the corporate retail segment, as a whole, are
not able to achieve expected sales and operating income performance, we could be required
to record asset impairment charges and goodwill impairment charges. The range of potential
charges would be based on a number of factors, including the stores operating
performance, future required capital expenditures, interest rates, and long-term growth
assumptions.

31

---

# Self  Insurance

We
are primarily self-insured for certain of our health insurance, workers compensation
and general liability claims. Our self-insurance claim liability is determined based on
claims filed and an estimate of claims incurred but not yet reported. Projections of the
losses are employed due to the high degree of variability in the liability estimates. Some
factors affecting the uncertainty of claims include the timeframe of development,
settlement patterns, litigation and adjudication direction and medical treatment and cost
trends. Our liability is not discounted.

# Vendor Marketing Funds

Our
vendor marketing funds consist of allowances provided to us by vendors including slotting
allowances, rebates and various other allowances. Earnings from these funds are recognized
when the earning process is complete based on the terms of the underlying agreements with
our vendors. Vendor marketing funds reduce our cost of products sold unless they represent
reimbursement for certain advertising costs that we incur on behalf of the vendor, in
which case they reduce our selling and administrative expenses.

# NEW ACCOUNTING
PRONOUNCEMENTS

# FIN 46R (Consolidation
of Certain Third Parties)

As
discussed in the section titled Item 8  Financial Statements and Supplementary
Data  Notes to Consolidated Financial Statements  Note 3, in December
2003, the FASB issued a revised Interpretation No. 46 (FIN 46R), Consolidation of
Variable Interest Entities. FIN 46R is intended to clarify the application of the
majority voting interest requirement of ARB No. 51, Consolidated Financial
Statements, to certain entities in which the equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient equity at
risk for the entity to finance its activities without additional subordinated financial
support from other parties. These entities are deemed to be variable interest entities
(VIEs) under FIN 46R. The controlling financial interest in a VIE may be achieved through
arrangements that do not involve voting interests.

In
the past, we have provided credit enhancements to certain of our franchisees in the form
of lease and sublease arrangements and loan guarantees. As a result, we have completed an
evaluation of the financial arrangements with our franchisees and have concluded that we
are required to consolidate certain of these franchisees, primarily as a result of our
loan guarantees to these entities. We have adopted the requirement to consolidate these
entities as of January 4, 2004. Prior to 2004, we recorded our exposure to losses through
these credit enhancement arrangements through our provisions for bad debts. The
cumulative-effect adjustment of $136,000 represents the difference between consolidating
these entities as January 4, 2004 and the allowance for doubtful accounts that was
provided for these franchisees at that date. For the remaining franchisees to which we
provided credit enhancements, we believe that our credit enhancements were not necessary
for them to obtain their financing, but helped them obtain the loans and leases on more
favorable terms.

# SFAS No. 123R
(Accounting for Stock-Based Compensation)

In
December 2004, the FASB issued revised Statement of Financial Accounting Standards No. 123
(SFAS No. 123R), Share-Based Payment, effective for interim periods
beginning after June 15, 2005. SFAS No. 123R requires entities to use a fair
value based method of accounting for stock-based compensation and eliminates the
alternative to use the intrinsic value method under APB Opinion 25. The pro forma
disclosures under stock based compensation reflect the approximate impact of
SFAS No. 123R on our operating results. See the section in Note 2 of Item
8  Financial Statements and Supplementary Data  Notes to Consolidated
Financial Statements titled Stock-based compensation for the pro forma
impact that adoption of SFAS No. 123R would have had on our net earnings (loss).

32

---

# Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.

Our
only variable rate financial instrument subject to interest rate risk is a secured $40
million revolving credit facility which permits us, at our option, to borrow at interest
rates based on either the banks prime rate or adjusted LIBOR. As of January 1,
2005, approximately $20.3 million was outstanding under our revolving credit facility.

As
a result of the amounts owed pursuant to our credit facility, increases in market interest
rates would cause our interest expense to increase and our earnings before income taxes to
decrease. Based on our credit facility borrowings as of January 1, 2005, a 100 basis point
increase in market interest rates would increase our annual interest expense by
approximately $203,000. Similarly, a 100 basis point decrease in the market interest rate
would reduce our annual interest expense by approximately $203,000.

We
believe that our exposure to other market risks (including risks related to changes in
foreign currency exchange rate, commodity prices, equity prices and trade accounts
receivable) is not significant.

33

---

# Item 8.    Financial
Statements and Supplementary Data.

# Managements
Annual Report on Internal Control Over Financial Reporting

The
management of Fresh Brands, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles in the United States. However, all
internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and reporting.

The
management of Fresh Brands, Inc. has assessed the effectiveness of the Companys
internal control over financial reporting as of January 1, 2005. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Based on our assessment, management believes that the Company maintained
effective internal control over financial reporting as of January 1, 2005, based on those
criteria.

The
Companys independent registered public accounting firm, Deloitte & Touche LLP,
have audited managements assessment of the Companys internal control over
financial reporting. Their unqualified opinion on managements assessment and on the
effectiveness of the Companys internal controls over financial reporting appears on
page 37 in this annual report on Form 10-K.

|/s/ Louis E. Stinebaugh Louis E. Stinebaugh | /s/ John H. Dahly John H. Dahly                   
|------------------------------------------- | --------------------------------------------------
|President and Chief Operating Officer       | Executive Vice President, Chief Financial Officer,
|                                            | Secretary and Treasurer                           

March 15, 2005

34

---

# Report of Independent
Registered Public Accounting Firm

To the Shareholders and Board of
Directors of Fresh Brands, Inc.:

We
have audited the accompanying consolidated balance sheets of Fresh Brands, Inc. and
subsidiaries (the Company) as of January 1, 2005, and the related consolidated
statement of operations, shareholders investment and cash flows for the year ended
January 1, 2005. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). 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 audit provide
a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material
respects, the financial position of Fresh Brands, Inc. and subsidiaries as of January 1,
2005, and the results of their operations and their cash flows for the year ended January
1, 2005 in conformity with accounting principles generally accepted in the United States
of America.

We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the effectiveness of the Companys internal control
over financial reporting as of January 1, 2005, based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 16, 2005 expressed an
unqualified opinion on managements assessment of the effectiveness of the
Companys internal control over financial reporting and an unqualified opinion on the
effectiveness of the Companys internal control over financial reporting.

As
discussed in Note 3 to the consolidated financial statements, the Company adopted FASB
Interpretation 46R, Consolidation of Variable Interest Entities, and, accordingly,
began consolidating 16 franchises as of January 4, 2004, and, as discussed in Note 14 to
the consolidated financial statements, the Company changed its reportable segments in
2004.

/s/ Deloitte & Touche

Milwaukee, WisconsinMarch
16, 2005

35

---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and Shareholders Fresh Brands, Inc.:

We
have audited the accompanying  consolidated  balance sheet of Fresh Brands, Inc. and
subsidiaries as of January 3, 2004, and the related  consolidated  statements of
operations,  shareholders  investment,  and cash flows for the years ended  January 3,
2004 and December  28, 2002.  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 the standards of the Public Company Accounting
 Oversight Board (United States).  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 Fresh Brands,  Inc. and  subsidiaries
as of January 3, 2004, and the results of their operations and their cash  flows for the
years  ended  January 3, 2004 and  December  28,  2002,  in  conformity  with U.S.
 generally accepted accounting principles.

/s/ KPMG LLP

Milwaukee, Wisconsin February 26,
2004, except as to notes 5 and 14,       which are as of March 17, 2005

36

---

# Report of Independent
Registered Public Accounting Firm

To the Shareholders and Board of
Directors of Fresh Brands, Inc.:

We
have audited managements assessment, included in the accompanying Managements
Annual Report on Internal Control Over Financial Reporting, that Fresh Brands, Inc. and
subsidiaries (the Company) maintained effective internal control over
financial reporting as of January 1, 2005, based on criteria established in Internal
ControlIntegrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission. The Companys management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility is to
express an opinion on managements assessment and an opinion on the effectiveness of
the Companys internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, evaluating
managements assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinions.

A
companys internal control over financial reporting is a process designed by, or
under the supervision of, the companys principal executive and principal financial
officers, or persons performing similar functions, and effected by the companys
board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting
principles. A companys internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of
the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material
effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the
possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis.
Also, projections of any evaluation of the effectiveness of the internal control over
financial reporting to future periods are subject to the risk that the controls may become
inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

In
our opinion, managements assessment that the Company maintained effective internal
control over financial reporting as of January 1, 2005, is fairly stated, in all material
respects, based on the criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of January 1, 2005, based on the
criteria established in Internal ControlIntegrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the
year ended January 1, 2005 of the Company and our report dated March 16, 2005 expressed an
unqualified opinion on those financial statements and includes an explanatory paragraph
relating to the adoption of FASB Interpretation 46R and the change in reportable segments.

