The matters discussed in this Annual Report on Form 10-K include "forward-looking statements" about the plans, strategies, objectives, goals or expectations of Spartan Stores, Inc. (together with its subsidiaries, "Spartan Stores"). These forward-looking statements are identifiable by words or phrases indicating that Spartan Stores or its management "expects," "anticipates," "projects," "plans," "believes," "estimates," "intends," is "forecasting," "optimistic" or "confident" or has "goals," "objectives" or "strategies" that a particular occurrence "will," "may," "could," "should" or "will likely" result or that a particular event "will," "may," "could," "should", "is targeted" or "will likely" occur in the future, that the "trend" is toward a particular result or occurrence, or similarly stated expectations. Accounting estimates, such as those described under the heading "Critical Accounting Policies" in Item 7 of this Annual Report on Form 10-K, are inherently forward- looking. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report.

          In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this Annual Report and our other periodic reports filed with the Securities and Exchange Commission, there are many important factors that could cause actual results to differ materially, including our ability to:

          These factors will be affected by changes in economic conditions generally or in the markets and geographic areas that we serve, adverse effects of the changing food and distribution industries and other factors including, among others, those discussed below. Programs, plans, strategies, objectives and goals that are fully or partially within our control are subject to change.

          Anticipated future sales are subject to competitive pressures from many sources. Our Grocery Distribution and Retail businesses compete with many warehouse discount stores, supermarkets, pharmacies, other distributors and product manufacturers. Future sales will be dependent on the number of retail stores that we own and operate, competitive pressures in the retail industry generally and our geographic markets specifically, and our ability to implement effective new marketing and merchandising programs. Competitive pressures in these and other business segments may result in unexpected reductions in sales volumes, product prices or service fees.

          Our operating and administrative expenses may be adversely affected by unexpected costs associated with, among other factors:

          Our operating and administrative expenses could also be adversely affected by changes in our sales mix. Our ongoing cost reduction initiatives and changes in our marketing and merchandising programs may not be as successful as we anticipate. Acts of terrorism, sabotage or war have in the past and may in the future result in considerable economic and political uncertainties that could have adverse effects on consumer buying behavior. Fuel costs, electronic information or payment systems, shipping and transportation, product imports and other factors affecting our company and the grocery industry generally may also have an adverse impact on our operating results.

          Our future interest expense and income also may differ from current expectations, depending upon, among other factors: the amount of borrowings; changes in our borrowing arrangements and agreements; and changes in the interest rate environment. The availability of our senior secured revolving credit facility depends on compliance with the terms of the credit facility.

          This section is intended to provide meaningful cautionary statements for purposes of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This should not be construed as a complete list of all of the economic, competitive, governmental, technological and other factors that could adversely affect our expected consolidated financial position, results of operations or liquidity. We undertake no obligation to update or revise our forward-looking statements to reflect developments that occur or information that we obtain after the date of this Annual Report.

PART I

Overview

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio. We operate two primary business segments: Grocery Distribution and Retail. We are the tenth largest wholesale distributor to grocery stores in the United States and the largest wholesale distributor to grocery stores in Michigan. Our distribution and retail operations hold a combined #1 or #2 market share in many of the key Michigan markets we serve. For the fiscal year ended March 26, 2005 ("fiscal 2005"), we generated net sales of $2.0 billion.

          Established in 1917 as a cooperative grocery distributor, Spartan Stores converted to a for-profit business corporation in 1973. In January 1999, we began to acquire retail supermarkets in our focused geographic regions. In August 2000, our common stock became listed on the NASDAQ Stock Market under the symbol "SPTN." Today, with approximately 6,300 employees, Spartan Stores distributes a wide variety of products to over 300 independent grocery stores and operates 54 conventional supermarkets and 20 deep-discount food and drug stores.

