Forward Looking Statements

The information we will be providing you will include certain forward-looking statements. You should be aware that actual results could differ materially from those reflected by our forward-looking statements and that a number of factors may affect future results, including the general retail food industry, general economic conditions, the entry of competitive stores, the stability of distribution incentives from our suppliers, the level of discounting by competition, uncertainties relating to tobacco and environmental regulations, the ability of the Company and significant third party suppliers to effect conversions to new technological systems, margin rates achievable in our operating divisions and our ability to increase sales and minimize expenses. Although we believe we have the business strategy and resources needed for improved operations, future revenue and margin trends can not be reliably predicted.

Financial Summary

This year is off to a great start. I am pleased to report a double digit increase in earnings and strong comparable store sales gains. I want to point out that these results were achieved with comparisons against a very good first quarter last year.
First quarter net income was $3.5 million compared to $3.3 million last year – a 6% improvement. Earnings per diluted share were 38¢ versus 36¢.

Operating income or EBIT increased 11.7% or $1.2 million to $11.0 million from $9.8 million last year. This was 2.5% of revenues – consistent with the prior year.

Our operating income, excluding the prior year real estate gain, was up 21%, an exceptional improvement. The increase can be attributed to strong comparable store sales and higher gross profit rates. This is the 16th consecutive quarter of operating income improvement when comparing quarters on prior year basis.

Supermarkets and CSDC reported operating income above last year. The greatest improvement was in the supermarkets. Village Pantry's operating income was slightly below a year ago due to a non-recurring liability claim in the current year.

EBITDA of $18.5 million was $1.3 million or 7.8% better than last year. As a percentage of sales, EBITDA was 4.2% versus 4.3% last year, the highest rate in memory.

Revenues

First quarter revenues were $437 million versus $394 million last year – an increase of $42 million or 10.7%. Of the total revenue increase, supermarkets contributed $16.1 million – a 6% improvement. CSDC contributed $14.7 million – up 18%. Village Pantry added $9.5 million – a 21% increase. Crystal Food Service's sales were up 14% or $1.1 million.

Approximately 50% of the increase in supermarket revenues was attributable to comparable store sales. The remaining half came from new stores. Approximately 60% of the increase in Village Pantry revenues was driven by the sharp rise in retail fuel prices. CSDC revenues were higher essentially due to higher cigarette prices.

Sales in comparable stores, which excludes fuel, increased 3.2% from the first quarter of fiscal 2000. Supermarkets and Village Pantry had comparable store increases of 3.2% and 3.7%, respectively.

Fuel gallons sold increased 9.8%, but declined 5.0% in comparable stores because of the unusual recent gasoline prices. Average price per gallon was $1.47 versus $1.07 last year.

Gross Profit

Gross profit increased $8.8 million or 8.9%. As a percentage of sales, gross profit was 24.5% -- down 0.4 percentage points from last year. The decline was due to lower gasoline gross margin percentages and CSDC, a low gross profit business, having sales growth at a faster rate than the supermarkets.

Gross margin percent increased in the supermarkets. Grocery and produce continue to provide significantly improved margins. CSDC's margin percent was flat. Village Pantry gross margin percent declined due to a higher percentage of low margin fuel sales, even though fuel margin per gallon was 17.5¢ compared to 14.2¢ last year.

SG&A

Quarterly SG&A expense was $89.8 million versus $82.6 million last year. As a percent of sales, SG&A was 20.6% -- 0.4 percentage points better than last year's same quarter. Operationally, it was a good quarter.

The $7.2 million increase in total expenses was primarily attributable to $4.7 million in wages and fringes, $2.0 million in other store operating costs, and $0.5 million in other expenses.

Wages in like stores increased 2.9% due to wage increases and additional labor hours to support higher same store sales. In the Village Pantry stores, the retail wage percent was .13 percentage points better than last year. This is the result of best practice initiatives and our focus on expense management.

Depreciation, Interest, Taxes

First quarter depreciation was $6.1 million versus $5.6 million last year.

As a percent of revenues, it was equivalent in both years, at 1.4%.

Interest expense was $5.8 million versus $4.9 million last year and increased to 1.3% from 1.2% last year.

The effective income tax rate for the quarter was 33.1% compared to 33.7% for the year earlier quarter. The first quarter effective rate is based on the annual effective rate expected for the fiscal year.

Competition

There were 3 major competitive openings during the quarter. At quarter end, there were fourteen major stores in our market area open less than one year, as compared to five last year. Despite this increase in competitive square footage, we continue to experience strong comparable store sales.

New Stores -- Acquisitions

We continued to expand through both acquisitions and new store construction. Ross Supermarkets, a five store chain operating in Muncie, Indiana, was acquired. Ross' annual volume is about $58 million. One store has been closed in order to transfer sales to the Marsh store located directly across the street. The profit on these transfer sales will be very high.

LoBill opened an acquired store in Greensburg, Indiana and opened a 30,000 square foot store in Lebanon, Indiana. We are pleased with these operating units. Village Pantry opened two new generation convenience stores and a fuel kiosk on a supermarket lot. We are testing the cross-marketing potential between the fuel kiosk and the supermarket.

Primo Banquet Catering and Conference Centers – a mid-level caterer operating three venues in the Indianapolis metro – was acquired. This strengthens our dominance in the Indianapolis catering business by adding a mid-level caterer to accompany Crystal's upscale position. A recent Kiplinger article cited catering as a growth business opportunity.

Our plans for the year include three new Marsh Supermarkets, one of which is a replacement, up to six additional new convenience stores, and a new catering facility.

Stock Repurchase

We are continuing to buy back stock on the open market under the safe harbor rules. During the quarter, we repurchased over 51,000 shares of Marsh Class B stock. Second quarter to date, we purchased an additional 43,000 shares of the stock.

Summary and Close

Looking ahead to the second quarter, last year's earnings included significant gains from real estate and cigarette price increases. Consequently, duplicating last year's results will be a challenge.

To summarize the first quarter, results were excellent, particularly comparable store sales and operating income. Also, our sales growth rate is accelerating. I am particularly pleased with the comparisons when you exclude last year's real estate profits. Basic operations demonstrated solid improvement.

Our strategy remains market driven, and we expect continued success. Marsh and each of its operations have a strong brand identity, experienced management and effective marketing.

Sincerely,

Don E. Marsh