/s/ Deloitte & Touche

Milwaukee, WisconsinMarch
16, 2005

37

---

CONSOLIDATED BALANCE
SHEETS                                      As of January 1, 2005 and January 3, 2004

|(In thousands, except share and per share data)                    
|-------------------------------------------------------------------
|Assets                                                             
|Current assets:                                                    
|Cash and equivalents                                               
|Receivables, net of allowance for doubtful accounts                
|Inventories                                                        
|Land and building under development                                
|Other current assets                                               
|Deferred income taxes                                              
|                                                                   
|Total current assets                                               
|                                                                   
|Capital sublease receivables                                       
|Property and equipment                                             
|Property under capital leases                                      
|Goodwill                                                           
|Other assets                                                       
|                                                                   
|Total assets                                                       
|                                                                   
|Liabilities and Shareholders' Investment                           
|                                                                   
|Current liabilities:                                               
|Accounts payable                                                   
|Accrued salaries and benefits                                      
|Other accrued liabilities                                          
|Current portion of revolving credit facility                       
|Current maturities of capital lease obligations                    
|Current maturities of long-term debt                               
|                                                                   
|Total current liabilities                                          
|                                                                   
|Capital lease obligations                                          
|Revolving credit facility                                          
|Other long-term debt                                               
|Deferred income taxes                                              
|Other noncurrent liabilities                                       
|Minority interests                                                 
|Shareholders' investment:                                          
|Common stock, $0.05 par value, authorized 20,000,000 shares, issued
|8,750,342 shares in 2004 and 2003                                  
|Additional paid-in capital                                         
|Retained earnings                                                  
|Treasury stock at cost, 3,822,928 shares as of January 1, 2005 and 
|3,841,191 shares as of January 3, 2004                             
|                                                                   
|Total shareholders' investment                                     
|                                                                   
|Total liabilities and shareholders' investment                     
|                                                                   

See notes to consolidated financial
statements.

38

---

CONSOLIDATED
STATEMENTS OF OPERATIONS For fiscal years 2004, 2003 and 2002

|(In thousands, except per share data)                    
|---------------------------------------------------------
|2004                                                     
|Net sales                                                
|Cost of products sold                                    
|                                                         
|Gross profit                                             
|Selling and administrative expenses                      
|Repositioning and other impairment charges               
|Depreciation and amortization                            
|                                                         
|Operating income                                         
|Interest income                                          
|Interest expense                                         
|Minority interest in earnings of consolidated franchisees
|                                                         
|Income from continuing operations before income taxes    
|Income tax provision                                     
|                                                         
|Income from continuing operations                        
|Loss from discontinued operations, net of tax            
|Cumulative effect of change in accounting principle      
|                                                         
|Net income (loss)                                        
|                                                         
|Earnings (loss) per basic share:                         
|Income from continuing operations                        
|Loss from discontinued operations                        
|Cumulative effect of change in accounting principle      
|                                                         
|Earnings (loss) per share - basic                        
|                                                         
|Earnings (loss) per diluted share:                       
|Income from continuing operations                        
|Loss from discontinued operations                        
|Cumulative effect of change in accounting principle      
|                                                         
|Earnings (loss) per share - diluted                      
|                                                         
|Weighted average shares and equivalents outstanding:     
|Basic                                                    
|Diluted                                                  
|                                                         

See notes to consolidated financial
statements.

39

---

CONSOLIDATED
STATEMENTS OF CASH FLOWS For fiscal years 2004, 2003 and 2002

|(In thousands)                                                                          
|----------------------------------------------------------------------------------------
|2004                                                                                    
|Cash flows from operating activities:                                                   
|Net income (loss)                                                                       
|Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|Provision for doubtful accounts                                                         
|Depreciation and amortization                                                           
|Property, equipment and software impairment charges                                     
|Provisions for store closures                                                           
|Minority interests                                                                      
|Deferred income taxes                                                                   
|Cumulative effect of change in accounting principle                                     
|Changes in assets and liabilities:                                                      
|Receivables                                                                             
|Inventories                                                                             
|Other current assets                                                                    
|Accounts payable                                                                        
|Accrued liabilities                                                                     
|                                                                                        
|Net cash provided by operating activities                                               
|                                                                                        
|Cash flows from investing activities:                                                   
|Capital expenditures                                                                    
|Sale of assets and other                                                                
|Expenditures for land and buildings under development                                   
|Proceeds from sale of land and buildings under development                              
|Receipts under capital subleases                                                        
|                                                                                        
|Net cash provided by (used in) investing activities                                     
|                                                                                        
|Cash flows from financing activities:                                                   
|Net change in revolver activity                                                         
|Capital lease obligation payments                                                       
|Long-term debt proceeds                                                                 
|Consolidated franchise debt payments                                                    
|Other debt payments                                                                     
|Deferred financing costs                                                                
|Distributions to minority interests                                                     
|Stock options exercises                                                                 
|Cash dividends                                                                          
|Treasury stock purchases                                                                
|Other financing activities                                                              
|                                                                                        
|Net cash provided by (used in) financing activities                                     
|                                                                                        
|Cash and equivalents:                                                                   
|Net change                                                                              
|Cash of consolidated franchisees at beginning of year                                   
|Balance, beginning of year                                                              
|                                                                                        
|Balance, end of year                                                                    
|                                                                                        
|Supplemental cash flow information:                                                     
|Interest paid                                                                           
|Income taxes refunded (paid)                                                            
|Non-cash investing and financing activities:                                            
|Capital lease obligations incurred for:                                                 
|Capital lease assets                                                                    
|Capital sublease receivables                                                            

See notes to consolidated financial
statements.

40

---

CONSOLIDATED
STATEMENTS OF SHAREHOLDERS INVESTMENT For fiscal years 2004, 2003 and 2002

|(In thousands, except share and per share data)                                
|-------------------------------------------------------------------------------
|
|Balances at December 29, 2001                                                  
|                                                                               
|Net income                                                                     
|Cash dividends, $0.36 per share                                                
|Acquisition of 135,597 shares of treasury stock                                
|Issuance of 65,700 shares of treasury stock upon exercise of stock      options
|Tax benefits from exercise of stock options                                    
|Other                                                                          
|                                                                               
|Balances at December 28, 2002                                                  
|                                                                               
|Net loss                                                                       
|Cash dividends, $0.36 per share                                                
|Acquisition of 250,359 shares of treasury stock                                
|Issuance of 55,667 shares of treasury stock upon exercise of stock      options
|Tax benefits from exercise of stock options                                    
|Other                                                                          
|                                                                               
|Balances at January 3, 2004                                                    
|                                                                               
|Net loss                                                                       
|Issuance of 18,263 shares of treasury stock                                    
|                                                                               
|Balances at January 1, 2005                                                    
|                                                                               

See notes to consolidated financial
statements

41

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 1Description of
Business

Fresh
Brands, Inc. (FBI) is a grocery wholesaler and supermarket retailer through
corporate-owned, franchised, and independent supermarkets. The corporate-owned and
franchised supermarkets operate under the Piggly Wiggly® and
Dicks®Supermarkets banners. Fresh Brands currently has 81 franchised
supermarkets and 21 corporate-owned supermarkets, all of which are served by two
distribution centers and a centralized bakery/deli production facility. Our supermarkets
are located throughout Wisconsin and northern Illinois and northeastern Iowa.

# NOTE 2 Summary of
Significant Accounting Policies

Fiscal year

Our
fiscal year ends on the Saturday closest to December 31. The 2004 fiscal year was a
52-week period ended January 1, 2005. The 2003 fiscal year was a 53-week period ended
January 3, 2004. The 2002 fiscal year was a 52-week period ended December 28, 2002.

Principles of
consolidation

The
consolidated financial statements include the accounts of FBI and its wholly-owned
subsidiaries Fresh Brands Distributing, Inc. (FBDI), Dicks Supermarkets, Inc. (DSI)
and PW Trucking, Inc. In addition, we were required to consolidate the financial
statements of certain of our franchise entities in our consolidated financial statements
as of January 4, 2004, pursuant to Interpretation No. 46 (FIN 46R) Consolidation of
Variable Interest Entities  an interpretation of Accounting Research Bulletin
No. 51 that was issued by the FASB in December 2003. (See Note 3.) Intercompany
accounts and transactions have been eliminated.

Revenue recognition

Net
sales include wholesale sales, retail sales, and franchise fees. Wholesale sales are
recognized at the time products are shipped, as shipments are F.O.B. shipping point.
Retail sales are recognized at the point of sale. Franchise fees are charged based on the
retail sales of our franchisees and were $1,159,000, $1,109,000, and $1,076,000, in 2004,
2003, and 2002, respectively. Other services are provided on a fee basis and those fees
are recognized as the services are performed.

Cost of products sold

Cost
of products sold includes product costs, net of vendor marketing funds, and the production
labor costs in our bakery/deli production facility. Other costs, including purchasing and
receiving costs, inspection costs, warehousing costs, internal transfer costs, and other
costs of our distribution network are included in selling and administrative expenses.

Vendor
marketing funds consist of allowances provided to us by vendors including slotting
allowances, rebates and various other allowances. These funds are recognized when the
earning process is complete based on the terms of the underlying agreements with our
vendors.