          In fiscal 2004, Spartan Stores established four key management priorities that were central to rebuilding and stabilizing the existing business. These priorities were:

          We believe significant progress has been made towards achieving these short-term priorities in fiscal 2004 and 2005 and that we are now focused on the longer-term strategy of the Company, including establishing a well differentiated market offering for Grocery Distribution and Retail, and additional strategies designed to create value for our shareholders and business partners as outlined in Item 7 below.

          Grocery Distribution Segment

          Our Grocery Distribution segment provides a selection of approximately 40,000 stock-keeping units (SKU's), including dry groceries, produce, dairy products, meat, deli, bakery, frozen food, seafood, floral products, general merchandise, pharmacy, and health and beauty care items to over 300 independent grocery stores and our 74 corporate owned stores. In addition, we offer approximately 2,000 private label grocery and general merchandise items. Total revenues from our Grocery Distribution segment, including shipments to our corporate owned stores, were $1.6 billion for fiscal 2005.

          Customers. Our Grocery Distribution segment supplies a diverse group of independent grocery store operators that range from a single store to supermarket chains with as many as 21 stores and our corporate owned stores. Pricing to our customers is generally based upon a "cost plus" model for grocery, frozen, dairy, pharmacy and health and beauty care items and a "variable mark-up" model for meat, deli, bakery, produce, seafood, floral and general merchandise products.

          Our Grocery Distribution customer base is very diverse, with no single customer exceeding 7% of consolidated net sales. Our five largest Grocery Distribution customers (excluding corporate owned stores) accounted for approximately 17% of our fiscal 2005 consolidated net sales. In addition, approximately 20% of consolidated net sales are covered under supply agreements with our Grocery Distribution customers.

          Distribution Functions. Our Grocery Distribution business utilizes approximately 1.8 million square feet of warehouse, distribution and office space. We supply our independent grocery distribution customers and our corporate owned stores from our distribution centers located in Grand Rapids and Plymouth, Michigan. We believe that our distribution facilities are strategically located to efficiently serve our customers. We are continually evaluating our inventory movement and assigning SKU's to appropriate facilities within our distribution centers to

reduce the time required to pick products. During fiscal 2005, we implemented a specialty item warehouse to efficiently distribute approximately 2,000 specialty items, line extensions and slower moving items. Through-put (defined as cases shipped per labor hour) increased in comparison to fiscal 2004 by 2.2% in our Grand Rapids grocery warehouse, 4.1% in our Plymouth grocery warehouse and 5.3% in our Grand Rapids general merchandise warehouse. This is the third consecutive year of improved productivity. As we make continuous progress towards our expected productivity goals, we would expect these increases to moderate in future years.

          To supply our Grocery Distribution customers, we operate a fleet of approximately 100 tractors, 200 conventional trailers and 175 refrigerated trailers, substantially all of which are leased. In fiscal 2004, we upgraded the on-board transportation management systems on our Grand Rapids fleet of tractors, or approximately 64 of our tractors. These systems have allowed us to reduce idle time and have helped us control costs. We expect to upgrade the on-board computers on the remainder of the fleet during fiscal 2006. This should allow us to further reduce costs and vehicle idle time.

          Additional Services. We also offer and provide many of our independent grocery distribution customers with value-added services, including:

Retail Segment

          Our Retail segment operates 54 retail supermarkets and 20 deep-discount food and drug stores predominantly in midsize metropolitan, tourist and lake communities of Michigan and Ohio. Our retail supermarkets are operated under the banners Family Fare Supermarkets and Glen's Markets and our 20 deep-discount food and drug stores operate under the banner The Pharm.

          We believe our retail supermarkets maintain a #1 or #2 market share position in many of the Michigan markets they serve. We believe that our strong market share positions result from our distinct "neighborhood market" focus and the favorable name recognition of our banners. Our neighborhood market strategy distinguishes our stores from supercenters and limited assortment stores by emphasizing convenient locations, demographically targeted merchandise selections, strong perishables offerings, customer service, value pricing and community involvement.

