SEPARATION AGREEMENT

Exhibit 10.4

SEPARATION AGREEMENT

This Separation Agreement (this “Agreement”) is entered into as of February 29, 2004 by and between Ingles Markets, Incorporated (the “Company” or the “Employer”), and Anthony Federico (“Federico”).

Section 1 — Benefits

(a) In General: In consideration of the mutual promises contained herein, the Company agrees to provide to Federico the benefits described in this Agreement. Federico acknowledges that the Company is not otherwise required to pay or provide him these benefits.

(b) Payment: The Company shall pay Federico severance pay of $250,000 payable in 52 weekly installments of $4,807.69 before tax. All applicable taxes will be deducted from these weekly payments.

(c) Stock Options: Notwithstanding anything to the contrary in the Stock Option Agreement dated October 13, 1998 (the “Options”) or in the Company’s Amended and Restated 1997 Nonqualified Stock Option Plan (the “Plan”), Federico’s termination of employment, as set forth in this Agreement, shall be deemed to constitute “retirement with the consent of the Company” for the sole purposes of the Plan and the Options. Therefore, Federico’s Options to purchase 100,000 shares at an exercise price of $10.50 will not terminate upon termination of his employment but shall continue to be exercisable for a period of three months after such termination, as set forth in Section 7 of the Plan. Federico’s termination of employment shall not be deemed retirement for purposes of other retirement or benefit plans of the Company, except to the extent separately determined thereunder.

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