We
adopted Emerging Issues Task Force Issue (EITF) No. 02-16, Accounting by
a Customer (including a Reseller) for Certain Consideration Received from a Vendor
in 2003. This EITF establishes that cash consideration received from a vendor is presumed
to be a reduction in the prices of the vendors products or services and should,
therefore, be characterized as a reduction in cost of products sold when recognized in the
resellers income statement unless (a) it is a payment for assets or services
delivered to the vendor, in which case the cash consideration should be characterized as
revenue or other income when recognized in the resellers income statement, or (b) it
is a reimbursement of costs, in which case the cash consideration should be characterized
as a reduction of that cost when recognized in the resellers income statement.
Applying the provision of EITF No. 02-16 resulted in the reclassification of certain of
our vendor rebates and advertising revenue received in excess of related advertising costs
as a reduction to cost of products sold.

42

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

Cash and equivalents

Cash
and equivalents consist of demand deposits at commercial banks and highly liquid
investments with a maturity of three months or less when purchased. Cash equivalents are
stated at cost which approximates market value.

Receivables

Receivables
consist primarily of accounts with our wholesale customers, most of which are franchisees.
We monitor the financial viability of our customers and provide an allowance for doubtful
accounts related to both credit worthiness and retail subsidies that are provided to these
customers. Receivables are shown net of the allowance for doubtful accounts of $4,015,000
and $5,852,000 at January 1, 2005 and January 3, 2004, respectively. We recorded
provisions to the allowance for doubtful accounts of $4,948,000 ($3,218,000 after
elimination of provisions for consolidated franchisees), $6,292,000, and $1,474,000 for
2004, 2003 and 2002, respectively. These provisions are included in selling and
administrative expenses.

Inventories

Inventories,
substantially all of which consist of groceries and related products for resale, are
stated at the lower of cost or market value. Cost is determined primarily on the last-in,
first-out (LIFO) method. At FBDI, for meat and produce, cost is determined on the
first-in, first-out (FIFO) method. At January 1, 2005 and January 3, 2004, 74% and 88%,
respectively, of all inventories were accounted for under the LIFO method.

The
excess of current cost over the stated LIFO cost of inventory was $11,304,000 and
$10,505,000 at January 1, 2005 and January 3, 2004, respectively.

Goodwill

Goodwill
is comprised of amounts paid in excess of the fair value of acquired net assets. We
adopted SFAS No. 142, Goodwill and Other Intangible Assets in fiscal 2002.
Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized, but are subject to impairment tests at least annually in accordance with
this statement. The goodwill balance by segment as of January 3, 2004 and January 1, 2005
are as follows:

|(In thousands)  
|----------------
|January 3, 2004 
|Wholesale       
|Corporate retail
|Franchise retail
|                
|Total goodwill  
|                

During
fiscal year 2004, in conjunction with our change in management, we reevaluated our
approach to reporting the results of and the allocation of goodwill to our reportable
segments. As a result of this reassessment, we allocated $11,495,000 of goodwill to our
wholesale segment. Prior year segment information has been restated to conform to the 2004
presentation. Refer to Note 14 for additional information.

Land and building under
development

Land
and building under development consists of costs incurred for retail facility projects
which are to be completed in less than one year. Project costs which we fund are
accumulated until project completion. Upon project completion, and the subsequent sale of
the facility, lease arrangements are established.

43

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

Property and equipment

Property
and equipment are stated at cost, net of accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over the
estimated useful lives of the assets. Equipment generally has a useful life of 4 to 7
years; computer hardware and software have a useful life of 3 to 7 years; buildings and
land improvements have a useful life of 10 to 35 years; and leasehold improvements
generally have a useful life of 10 to 20 years. Facility remodeling and upgrade costs on
leased stores are capitalized as leasehold improvements and are amortized over the shorter
of the remaining lease term or the useful life of the asset. Upon disposal, the
appropriate asset cost and accumulated depreciation or amortization are retired. Gains and
losses on disposition are included in earnings. Periodically, we evaluate all long-lived
assets for impairment. Management considers such factors as current results, trends and
future prospects, current market value, and other economic and regulatory factors, in
performing these analyses. Recoverability of assets to be held and used is measured by
comparison of the carrying value of an asset to the undiscounted future cash flows
expected to be generated by the asset. If the carrying value of an asset exceeds its
estimated undiscounted future cash flows, an impairment provision is recognized to the
extent that the book value exceeds fair market value. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value of the asset, less all
associated costs of disposition. In fiscal 2004 and 2003 impairment charges of $1,314,000
and $2,688,000 (including $1,815,000 for capital lease assets in 2003) were recorded,
respectively, of which $2,003,000 has been charged to discontinued operations in 2003.

Property
and equipment, net of accumulated depreciation and amortization, at January 1, 2005 and
January 3, 2004 consisted of the following:

|(In thousands)                                
|----------------------------------------------
|2004                                          
|Land and buildings                            
|Leasehold improvements                        
|Equipment and fixtures                        
|                                              
|                                              
|Less accumulated depreciation and amortization
|                                              
|Property and equipment, net                   
|                                              

Other noncurrent assets

Other
noncurrent assets, net of accumulated amortization of $6,943,000 and $5,576,000 at January
1, 2005 and January 3, 2004, respectively, consisted of the following:

|(In thousands)           
|-------------------------
|2004                     
|Capitalized software, net
|Other intangibles, net   
|                         
|Total                    
|                         

We
capitalize certain costs associated with the development and implementation of software.
When events and circumstances warrant, we review the carrying value of capitalized
software costs. Capitalized software generally has a useful life of 3 to 7 years. During
fiscal 2003, we recognized a $2,375,000 impairment charge for the entire write-off of
certain financial reporting and accounting capitalized software that we have decided not
to use because there may be better and less expensive alternatives that provide more
effective management and operational solutions for our business. This impairment charge is
included in repositioning and other impairment charges.

44

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

Accounts payable

Accounts
payable includes $8,040,000 and $11,367,000 at January 1, 2005 and January 3, 2004,
respectively, of issued checks that have not cleared our disbursing bank accounts.

Stock- based compensation

We
account for stock-based compensation plans under the intrinsic value method in accordance
with the recognition and measurement principles of Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees and related interpretations
(APB Opinion 25). We have recorded no compensation expense in our 2004, 2003
or 2002 consolidated statements of operations.

We
have adopted the disclosure requirements of SFAS No. 123. Had we determined compensation
cost based on the fair value at the grant date for stock options under SFAS No. 123, our
net earnings (loss) would have been reduced (increased) to the following pro forma amounts
below:

|(In thousands)                                         
|-------------------------------------------------------
|2004                                                   
|Net earnings (loss)                                    
|As reported                                            
|Less: Stock-based compensation expense under fair value
|based method, net of related tax effects               
|                                                       
|Pro forma                                              
|                                                       
|Earnings (loss) per share-diluted                      
|As reported                                            
|Pro forma                                              
|                                                       

SelfInsurance

We
are primarily self-insured for certain of our health insurance, workers compensation
and general liability claims. We determine these self-insurance liabilities based on
claims filed and an estimate of claims incurred but not yet reported. Some factors
affecting the estimate of the liability for unpaid claims include the timeframe of
development, settlement patterns, litigation and adjudication direction and medical
treatment cost trends. The liability is not discounted. At January 1, 2005 and January 3,
2004, the self-insurance claim liabilities were $4,000,000 and $4,344,000, respectively.

Multiemployer Insurance

Recently,
several members of one of our multiemployer health, welfare and benefits plans have
withdrawn from the plan. As the plan is under funded, and our withdrawal is possible, we
will be required to pay a portion of the under funded liabilities associated with the
possible withdrawal. We estimate that such withdrawal obligation is approximately $930,000
and, in the fourth quarter of 2003, we recorded a liability in this amount and charged
selling and administrative expenses. If we are required to pay significantly more than
this amount, the related charges may materially affect our financial results in the
quarter and year that they are incurred.

Income taxes

Deferred
income taxes are accounted for under the asset and liability method whereby 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. Deferred tax assets and liabilities are
measured using enacted tax rates. Deferred income tax provisions or benefits are based on
the change in the deferred tax assets and liabilities from period to period.

45

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

Retail repositioning
liability

We
estimate retail repositioning expenses associated with the closure, replacement, or
disposal of stores, consisting primarily of lease and severance payments in accordance
with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires companies to recognize most costs associated with
exit or disposal activities when they are incurred rather than at the date of a commitment
to an exit or disposal plan. Prior to the adoption of SFAS 146 in 2003, we charged retail
repositioning and termination expenses to operating expense upon the decision to close,
replace, or dispose of a store as soon as the amounts were reasonably estimated.

Financial instruments

Our
financial instruments consist of various debt facilities and cash equivalents. At January
1, 2005, the fair market value of the financial instruments was not materially different
from the carrying value based on review of market quotes, where available, and market
yields for similar instruments.

Use of estimates

The
preparation of consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.

Advertising costs

Costs
incurred for producing and communicating advertising are generally expensed when incurred.
Advertising allowances represent consideration received from vendors that are
reimbursements of costs incurred. Advertising expense, net of allowances, was as follows:

|(In thousands)         
|-----------------------
|2004                   
|Advertising costs      
|Less:                  
|Advertising allowances 
|                       
|Net advertising expense
|                       

Reclassifications

Certain
2003 and 2002 amounts previously reported have been reclassified to conform to the 2004
presentation.