          Our 54 retail supermarkets typically offer dry groceries, produce, dairy products, meat, frozen food, seafood, floral products, general merchandise, beverages, tobacco products, health and beauty care products, delicatessen items and bakery goods. Twenty-eight of our supermarkets also offer pharmacy facilities. In addition to nationally advertised products, the stores carry private label items, including our Spartan brand, and three private label brands that result from our strategic relationship with Topco Associates LLC: Top Care, a health and beauty care brand label, Valu Time, a value brand label, and Full Circle, a natural and organic brand label. These private label items provide above-average retail margins and we believe they help generate increased customer loyalty. See "Merchandising and Marketing-Corporate Brands." Our retail supermarkets range in size from approximately 20,000 to 62,000 total square feet and average approximately 3 8,000 total square feet per store.

          Our 20 deep-discount food and drug stores, which operate under the banner The Pharm, offer a unique combination of a full-service pharmacy, general merchandise products and basic food offerings. These stores operate under a deep discount format that emphasizes everyday low prices that are very competitive with supercenter offerings and are less than those of a traditional supermarket or drug store. The Pharm stores range in size from approximately 17,000 to 44,000 total square feet and average approximately 29,000 total square feet per store.

          During fiscal 2005, we opened 3 fuel centers in Michigan operated under the banners Family Fare Quick Stop and Glen's Quick Stop. We are planning to open several additional fuel centers over the next two years. These fuel centers offer refueling services and in the adjacent convenience store, a limited variety of immediately consumable products. Our prototypical Quick Stop stores will be approximately 900 square feet in size and will be located adjacent to our supermarkets. We also anticipate including fuel centers with any newly constructed stores, where possible.

          We acquired our stores as a result of six acquisitions from January 1999 to March 2001. The following chart details the changes in the number of our retail stores over the last five years:

          Included in the above number of stores is one The Pharm store that we closed early in the first quarter of fiscal 2006.

          During fiscal 2005, we reset and/or performed limited remodels on 15 of our stores and began one major remodel, which was completed early in the first quarter of fiscal 2006. This brings the total number of stores that have been reset and/or remodeled in the last two years to 50. During fiscal 2006, we plan to reset and/or perform remodels on 10 to 15 additional stores, perform 1 major remodel/expansion and begin construction on 2 new stores. Capital expenditures, including remodeling, but excluding new stores, are expected to approximate $10 million to $15 million per year as we continually maintain and update our store base. We evaluate proposed retail projects based on demographics and competition within each market, and prioritize projects based on their expected returns on investment. We require projects to meet a targeted internal rate of return to be approved; however, we may undertake projects that do not meet this standard to the extent they represent required m aintenance or necessary infrastructure improvements. We believe that focusing on such measures provides us with an appropriate level of discipline in our capital expenditures process.

Operating Segment Financial Data

          More detailed information about our operating segments may be found in Note 11 to the consolidated financial statements included in Item 8, which is herein incorporated by reference. All of our sales and virtually all of our assets are in the United States of America.

Discontinued Operations

          Our former convenience distribution operations, insurance operations and certain of our retail, grocery distribution and real estate operations have been recorded as discontinued operations in accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." Accordingly, for all years presented all information in this Annual Report on Form 10-K have been adjusted and the discontinued operations information is excluded, unless otherwise noted.

Convenience Distribution Operations

          Discontinued convenience distribution operations consists of the former operations of our subsidiaries: United Wholesale Grocery Company, L&L/Jiroch Distributing Company and J.F. Walker Company.

Insurance Operations

          We have approximately $4.0 million remaining in insurance reserves for open claims liabilities related to policies that were not ceded (transferred) to an unrelated third party at March 26, 2005. We will remain obligated under these policies until all claims are closed. We have retained an independent third party administrator to manage these claims.

Retail Operations

          Discontinued retail operations consist of 59 stores that were closed and/or sold during fiscal 2003 and fiscal 2004, including all former Food Town stores.