New accounting
pronouncements

We
have adopted Interpretation No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45). FIN 45 elaborates on the disclosure to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees issued. FIN
45 also clarifies that a guarantor is required to recognize, at inception of a guarantee,
a liability for the fair value of the obligation undertaken. The initial recognition and
measurement provision were applicable to guarantees issued or modified after December 31,
2002. As of January 3, 2004 we have accrued $1,116,000 for the Companys obligations
under the guarantees, which represents our estimate of the fair value of the guarantees we
entered into during 2003. Our franchisees enter into a purchase commitment with FBDI to
purchase items from our wholesale segment in exchange for our guarantee of their debt;
accordingly, we record in other non-current assets a purchase commitment asset equal to
the estimated fair value of the guarantee obligation. We amortize the estimated fair value
of the guarantees on a systematic basis as our guarantee exposure is reduced and we
amortize the purchase commitment asset on a straight-line basis over the life of the
purchase commitment.

46

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

In
December 2004, the FASB issued revised Statement of Financial Accounting Standards No. 123
(SFAS No. 123R) effective for interim periods beginning after June
15, 2005. SFAS No. 123R requires entities to use a fair value based method of
accounting for stock-based compensation and eliminates the alternative to use the
intrinsic value method under APB Opinion 25. The pro forma disclosures under stock based
compensation in this Note 2 reflect the approximate impact of SFAS No. 123R on
our operating results.

# NOTE 3
Consolidation of Certain
Franchisees

In
December 2003, the FASB issued revised Interpretation No. 46 (FIN 46R),
Consolidation of Variable Interest Entities  an interpretation of
Accounting Research Bulletin No. 51'". FIN 46R is intended to clarify the
application of the majority voting interest requirement of ARB No. 51, Consolidated
Financial Statements, to certain entities in which the equity investors do not have
the characteristics of a controlling financial interest or do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated financial
support from other parties. These entities are deemed to be variable interest entities
(VIEs) under FIN 46R. The controlling financial interest in a VIE may be achieved through
arrangements that do not involve voting interests.

In
the past, we have provided credit enhancements to certain of our franchisees in the form
of lease and sublease arrangements and loan guarantees. As a result, we have completed an
evaluation of the financial arrangements with our franchisees and have concluded that we
are required to consolidate certain of these franchisees, primarily as a result of our
loan guarantees to these entities. We have adopted the requirement to consolidate these
entities as of January 4, 2004. Prior to 2004, we recorded our exposure to losses through
these credit enhancement arrangements through our provisions for bad debts. The
cumulative-effect adjustment of $136,000 represents the difference between consolidating
these entities as January 4, 2004 and the allowance for doubtful accounts that was
provided for these franchisees at that date. For the remaining franchisees to which we
provided credit enhancements, we believe that our credit enhancements were not necessary
for them to obtain their financing, but helped them obtain the loans and leases on more
favorable terms.

The following table reflects the
impact of consolidating the accounts of the entities as of January 4, 2004:

|(In thousands)                                
|----------------------------------------------
|Fresh Brands, Inc.                            
|Current assets                                
|Capital sublease receivables                  
|Property and equipment, net                   
|Property under capital leases, net            
|Goodwill                                      
|Other noncurrent assets                       
|                                              
|Total assets                                  
|                                              
|                                              
|Current liabilities                           
|Capital lease obligations                     
|Revolving line of credit                      
|Other long-term debt                          
|Other noncurrent liabilities                  
|Minority interests                            
|Shareholders' investment                      
|                                              
|Total liabilities and shareholders' investment
|                                              

47

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

As
discussed in Note 5, we sold two of our corporate stores to a new franchisee in September
2004. We have added this new franchisee to the group of consolidated franchisees. There
are currently 17 franchise entities consolidated under FIN 46R. The following table
reflects the effect of consolidation of these entities on our results of operations for
2004:

|(In thousands)                                       
|-----------------------------------------------------
|2004                                                 
|Net sales of consolidated franchise entities         
|Eliminations in consolidation                        
|                                                     
|Net impact on consolidated net sales                 
|                                                     
|                                                     
|Operating losses of consolidated franchise entities  
|Interest expense of consolidated franchise entities  
|                                                     
|Net losses of consolidated franchise entities        
|                                                     
|Minority interest in losses                          
|Eliminations in consolidation                        
|                                                     
|Net impact on consolidated income before income taxes
|                                                     

# NOTE 4 Repositioning and Other
Impairment Charges

Repositioning
and other impairment charges related to continuing operations include the following:

|(In thousands)                                                      
|--------------------------------------------------------------------
|2004                                                                
|                                                                    
|Impairment of property and equipment, including capital lease assets
|Impairment of capitalized software                                  
|Repositioning expenses                                              
|                                                                    
|Total repositioning and other impairment charges                    
|                                                                    

We
estimate repositioning expenses associated with the closure, replacement, or disposal of
stores in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. The following table reflects the changes in the retail
repositioning liability for 2004 and 2003.

|(In thousands) 
|---------------
|2004           
|Lease costs    
|Severance costs
|               
|               
|               
|2003           
|               
|Lease costs    
|               

48

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

The
provisions were charged to our operating segments or discontinued operations as follows:

|(In thousands)             
|---------------------------
|2004                       
|Operating segments:        
|Wholesale                  
|Corporate retail           
|Franchise retail           
|                           
|Total continuing operations
|                           
|Discontinued operations    
|                           
|Total provision            
|                           

# NOTE 5Discontinued Operations

Discontinued
operations include the operating results of stores that we have closed or sold where we no
longer have continuing involvement in those specific markets. They include one corporate
store closed in December 2003, five corporate stores closed in May 2004, and one corporate
store that we sold in August 2004 that we no longer supply. We received $1.1 million in
proceeds from the sale of this store which approximated the book value of the store.

The
following table reflects the components of discontinued operations.

|(In thousands)                   
|---------------------------------
|2004                             
|Sales                            
|                                 
|Loss from operations             
|Loss on disposal                 
|                                 
|Operating loss                   
|Income tax (benefit)             
|                                 
|Loss from discontinued operations
|                                 

We
also sold our two remaining corporate Piggly Wiggly stores located in Illinois to a new
franchisee and those stores will continue to be supplied by our wholesale operations. In
connection with the sale of these stores, we recognized an impairment charge of $1.3
million, which is included in repositioning and other impairment.

# NOTE 6Long-Term Debt

Long-term
debt at January 1, 2005 and January 3, 2004 consisted of the following:

|(In thousands)                              
|--------------------------------------------
|2004                                        
|Revolving credit facility                   
|Consolidated franchisee debt                
|Other notes payable, 3.0% interest          
|                                            
|                                            
|Less amounts classified as current:         
|Consolidated franchisee debt maturities     
|Other notes payable maturities              
|Current portion of revolving credit facility
|                                            
|Long-term debt                              
|                                            

49

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

In
March 2004, we entered into a secured $40,000,000 revolving credit facility that replaced
our former unsecured revolving credit facility. The new credit facility is secured by
substantially all of our assets. The availability under the revolving credit facility is
based on a borrowing base formula equal to the sum of 80% of eligible accounts
receivable, 60% of eligible inventory, and 60% of eligible owned real estate, less
outstanding letters of credit. As of January 1, 2005, net of outstanding letters of
credit of $10,033,000, our available borrowings were $29,967,000 and our outstanding
borrowings were $20,300,000. While the entire facility remains available for us to
borrow, we have classified $5,000,000 of the January 1, 2005 balance as current based on
the amounts we have paid down subsequent to January 1, 2005.  Our borrowings throughout
2005 will vary based on operating cash flows and the timing of capital expenditures, term
debt repayments and seasonal working capital requirements. The revolving credit facility
matures March 18, 2007.

The
interest rate on borrowings is based on either a defined base rate or the London
Interbank Offered Rate (LIBOR) plus applicable margins based on a senior debt to cash
flow ratio. At January 1, 2005, our borrowing rates were LIBOR plus 2.00% (4.40%) or base
plus 0.50% (5.75%). Commitment fees, ranging from 0.25% to 0.50% per annum, are payable
on the average daily unused balance of the revolving credit facility. The revolving
credit facility contains various financial covenants including, among others, a fixed
charge coverage ratio, a total senior debt cash flow leverage ratio, and a paid sublease
ratio. In addition, the revolving credit facility limits our ability to obtain additional
debt and other liabilities including capital lease obligations, prohibits us from
guaranteeing additional franchisee bank debt, prohibits the payment of cash dividends,
and limits our ability to repurchase common stock. At January 1, 2005, we were in
compliance with all financial covenants and terms of the revolving credit facility.

The
consolidated franchisee debt consists primarily of 19 bank term loans that have interest
rates that range from 3.75% to 7.35% and aggregate monthly principal payments of
approximately $100,000. The loans mature at various dates between November 25, 2005 and
July 31, 2008. Fresh Brands, Inc. has guaranteed $7,471,000 of the consolidated franchisee
debt. Fresh Brands has issued a $5,000,000 letter of credit in favor of the lender of
substantially all of these loans and the other guaranteed franchise loans discussed in
Note 8.

The
scheduled maturities of long-term debt are as follows.

|(In thousands)           
|-------------------------
|Revolving
credit facility
|2005                     
|2006                     
|2007                     
|2008                     
|                         
|                         
|                         

Interest
expense consisted of the following:

|(In thousands)                              
|--------------------------------------------
|2004                                        
|Interest-on capital lease obligations       
|Interest on long-term debt                  
|Amortization of deferred issuance costs     
|Interest on debt of consolidated franchisees
|Other                                       
|                                            
|Interest expense                            
|                                            

50

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 7Income Taxes

Components
of the income tax provision attributable to continuing operations consisted of the
following:

|(In thousands)      
|--------------------
|2004                
|Current:            
|Federal             
|State               
|Deferred            
|                    
|Income tax provision
|                    

The
difference between the statutory federal income tax rate and the effective rate for
continuing operations is summarized as follows:

|                                                     
|-----------------------------------------------------
|2004                                                 
|Statutory federal income tax rate                    
|State income taxes, net of federal income tax benefit
|Permanent differences                                
|Other, net                                           
|                                                     
|Effective income tax rate                            
|                                                     

The
components of deferred tax assets and liabilities at January 1, 2005 and January 3, 2004
were as follows:

|(In thousands)                                 
|-----------------------------------------------
|2004                                           
|Deferred tax assets:                           
|Bad debt reserve                               
|Self insured claims liabilities                
|Vacation pay                                   
|Capital leases                                 
|Retail repositioning liability                 
|Differences related to consolidated franchisees
|Carryforwards                                  
|Other                                          
|                                               
|Total deferred tax assets                      
|                                               
|Valuation allowance                            
|                                               
|Net deferred tax assets                        
|                                               
|Deferred tax liabilities:                      
|Property and equipment                         
|Other                                          
|                                               
|Total deferred tax liabilities                 
|                                               
|Net deferred tax assets                        
|                                               

Realization
of the net deferred tax assets over time is dependent upon the Company generating
sufficient taxable income in future periods. In determining that realization of the net
deferred tax assets was more likely than not, the Company gave consideration to a number
of factors including its recent earnings history, expectations of earnings in the future,
the timing of reversal of temporary differences, tax planning strategies available to the
Company and the expiration dates associated with NOL carry forwards. If, in the future,
the Company determines that it is no longer more likely than not that the net deferred tax
assets will be realized, a valuation allowance will be established against all or part of
the net deferred tax assets through a charge to the income tax provision. Because of the
limitations associated with certain deduction carryforwards, we established a valuation
allowance for these carryforwards in 2004.

51

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

The
net deferred tax assets as of January 1, 2005 and January 3, 2004 were classified in the
consolidated balance sheets as follows:

|(In thousands)                   
|---------------------------------
|2004                             
|Current deferred tax asset       
|Noncurrent deferred tax liability
|                                 
|Net deferred tax assets          
|                                 

# NOTE 8 Commitments and
Contingent Liabilities

In
addition to the guaranteed loans of the consolidated franchisees, we have guaranteed 16
bank loans of other franchisees and certain of their affiliates. These guarantees were
made to support the business growth of the franchise and our wholesale operations. The
guarantees are for the term of the respective loan agreements. Under these guarantees, we
generally would be required to make the loan payments if the franchisee defaults on a
payment. Generally, the guarantees are secured by corporate indemnification agreements and
personal guarantees of the franchisee owner and are substantially collateralized with
equipment and inventory, and in certain cases, with buildings. At January 1, 2005 the
guaranteed loan balances were $6,926,000 and our guarantees of those loans were
$5,773,000. At January 1, 2005 we have recorded $197,000 in other long-term liabilities,
for the Companys obligations under these guarantees which represent an estimate of
the fair value of these guarantees for guarantees entered into since adoption of FIN 45.

The
scheduled maturities of these loans and our guarantees are as follows:

|(In thousands)
|--------------
|Loans         
|2005          
|2006          
|2007          
|2008          
|2009-2010     
|              
|              
|              

Capital
expenditure commitments for 2005 are approximately $1,700,000.

# NOTE 9Retirement Plans

We
have a trusteed retirement savings defined contribution plans for both FBDI and DSI, which
include provisions of Section 401(k) of the Internal Revenue Code, for the benefit of our
non-union eligible employees. Our contributions to the plans are at the discretion of the
respective boards of directors. Provisions for 2004, 2003 and 2002 were $493,000,
$205,000, and $953,000, respectively. Both plans allow participants to make pretax
contributions. We then match certain percentages of employee contributions. Our matching
contributions for 2004, 2003 and 2002 were $322,000, $335,000, and $340,000, respectively.

We
have union-administered multi-employer pension plans covering all hourly paid employees
represented by collective bargaining agreements. Total pension expense was $2,145,000,
$2,305,000 and $2,216,000 in fiscal years 2004, 2003 and 2002, respectively.

52

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 10Leases

We
lease most of our retail stores under lease agreements with original lease periods of 15
to 20 years and typically with five-year renewal options. Exercise of such options is
dependent on, among others factors, the level of business conducted at the location.
Executory costs, such as maintenance and real estate taxes, are generally our
responsibility. In a majority of situations, we will enter into a lease for a store and
sublease the store to a wholesale customer. When leases of this type are established, the
future minimum lease payments due under the capital lease arrangements with our customers
are recorded on our consolidated balance sheets as sublease receivables. Additionally, we
lease transportation equipment, principally tractors and trailers, corporate office space
and certain office equipment. Some real estate leases contain contingent rental provisions
based on sales volume at retail stores and some equipment leases contain contingent rental
provisions based on miles traveled for tractors and trailers. Contingent rental expense
associated with our capital leases and sublease income was not material to our
consolidated financial statements.

Capitalized
leases were calculated using interest rates appropriate at the inception of each lease. A
summary of real property utilized by us under capital leases at January 1, 2005 and
January 3, 2004 is as follows:

|(In thousands)                                     
|---------------------------------------------------
|2004                                               
|Investments in leased property under capital leases
|Less accumulated amortization                      
|                                                   
|Property under capital leases, net                 
|                                                   

Amortization
of leased property under capital leases, included in depreciation and amortization, was
$2,168,000, $1,444,000 and $1,023,000 in fiscal years 2004, 2003 and 2002, respectively.

The
following is a schedule of future minimum lease payments under capital leases and
subleases and the present value of such payments as of January 1, 2005:

|(In thousands)                                                
|--------------------------------------------------------------
|Capital
Lease
Obligations                                     
|2005                                                          
|2006                                                          
|2007                                                          
|2008                                                          
|2009                                                          
|2010-2024                                                     
|                                                              
|Total minimum lease payments                                  
|Less interest                                                 
|                                                              
|Present value of minimum lease payments and amounts receivable
|Less current portion                                          
|                                                              
|Long-term obligations and receivable                          
|                                                              

53

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# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

The
following is a schedule of future minimum lease payments required under operating leases
for retail stores, transportation equipment, corporate office space and office equipment
that have noncancelable operating lease terms in excess of one year as of January 1, 2005:

|                            
|----------------------------
|(In thousands)              
|2005                        
|2006                        
|2007                        
|2008                        
|2009                        
|2010-2022                   
|                            
|Total minimum lease payments
|                            

Rental
expenses, net of rental income from subleases, for all operating leases amounted to
$9,074,000, $7,393,000 and $7,024,000 in fiscal years 2004, 2003 and 2002, respectively.
These amounts include $1,287,000, $1,271,000 and $1,187,000, respectively, for contingent
rentals.

# NOTE 11Stock Option
Plans

We
have stock option plans which provide for the grant of either incentive or nonqualified
stock options to key employees and nonqualified options to our independent directors. The
exercise price of each option is equal to the market price of our stock on the date of
grant. Options granted prior to year 2000 are exercisable for seven years from the date of
grant. Options granted beginning in January 2000, are exercisable for ten years from the
date of grant. The options granted to our key employees vest ratably over the first three
years and the options granted to our independent directors vest immediately. Such vesting
may be accelerated by the Stock Option Committee of the Board of Directors or upon a
change in control of FBI, as defined by the plans.

The
fair values of each option granted in 2004, 2003 and 2002 were $3.83, $3.81 and $5.45,
respectively. The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average assumptions
used for grants in 2004, 2003 and 2002:

|                       
|-----------------------
|2004                   
|Dividend yield         
|Expected volatility    
|Risk-free interest rate
|Expected term of grant 
|                       

54

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

As
of January 1, 2005, no incentive stock options have been granted. Following is a summary
of the status of nonqualified stock options for the fiscal years 2004, 2003 and 2002:

|                      
|----------------------
|Number
Of Shares      
|Shares under option at
|December 29, 2001     
|Granted               
|Exercised             
|Forfeited             
|                      
|Shares under option at
|December 28, 2002     
|Granted               
|Exercised             
|Forfeited             
|                      
|Shares under option at
|January 3, 2004       
|Granted               
|Exercised             
|Forfeited             
|                      
|Shares under option at
|January 1, 2005       
|                      

The range of options outstanding at
January 1, 2005 is as follows:

|                                                      
|------------------------------------------------------
|Price Range per Share                                 
|Number of options outstanding                         
|Weighted average exercise price outstanding           
|Number of options exercisable                         
|Weighted average exercise price exercisable           
|Weighted average remaining contractual life (in years)
|                                                      

When
options are exercised, we realize certain income tax benefits that are recorded as
additional paid-in capital.