Grocery Distribution Operations

          Discontinued grocery distribution operations consist of the former operations of our Toledo, Ohio distribution operations that were consolidated into our Michigan facilities during the fourth quarter of fiscal 2003. Spartan Stores continues to distribute to its The Pharm stores in Ohio from its distribution facilities in Michigan.

Real Estate Operations

          Discontinued real estate operations include properties either held for sale or previously sold.

Marketing and Merchandising

          General. Our Grocery Distribution and Retail segments use combined marketing and merchandising departments to effectively leverage the use of category management principles. Our Grocery Distribution segment pursues incremental sales to existing and prospective customers by partnering with them to satisfy their consumers' needs. Our Retail segment's marketing and merchandising strategies are consumer driven programs in keeping with the implementation of improved category management practices.

          With the efficiencies created from combining these functions and by partnering with our vendors to develop more robust category management, we have been able to more effectively develop and roll-out our merchandising programs, which has aided our ability to increase our sales and earnings. We have and will look to expand these offerings and partner with our independent customers over time to continue to realize incremental benefits.

          As we expand our service offerings, we believe that we differentiate ourselves from our competitors by offering a full set of services, from our specialty warehouse in our Grocery Distribution segment to the addition of fuel centers and pharmacies in our "neighborhood market" retail stores. In addition, during fiscal 2005, we completed the design of our future prototype store that displays our best practices in merchandising that can be used internally and shared with our independent customers.

          Corporate Brands. We currently market and distribute approximately 2,000 private label brand items including our Spartan brand, and three private label brands that result from our strategic relationship with Topco Associates LLC: Top Care, a health and beauty care brand label, Valu Time, a value brand label, and Full Circle, a natural and organic brand label. The Top Care and Valu Time brands will replace our Pharm and Home Harvest brands, respectively.

          During fiscal 2004, we began the process of reenergizing our Spartan brand and rolled out a redesigned label and many new product categories. The redesigned label is currently being used on a majority of our private label products, with continued conversion expected until all products have been converted in fiscal 2006. We believe the new label has been well received by consumers and that this brand is one of the most valuable strategic assets of the Company.

Competition

          Our Retail and Grocery Distribution segments operate in highly competitive markets, which typically result in low profit margins for the industry as a whole. Our Retail and Grocery Distribution segments compete with, among others, regional and national grocery distributors, independently owned retail grocery stores, large chain stores that have integrated wholesale and retail operations, mass merchandisers, limited assortment stores and wholesale membership clubs, some of whom have greater resources than we do. The principal competitive factors in the retail grocery business include the location and image of the store; the price, quality and variety of the products; and the quality and consistency of service.

          We believe we have developed and implemented strategies and processes that allow us to remain competitive in our Retail segment. We monitor planned store openings by our competitors and have established proactive strategies to respond to new competition both before and after the competitive store opening. Strategies to combat competition vary based on many factors, such as the competitor's format, strengths, weaknesses, pricing and sales focus. During the past three fiscal years, eight competitor supercenters opened in markets in which we operate corporate owned stores and an additional six supercenter openings are expected to occur during fiscal 2006.

          The primary competitive factors in the distribution business include price, product quality, variety and service. We believe we have developed an internal set of measures that allow us to monitor our performance against these factors, compare our performance against our competitors and make improvements as appropriate. We believe our overall service level, defined as actual units shipped divided by actual units ordered, is among industry leading performance.

Seasonality

          Throughout the fiscal year our Retail and Grocery Distribution segment's sales and operating performance vary with seasonality. Our first and fourth quarters are typically our slowest sales quarters and therefore operating results are generally lower during these two quarters. Additionally, these two quarters can be affected based on the timing of the Easter holiday, which is a strong sales week. All quarters are 12 weeks, except for our third quarter, which is 16 weeks and includes the Thanksgiving and Christmas holidays. Most of our northern Michigan stores are dependent on tourism and therefore, most affected by seasons and weather patterns, including, but not limited to, the amount and timing of snowfall during the winter months and the range of temperature during the summer months.

Suppliers

          We purchase products from a large number of national, regional and local suppliers of name brand and private label merchandise. We have not encountered any material difficulty in procuring or maintaining an adequate level of products to serve our customers. No single supplier accounts for more than 15% of our purchases. We continue to develop strategic relationships with key suppliers. We believe this will prove valuable in the development of enhanced promotional programs and consumer value perceptions.

Intellectual Property

          We own valuable intellectual property, including trademarks and other proprietary information, some of which, including "Spartan," "Family Fare," "Glen's," "The Pharm" and other related marks, are of material importance to our business.

Technology

          We invest in technology as a means of maximizing the efficiency of our operations and improving service to our customers. Our focus during the last year has been to refine our reporting, business processes and data integrity to provide a base for continuous improvement and upgrading of our technology.

          Supply Chain. During fiscal 2005, we completed the majority of the upgrade of our supply chain systems for Global Trading Number and Sunrise 2005 support. We upgraded our supply chain systems to support a specialty warehouse for our retail customers, as discussed in "Grocery Distribution Segment - Distribution Functions." We intend to upgrade our warehouse management systems for voice selection technology in fiscal 2006.

          Retail Systems. During fiscal 2005, we installed eight additional "self-checkout" systems in our retail supermarkets, with additional installations planned for fiscal 2006. For the opening of our first three fuel centers, we developed the required support for fuel operations in our Point of Sale, Electronic Payments and other retail reporting systems. We completed the deployment of EDI based receiving in our corporate owned stores and began testing of several types of consumer kiosks in our retail supermarkets. We also installed a new central hosting system for pricing and product authorization.

          Financial Systems. We upgraded our financial systems software to the current vendor supported version and developed a variety of improved reporting systems.

          Information Technology. We continued to improve our business continuity and data security capabilities.

Subsidiaries

          Our Grocery Distribution segment consists primarily of our wholly owned subsidiary, Spartan Stores Distribution, LLC. We operate our Retail segment primarily through two wholly owned subsidiaries, Family Fare, LLC and Seaway Food Town, Inc. and their respective subsidiaries.

Associates

          We currently employ approximately 6,300 associates, 3,600 of which are full-time and 2,700 of which are part-time.

          Unions represent approximately 21% of our associates. Contracts covering approximately 620 distribution center and transportation associates expire in October 2006 and contracts covering approximately 500 retail associates expire between June 2005 and June 2006. A contract covering an additional 170 distribution center and transportation associates is currently under negotiation. The parties have agreed to extend the agreement beyond its April 2005 expiration date to allow additional time for negotiations. Either party may terminate this extension agreement with 7 days written notice. We believe that an amicable resolution to the negotiation will occur; however, in the event the parties are unable to reach an agreement, we have developed a contingency plan that will enable us to continue to operate the facility. Excluding the associates under the aforementioned contract extension, less than 1% of our associates and approximately 2% of our union associates are represented by contracts that expire by March 2006.

          We consider our relations with our union and non-union associates to be good and have not had any material work stoppages in the last five years.

Regulation

          We are subject to federal, state and local laws and regulations covering the purchase, handling, sale and transportation of our products. Several of our products are subject to federal Food and Drug Administration regulation. We believe that we are in substantial compliance with all Food and Drug Administration and other federal, state and local laws and regulations governing our businesses.

Forward-Looking Statements

          The matters discussed in this Item 1 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Available Information

          The address of our web site is www.spartanstores.com. We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports (and amendments to those reports) filed or furnished pursuant to Section 13(a) of the Securities Exchange Act available on our web site as soon as reasonably practicable after we electronically file or furnish such materials with the Securities and Exchange Commission. Interested persons can view such materials without charge by clicking on "Investor Information" and

then "SEC Filings" on our web site. Spartan Stores is an "accelerated filer" within the meaning of Rule 12b-2 under the Securities Exchange Act.