Our
nonqualified stock options were exercisable at weighted average per share prices of
$13.47, $13.64 and $13.94 at January 1, 2005, January 3, 2004 and December 28, 2002,
respectively.

# NOTE 12Common Stock

In
2001, the Board of Directors declared a dividend of one common share purchase right for
each outstanding share of our common stock, par value $.05. The rights will be exercisable
only if a person or group acquires 20% or more of our common stock or announces a tender
offer, consummation of which would result in ownership by a person or group of 20% or more
of the common stock. Each right will initially entitle shareholders to buy one share of
our common stock at an initial exercise price of $50.00 per share, subject to adjustment.
The rights do not have any voting rights or receive dividends and may be redeemed at a
price of $.001 per right. If any person becomes a 20% or more shareholder of FBI, each
right, other than those owned by the 20% shareholder, will (subject to certain
limitations) entitle its holder to purchase, at the rights then-current exercise
price, a number of common shares of FBI or of the acquirer having a market value at that
time of twice the rights per share exercise price. The Board of Directors is also
authorized to reduce the 20% threshold to not less than 10%. The rights expire in 2011,
subject to extension.

55

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 13Earnings (Loss)
Per Share

Basic
earnings (loss) per share is computed by dividing net earnings (loss) by the weighted
average number of shares of common stock outstanding during the year. Diluted earnings
(loss) per share is computed by dividing net earnings (loss) by the weighted average
number of shares of common stock outstanding and common stock equivalents during the year.
Common stock equivalents used in computing diluted earnings (loss) per share related to
stock options which, if exercised, would have a dilutive effect on earnings (loss) per
share.

Our
calculations of earnings (loss) per share-basic and earnings (loss) per share-diluted were
as follows:

|                                                           
|-----------------------------------------------------------
|(In thousands, except per share data)                      
|Basic income (loss) per common share computation           
|Income from continuing operations                          
|Loss from discontinued operations                          
|Cumulative effect of change in accounting principle        
|                                                           
|Net income (loss)                                          
|                                                           
|Basic weighted average shares outstanding                  
|                                                           
|Basic earnings (loss) per common share                     
|Income from continuing operations                          
|Loss from discontinued operations                          
|Cumulative effect of change in accounting principle        
|                                                           
|Net income (loss)                                          
|                                                           
|Diluted income (loss) per common share computation         
|Income from continuing operations                          
|Loss from discontinued operations                          
|Cumulative effect of change in accounting principle        
|                                                           
|Net income (loss)                                          
|                                                           
|Basic weighted average shares outstanding                  
|Stock options' dilutive effect                             
|                                                           
|Diluted weighted average shares and equivalents outstanding
|                                                           
|Diluted earnings (loss) per common share                   
|Income from continuing operations                          
|Loss from discontinued operations                          
|Cumulative effect of change in accounting principle        
|                                                           
|Net income (loss)                                          
|                                                           

Options
to purchase 363,167, 397,570, and 174,000 shares of common stock that were outstanding
during 2004, 2003, and 2002, respectively, were not included in the computation of diluted
earnings per share as the exercise price of these options were greater than the average
market price of the common stock.

# NOTE 14Segment Reporting

Our
operations are classified into three segments, wholesale, corporate retail and franchise
retail. Our wholesale business derives its revenues primarily from the sale of grocery
products to our corporate and franchised supermarkets and independent supermarket
customers. We supply these products to our supermarkets through two distribution centers
in Sheboygan, Wisconsin and through a third-party distribution facility in Milwaukee,
Wisconsin. Additionally, we distribute bakery and deli items made in our Platteville,
Wisconsin centralized production facility. As of January 1, 2005 our corporate retail
business consists of our 21 owned supermarkets and 2 convenience stores. Our retail
revenue is generated by our corporate supermarkets selling grocery products to retail
consumers. The 17 consolidated franchise entities comprise the franchise retail segment.

56

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

During
2004, in connection with our change in management and the shift in our operational focus
to our wholesale operations, we reevaluated our approach to reporting the results of our
operating segments and decided to no longer allocate wholesale operating profits to our
retail segment. This approach is consistent with how our management reviews the results of
operations for our operating units. As a result of this change, we also reassessed the
allocation of goodwill that arose in connection with the Dicks Supermarkets
acquisition and allocated $11,495,000 of goodwill to our wholesale segment. Prior year
segment information has been restated to conform to the 2004 presentation.

Topco
LLC is a major supplier to our wholesale segment. Inventory purchases from Topco for 2004,
2003, and 2002 were $78,654,000, $67,379,000, and $58,193,000, respectively.

57

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

Summarized
financial information for fiscal years 2004, 2003 and 2002 concerning our reportable
segments is shown in the following tables:

|                                                         
|---------------------------------------------------------
|(In thousands)                                           
|Net sales                                                
|                                                         
|Wholesale                                                
|Corporate Retail                                         
|Franchise Retail                                         
|Intersegment eliminations:                               
|Sales to corporate retail                                
|Sales to franchise retail                                
|                                                         
|Total net sales                                          
|                                                         
|                                                         
|Income from continuing operations before income taxes    
|                                                         
|Wholesale                                                
|Corporate Retail                                         
|Franchise Retail                                         
|Intersegment eliminations                                
|                                                         
|Total operating income                                   
|Interest expense, net                                    
|Interest expense of consolidated franchisees             
|Minority interest in earnings of consolidated franchisees
|                                                         
|Income from continuing operations before income taxes    
|                                                         
|                                                         
|Capital Expenditures                                     
|                                                         
|Wholesale                                                
|Corporate Retail                                         
|Franchise Retail                                         
|                                                         
|Total                                                    
|                                                         
|                                                         
|Depreciation and Amortization                            
|                                                         
|Wholesale                                                
|Corporate Retail                                         
|Franchise Retail                                         
|                                                         
|Total                                                    
|                                                         
|                                                         
|Identifiable Assets                                      
|                                                         
|Wholesale                                                
|Corporate Retail                                         
|Franchise Retail                                         
|                                                         
|Total                                                    
|                                                         

58

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 15 Unaudited Quarterly
Financial Information

We
generally include sixteen weeks in our first quarter and twelve weeks in each subsequent
quarter. In fiscal year 2003, the fourth quarter consisted of thirteen weeks. Summarized
quarterly and annual financial information for fiscal years 2004 and 2003 follows:

|                                                        
|--------------------------------------------------------
|(Dollars and shares in thousands, except per share data)
|First (c)                                               
|Net sales                                               
|Gross profit                                            
|Income (loss) from continuing operations                
|Loss from discontinued operations (b)                   
|Cumulative effect of change in accounting principle     
|Net income (loss)                                       
|Diluted earnings per share:                             
|Continuing operations                                   
|Discontinued operations (b)                             
|Cumulative effect of change in accounting principle (a) 
|Net income (loss)                                       
|Weighted average shares and equivalents outstanding     
|                                                        
|                                                        
|(Dollars and shares in thousands, except per share data)
|First                                                   
|Net sales                                               
|Gross profit                                            
|Income (loss) from continuing operations                
|Loss from discontinued operations (b)                   
|Net income (loss)                                       
|Diluted earnings per share:                             
|Continuing operations                                   
|Discontinued operations (b)                             
|Net income (loss)                                       
|Weighted average shares and equivalents outstanding     
|                                                        

|(a) | In
2004, we adopted the requirements of FIN 46R under which we were required to
                    consolidate the financial statements of certain of our franchise
entities in our                     consolidated financial statements. These entities
were consolidated on a                     prospective basis from January 4, 2004 and
prior years were not restated. See                     Note 3.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | Discontinued
operations include the operating results for seven stores that we
                    closed or sold in 2003 and 2004 and as to which we have no continuing
                    involvement in those specific markets. The loss on discontinued
operations for                     the second quarter of 2004 included repositioning
charges of $3,044,000                     ($1,844,000 after-tax, or $(0.38) per diluted
share). The loss on discontinued                     operations for the fourth quarter of
2003 included impairment charges of                     $2,003,000 ($1,222,000 after-tax,
or $(0.24) per diluted share).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) | During
the first quarter of 2004, we incurred repositioning expenses that
                    impacted income from continuing operations by $1,314,000 ($802,000
after-tax, or                     $(0.16) per diluted share).
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) | During
the second quarter of 2004, we incurred impairment charges that impacted
                    income from continuing operations by $1,315,000 ($802,000 after-tax,
or $(0.16)                     per diluted share).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) | During
the fourth quarter of 2003, we incurred repositioning and other
                    impairment charges that impacted income from continuing operations by
$3,700,000                     ($2,260,000 after-tax, or $(0.45) per diluted share).
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

59

---

# NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS For fiscal years 2004, 2003 and 2002

# NOTE 16 Common Stock Information

Our
common stock is traded over-the-counter on the Nasdaq Stock Market under the symbol FRSH.
There are approximately 2,100shareholders of our common stock. An analysis of high
and low stock prices by quarter for the last three years is as follows:

|             
|-------------
|First Quarter
|High         
|2004         
|2003         
|2002         
|             

Cash
dividends paid per share were:

|             
|-------------
|First Quarter
|2004         
|2003         
|2002         
|             

60

---

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

Effective
as of April 19, 2004, our Audit Committee changed our independent auditing firm from KPMG
LLP to Deloitte & Touche LLP (Deloitte). During KPMGs retention as our independent auditing
firm, there were not any disagreements with KPMG on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure which, if not
resolved to KPMGs satisfaction, would have caused them to make reference to the
subject matter of the disagreement in connection with their reports. Similarly, none of
the reportable events described under Item 304(a)(1)(v) of Regulation S-K have occurred
during the time that KPMG had been engaged as our independent auditing firm.

None
of KPMGs audit reports on our consolidated financial statements contained any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.

Our
Audit Committees retention of Deloitte as our independent auditing firm was first
effective for our fiscal 2004. During the years ended December 28, 2002 and January 3,
2004 and through April 19, 2004, we did not, nor did anyone acting on our behalf, consult
with Deloitte regarding the application of accounting principles to a specified
transaction, either completed or proposed, the type of audit opinion that might be
rendered on our financial statements, or any reportable events described under
Items 304(a)(2)(ii) of Regulation S-K.

# Item 9A. Controls and
Procedures.

| | a. | Evaluation
of disclosure controls and procedures
| | -- | ------------------------------------------------

| | Based
on their respective evaluation as of the end of the period covered by this Annual Report
on Form 10-K, our principal executive officer and chief financial officer have concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the Exchange Act)) are effective
to ensure that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b. | Internal
control over financial reporting
| | -- | -----------------------------------------

| | There
were no changes in our internal control over financial reporting identified in connection
with the evaluation required by Rule 13a-15(b) of the Exchange Act during our fourth
fiscal quarter of 2004 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c. | Managements
report on internal control over financial reporting
| | -- | ----------------------------------------------------------------

| | The
report of management required under this Item 9A is contained in the section titled Item
8.  Financial Statements and Supplementary Data under the heading Managements
Annual Report on Internal Control over Financial Reporting.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Item 9B. Other
Information.

There
are no matters required to be disclosed under this Item 9B.

61

---

# PART III

# Item 10. Directors and
Executive Officers of the Company.

Pursuant
to Instruction G, the information required by this Item (other than such information
regarding executive officers which appears in Item 1A hereof and information required by
Item 405 of Regulation S-K, which is inapplicable) is incorporated by reference from
information included under the caption entitled Election of Directors set
forth in our definitive Proxy Statement for our 2005 annual meeting of shareholders (our
Proxy Statement). Our Proxy Statement will be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of our
fiscal year.

Our
Board of Directors has an Audit Committee, consisting of Thomas M. Stemlar (who serves as
the Chairman of the Audit Committee), R. Bruce Grover, William E. May, Jr. and Walter G.
Winding, III, each of whom is an independent director, as defined by Nasdaq
and the Securities and Exchange Commission. Messrs. May and Stemlar are audit
committee financial experts, as defined by the Securities and Exchange Commission.

We
have adopted a written code of conduct that applies to all of our non-union employees. A
copy of our code of conduct is available free of charge on our corporate web site at
http://www.fresh-brands.com/Investorfame.html. No amendments to, or waivers from,
our code of conduct have been made. If, in the future, we amend, or grant waivers to, our
code of conduct, we will make information regarding such amendments or waivers available
on our corporate web site http://www.fresh-brands.com/Investorfame.htmlfor a
period of at least 12 months.

# Item 11. Executive
Compensation.

Pursuant
to Instruction G, the information required by this Item is incorporated by reference
from information included under the caption entitled Executive Compensation
set forth in our Proxy Statement.

Item 12. Security
Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters.

The
following table lists certain information about our two stock option plans, our 1995
Equity Incentive Plan and our 2001 Nonemployee Director Stock Option Plan, both of which
were approved by our shareholders:

|Number of securities to be
issued upon the exercise of
outstanding options | Weighted-average
exercise price of
outstanding options | Number of securities remaining available for
future issuance under equity compensation
plans (excluding securities reflected in the
first column)
|-------------------------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------
|440,167                                                                    | $12.20                                                 | 848,766                                                                                                                                          

Pursuant
to Instruction G, the other information required by this Item is incorporated herein by
reference from information included under the captions entitled Stock Ownership of
Management and Others and Election of Directors set forth in our Proxy
Statement.

# Item 13. Certain
Relationships and Related Transactions.

Pursuant
to Instruction G, information required by this Item is incorporated by reference from
information under the captions entitled Compensation Committee and Stock Option
Committee Interlocks and Insider Participation and Certain Transactions
set forth in our Proxy Statement.

62

---

# Item 14. Principal
Accountant Fees and Services.

Pursuant
to Instruction G, the other information required by this Item is incorporated herein
by reference from information included under the caption entitled Our Independent
Auditors set forth in our Proxy Statement.

# PART IV

# Item 15. Exhibits,
Financial Statement Schedules.

The
following documents are filed as a part of this Form 10-K:

| | (1) | Financial
Statements.  The information required by this item is set forth in "Item 8. - Financial
                           Statements and Supplementary Data" above.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Financial
Statement Schedules.
| | --- | ------------------------------

|                                                            
|------------------------------------------------------------
|Reports of Independent Registered Public Accounting Firms   
|Schedule II - Valuation and Qualifying Accounts and Reserves

All other
schedules have been omitted as not required or not applicable, or the information required
to be shown thereon is included in the financial statements and related notes.

(3)       
          Exhibits. The exhibits filed or incorporated by reference herewith are as
          specified in the Exhibit Index included herein.

63

---

SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, we have duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

|                      |                                         
|--------------------- | ----------------------------------------
|                      | FRESH BRANDS, INC.                      
|Date:  March 15, 2005 | By:  /s/ John H. Dahly                  
|                      | John H. Dahly, Executive Vice President,
|                      | Chief Financial Officer, Secretary and  
|                      | Treasurer                               

Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this report has
been signed as of the date above by the following persons on behalf of us in the
capacities indicated.

|                                               |                                      
|---------------------------------------------- | -------------------------------------
|By:  /s/ Walter G. Winding, III                | By:  /s/ Louis E. Stinebaugh         
|Walter G. Winding, III, Chairman of Board      | Louis E. Stinebaugh, President, Chief
|and Director                                   | Operating Officer and Director       
|By:  /s/ John H. Dahly                         | By:  /s/ Steven R. Barth             
|John H. Dahly, Executive Vice President, Chief | Steven R. Barth, Director            
|Financial Officer, Secretary and Treasurer    
|By:  /s/ R. Bruce Grover                       | By:  /s/ William E. May, Jr.         
|R. Bruce Grover, Director                      | William E. May, Jr. , Director       
|By:  /s/ Bruce J. Olson                        | By:  /s/ Thomas M. Stemlar           
|Bruce J. Olson, Director                       | Thomas M. Stemlar, Director          

S-1

---

# Report of Independent
Registered Public Accounting Firm

To the Shareholders and Board of
Directors of Fresh Brands, Inc.:

We have audited the consolidated financial
statements of Fresh Brands, Inc. and subsidiaries (the Company) as of, and for
the year ended January 1, 2005, managements assessment of the effectiveness of the
Companys internal control over financial reporting as of January 1, 2005, and the
effectiveness of the Companys internal control over financial reporting as of
January 1, 2005, and have issued our reports thereon dated March 16, 2005 (which
reports express an unqualified opinion and include an explanatory paragraph relating to
the adoption of FASB Interpretation 46R and change in reportable segments). Our audit also
included the consolidated financial statement schedule of the Company listed in the
accompanying index at Item 15. This consolidated financial statement schedule is the
responsibility of the Companys management. Our responsibility is to express an
opinion based on our audit. In our opinion, such consolidated financial statement
schedule, when considered in relation to the basic consolidated financial statements taken
as whole, presents fairly, in all material respects, the information set forth herein.

/s/ Deloitte & Touche

Milwaukee, WisconsinMarch
16, 2005

F-1

---

# Report of Independent
Registered Public Accounting Firm

The Board of Directors
and Shareholders Fresh Brands, Inc.:

Under  date of  February  26,  2004,
 except  as to notes 5 and 14,  which are as of March  17,  2005,  we reported on the
 consolidated  balance sheet of Fresh Brands,  Inc. and  subsidiaries  (the Company) as
of January 3, 2004, and the related  consolidated  statements of operations,  shareholders  investment,
 and cash  flows for the  years  ended  January  3, 2004 and  December  28,  2002,  which
are  included  in the Companys January 1, 2005 annual report on Form 10-K. In connection
with our audits of the  aforementioned consolidated  financial statements,  we also
audited the related consolidated financial statement schedule as listed in the
 accompanying  index.  The  financial  statement  schedule is the  responsibility  of the
Companys  management.  Our  responsibility is to express an opinion on the financial
 statement  schedule based on our audits.

In our opinion,  such financial
statement schedule,  when considered in relation to the basic consolidated financial
 statements taken as a whole,  presents fairly,  in all material  respects,  the
information set forth therein.

/s/ KPMG LLP

Milwaukee, Wisconsin February 26,
2004, except as to notes 5 and 14,       which are as of March 17, 2005

F-2

---

FRESH BRANDS, INC.

SCHEDULE II 
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

FOR THE FISCAL YEARS
2004, 2003 AND 2002

Allowance for Doubtful
Accounts       Changes in the allowance for doubtful accounts are summarized as follows:

|                                                       
|-------------------------------------------------------
|2004                                                   
|Fresh Brands Distributing, Inc.                        
|Elimination of amounts for     consolidated franchisees
|                                                       
|Fresh Brands, Inc. consolidated                        
|                                                       
|2003 - Fresh Brands, Inc. consolidated                 
|                                                       
|2002 - Fresh Brands, Inc. consolidated                 
|                                                       

See accompanying Report of
Independent Registered Public Accounting Firm.

F-3

---

# EXHIBIT INDEX

# FRESH BRANDS,
INC.ANNUAL REPORT ON FORM 10-K

# FOR THE FISCAL YEAR
ENDED JANUARY 1, 2005

|Exhibit No. | Description
|----------- | -----------

| | 3.1 | Restated
  Articles  of  Incorporation,   as  amended.   Incorporated  by  reference  to
                 Exhibit 3.1 to our Form S-4 filed on April 27, 2001.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3.2 | Bylaws,
 as amended and restated.  Incorporated  by reference to Exhibit 3.2 to our Form
                 10-K for the year ended January 1, 2005.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.1 | Restated
Articles of Incorporation, as amended (included as Exhibit 3.1).
| | --- | -------------------------------------------------------------------------

| | 4.2 | Rights
 Agreement,  dated as of October 12,  2001, among Fresh Brands,  Inc. and Firstar
                 Bank,  N.A.  Incorporated by reference to Exhibit 4.1 to the
 Registration  Statement on                  Form 8-A of Fresh  Brands,  Inc.,  dated as
of October  12,  2001  (Commission  File No.                  000-32825).
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.3 | Amendment
to Rights Agreement,  dated as of August 19, 2002 among Fresh Brands, Inc. and
                 American  Stock Transfer & Trust  Company.  Incorporated  by reference
to Exhibit 4.7 to                  our Annual Report on Form 10-K for the period ended
December 28, 2002.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.4 | Credit
Agreement, dated as of March 18, 2004, among Fresh Brands, Inc., LaSalle Bank National
Association, as Administrative Agent, Co-Lead Arranger and Lender and U.S. Bank National
Association, as Documentation Agent, Co-Lead Arranger and Lender. Incorporated by
reference to Exhibit 4.4 to our Form 10-K for the year ended January 3, 2004.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4.5 | First
Amendment to Credit Agreement, dated as of November 12, 2004, among Fresh Brands, Inc.,
LaSalle Bank National Association, as Administrative Agent and Lender and U.S. Bank
National Association, as Lender. Incorporated by reference to Exhibit 4.5 to our
Form 10-Q for the quarter ended October 9, 2005.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
summarized in Notes 4 and 8 of the Notes to Financial Statements in Item 8, we have
various other outstanding long-term debt and capital lease obligations. None of such
other obligations individually exceeds 10% of our total assets. We hereby agree to
furnish to the Commission, upon its request, a copy of each instrument with respect to
such obligations.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.1 | Master
Franchise Agreement, dated April 23, 1982, between Commodores Point Terminal Corporation
and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.1 to Schultz
Sav-O Stores, Inc.s Annual Report on Form 10-K for the year ended January 1,
1982.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

E-1

---

|Exhibit No. | Description
|----------- | -----------

| | 10.2 | Agreement,
dated August 1, 1982, between Schultz Sav-O Stores, Inc. and Commodores Point
Terminal Corporation. Incorporated by reference to Exhibit 10.2 to Schultz Sav-O
Stores, Inc.s Annual Report on Form 10-K for the year ended January 1, 1982.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.3 | Amendment
to Master Franchise Agreement, dated October 15, 1982, between Schultz Sav-O Stores,
Inc. and Piggly Wiggly Corporation. Incorporated by reference to Exhibit 10.3 to
Schultz Sav-O Stores, Inc.s Annual Report on Form 10-K for the year ended January 1,
1982.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.4 | Amendment
 No. 2 to Piggly  Wiggly  Master  Franchise  Agreement,  dated  June 3,  1998,
                 between  Schultz  Sav-O  Stores,  Inc. and Piggly Wiggly  Corporation.
 Incorporated  by                  reference to Exhibit 10.2 to Schultz Sav-O Stores,
 Inc.'s Quarterly Report on Form 10-Q                  for the period ended April 25,
1998.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.5 | Form
of Key Executive Employment and Severance Agreement,  dated as of December 15, 2003
                 between Fresh Brands,  Inc. and John H. Dahly and Louis E.  Stinebaugh.
 Incorporated by                  reference  to  Exhibit 10.5  to our  Annual  Report  on
Form 10-K for the  period  ended                  December  29,  2001.  This  agreement
 is  required  to be filed as an  exhibit  to this                  Form 10-K pursuant to
Item 15(c) of Form 10-K.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.6 | Key
Executive Severance Agreement,  dated as of January 31,  2002, between Fresh Brands,
                 Inc. and Walter G.  Winding.  Incorporated  by reference to  Exhibit
10.6  to our Annual                  Report on Form 10-K for the period ended  December
29, 2001.  This agreement is required                  to be filed as an exhibit to this
Form 10-K pursuant to Item 15(c) of Form 10-K.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.7 | Form
of Key Executive  Employment and Severance  Agreement dated as of January 31,  2002
                 and July 1, 2004,  respectively,  between  Fresh  Brands,  Inc. and
Thomas J. Timler and                  Jonathan B. Hoenecke.  Incorporated  by reference
to  Exhibit 10.8  to our Annual Report                  on Form 10-K for the period ended
 December 29, 2001.  This  agreement is required to be                  filed as an
exhibit to this Form 10-K pursuant to Item 15(c) of Form 10-K.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.8 | Membership
and Licensing Agreement dated August 1, 1973 by and between Topco Associates, Inc.
(Cooperative) and Schultz Sav-O Stores. Incorporated by reference to Exhibit 10.6 to
Schultz Sav-O Stores, Inc.s Annual Report on Form 10-K for the year ended December 30,
1996.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.9 | Articles
of  Incorporation  of Topco  Associates,  Inc.  (Cooperative).  Incorporated by
                 reference to Exhibit 10.12 to Schultz  Sav-O  Stores,  Inc.'s Annual
Report on Form 10-K                  for the year ended December 31, 1988.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.10 | Bylaws
of Topco  Associates,  Inc.  (Cooperative),  as  amended  through  June 7,  1996.
                 Incorporated by reference to Exhibit 10.8 to Schultz Sav-O Stores,
 Inc.'s Annual Report                  on Form 10-K for the year ended December 30, 1996.
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

E-2

---

|Exhibit No. | Description
|----------- | -----------

| | 10.11 | 1995
Equity Incentive Plan, as amended and restated as of December 14, 2000. Incorporated
by reference to Exhibit 10.13 to Schultz Sav-O Stores, Inc.s Form 10-K for the year
ended December 30, 2000. This plan is required to be filed as an exhibit to this Form 10-K
pursuant to Item 15(c) of Form 10-K.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.12 | Form
of Nonqualified Stock Option Agreement under 1995 Equity Incentive Plan. Incorporated by
reference to Exhibit 10.14 to our Form 10-K for the year ended December 28, 2002.
This form of agreement is required to be filed as an exhibit to this Form 10-K
pursuant to Item 15(c) of Form 10-K.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.13 | Fresh
Brands Distributing, Inc. Executive Benefit Restoration Plan. Incorporated by reference
to Exhibit 10.10 to Schultz Sav-O Stores, Inc.s Annual Report on Form 10-K for the
year ended January 2, 1999. This Plan is required to be filed as an exhibit to this Form 10-K
pursuant to Item 15(c) of Form 10-K.
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.14 | 2001
Nonemployee Director Stock Option Plan, as adopted by the Board of Directors as of
December 14, 2000. Incorporated by reference to Exhibit 10.19 to our Form S-4 filed on
April 27, 2001. This plan is required to be filed as an exhibit to this Form 10-K
pursuant to Item 15(c) of Form 10-K.
| | ----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10.15 | Form
of Nonqualified Stock Option Agreement under 2001 Nonemployee Director Stock Option Plan.
Incorporated by reference to Exhibit 10.20 to our Form S-4 filed on April 27, 2001. This
form of agreement is required to be filed as an exhibit to this Form 10-K pursuant
to Item 15(c) of Form 10-K.
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 21 | Our
subsidiaries.
| | -- | -----------------

| | 23.1 | Consent
of Deloitte & Touche LLP.
| | ---- | ---------------------------------

| | 23.2 | Consent
of KPMG LLP.
| | ---- | --------------------

| | 31 | Certifications
by the principal executive officer and chief financial officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------

| | 32 | Certification
of Periodic Financial Report by the principal executive officer and chief financial
officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 99 | Definitive
Proxy Statement for the 2004 Annual Meeting of Shareholders (to be filed with the
Commission under Regulation 14A within 120 days after the end of our fiscal year
and, upon such filing, incorporated by reference herein to the extent indicated in this
Form 10-K).
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

E-3