Grocery Distribution Segment Real Estate

          The following table lists the location, approximate size and ownership of the facilities used in our Grocery Distribution segment.

Retail Segment Real Estate

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our retail supermarkets and deep-discount food and drug stores:

          The following table lists the retail banner, number of stores, geographic region, approximate total square footage under the banner, average store size (in square feet) and ownership of our fuel centers:

          No matters were submitted to a vote of Spartan Stores' shareholders during the fourth quarter of fiscal 2005 through the solicitation of proxies or otherwise.

PART II

          Spartan Stores common stock is traded on the National Market System of the NASDAQ Stock Market under the trading symbol "SPTN."

          Stock sale prices are based on transactions reported on the NASDAQ Stock Market. Information on quarterly high and low sales prices for Spartan Stores' common stock appears in Note 12 to the consolidated financial statements and is incorporated herein by reference. At May 19, 2005 there were approximately 630 shareholders of record of Spartan Stores common stock.

          During fiscal 2003, 2004 and 2005, we did not pay any dividends. The payment of any future dividends will be determined by our board of directors. We anticipate that we will use any net earnings from our operations to repay debt and to acquire additional retail operations, and that we will not pay any dividends for the foreseeable future.

          Our credit facilities contain restrictions that do not allow us to pay future dividends or make a variety of other restricted payments. See the "Liquidity and Capital Resources" section of Management's Discussion and Analysis of Financial Condition and Results of Operations contained in Item 7 below for a more detailed discussion of these restrictions, as well as Note 5 to the consolidated financial statements.

          The information required by Item 201(d) of Securities and Exchange Commission Regulation S-K is incorporated herein by reference from the table entitled "Equity Compensation Plans" in Spartan Stores' definitive proxy statement relating to its annual meeting of shareholders to be held in 2005.

(In thousands, except per share data)

          Spartan Stores is a leading regional grocery distributor and grocery retailer, operating principally in Michigan and Ohio.

          We currently operate two reportable business segments: Grocery Distribution and Retail. Our Grocery Distribution segment provides a full line of grocery, general merchandise, frozen and perishable items to over 300 independently owned grocery stores and 74 corporate owned stores. Our Retail segment operates 54 retail supermarkets in Michigan under the banners Family Fare Supermarkets and Glen's Markets and 20 deep-discount food and drug stores in Ohio and Michigan under the banner The Pharm. In fiscal 2005, we opened 3 fuel centers under the banners Family Fare Quick Stop and Glen's Quick Stop. Our retail supermarkets have a "neighborhood market" focus to distinguish them from supercenters and limited assortment stores. Our deep-discount food and drug stores offer a unique combination of full-service pharmacy, general merchandise products and basic food offerings.

          In fiscal 2004, as we embarked on the repositioning of the Company, we established four key management priorities we believed were central to our ability to refocus our organization on profitable growth. We have made significant progress towards achieving these short-term priorities, which has provided stability to our business and now allow us to focus on future growth. A summary of our priorities and results follows:

          In addition to these accomplishments, we also amended our credit facility, which included an interest rate reduction and facility increase. A portion of the funds made available under the amended facility were used to prepay the remaining $13.9 million due under the supplemental secured credit facility.

          Significant progress has been made towards achieving these short-term priorities in fiscal 2005. We are now focused on the longer-term strategy of the Company, including establishing a well-differentiated market offering for our Grocery Distribution and Retail segments, and additional strategies designed to create value for our shareholders, retailers and customers. We will continue to face competitive big-box store openings in fiscal 2006, and while we have developed strategies to combat these competitors, the impact of our strategies will affect our actual financial performance.

          Our focus for fiscal 2006 will be:

          The matters discussed in this Item 7 include forward-looking statements. See "Forward-Looking Statements" at the beginning of this Annual Report on Form 10-K.

Results of Operations

          The following table sets forth items from our Consolidated Statements of Operations as a percentage of net sales and the year-to-year percentage change in dollar amounts: