Tuesday morning, SuperValu (SVU) was one of the biggest losers on the Street, with a drop in excess of 12% thanks to its third-quarter earnings report.

The supermarket operator reported a third-quarter loss of 95 cents per share ($202 million) compared to a profit of 51 cents per share ($109 million) a year ago. The recent third quarter includes write-downs of $1.19 per share ($252 million) and was impacted by weaker sales and margins. The firm's quarterly revenue dropped 5.9% to $8.67 billion, which is a sour follow up to the 9.5% drop from a year ago.

On Tuesday, Kroger (KR) reported third-quarter earnings -- and missed the Street's estimate.

The grocer announced that it lost $1.35 per share during the quarter, down sharply from a 36-cent profit during the same quarter a year ago. Taking one-time costs out of the equation, the grocer earned 27 cents per share during the quarter. These results were far short of the Street's expected 36 cents per share.

Kroger (NYSE: KR) reported second-quarter earnings Tuesday and the results were disappointing to the Street and to options investors who may have bet the other way.

First, the bottom line up front. The grocery retailer earned 39 cents per share, down from 42 cents in the year-ago period and a nickel short of what analysts were expecting. Sales, meanwhile, dipped to $17.7 billion from $18.1 billion, also falling shy of Wall Street's consensus view.

Winn-Dixie Stores (NASDAQ: WINN), a grocery chain that competes with Wal-Mart (NYSE: WMT), reported Q4 earnings on Monday after the bell. Shareholders should appreciate the net-income turnaround. The business produced a profit of 17 cents per share, a figure that was one penny ahead of estimates. Winn-Dixie was dealing with a loss of 10 cents per share a year ago.

Same-store sales weren't terribly exciting. They advanced 1.6% (they were driven by the timing of the Easter holiday, it should be noted). Gross margin, however, did increase. And cash flow from operating activities for the twelve-month frame wasn't bad.

According to the earnings preview from Michael Fowlkes, Kroger was expected to deliver around 61 cents per share. Well, Kroger earned 66 cents per share. The number improved last year's performance by 8 cents. Revenues were essentially flat. Same-store sales increased a little over 3%. When you think about it, Kroger did pretty well.

This whole investing game is quite easy and predictable.

A hot new company goes public, attracts investors and its stock goes through the roof. Everyone wants all-in until the price reaches an unsustainable level, and then the selling begins.

Eventually either the hot company crashes and burns, or recovers to provide more rational returns in the future.

Whole Foods Market (NASDAQ: WFMI) is a great example of this evolution.

Five years ago, this alternative grocery store was all the rage. The stock appreciated as investors believed that shoppers would be more than willing to part with more dollars in order to get food that was naturally raised without chemicals and pesticides.

Shares in high-end grocery retailer Whole Foods (NASDAQ: WFMI) have slid around 20% since early November. The most obvious explanation for the pullback -- investors remain concerned that a weakening housing market and continued turmoil in the credit markets could result in a slowdown at Whole Foods.

However, the company is more resistant to these pressures than many investors realize. Americans have shown an increasing desire to eat healthier -- a trend that has allowed sales of organic foods to grow at three times the rate as those at conventional groceries. As the largest retailer of organic products, Whole Foods is well-positioned to benefit from this trend.

Moreover, while the company is the clear leader in the organic grocery niche, it's still a minnow compared to traditional grocery giants like Safeway and Kroger. With only around 200 stores spread across the U.S., the U.K. and Canada, Whole Foods still has plenty of untapped markets to expand into over the coming years.

Two additional factors are also weighing on the shares at the moment. The first is a general fear regarding the potential impact of increasing competition in the organic foods market. In recent years, traditional grocery chains have been adding to their selection of organic foods. At the same time, new entrants, such as Britain's Tesco, are also targeting the space more seriously. However, Whole Foods remains the undisputed leader in this market and offers the widest product selection. Furthermore, there's plenty of room for multiple competitors in this growing space.

Finally, the U.S. Federal Trade Commission (FTC) continues to pursue an antitrust case against Whole Foods' merger with rival Wild Oats Market. However, the FTC's case is weak and was strongly rejected by a judge earlier this year. The courts also rejected the government's attempts to block the merger pending an appeal -- Whole Foods has now completed the deal. It's highly unlikely that an appeals court will overturn the deal and break up the merger.

If you are interested in more analysis from Paul Tracy, you can find it at StreetAuthority.com

A piece in the Wall Street Journal (subscription required) looks at how Wal-Mart's (NYSE: WMT) decision to cut back on its supercenter expansion will effect the revenues and earnings of grocery stores as well as companies that supply grocery stores.

Some suggest that Wal-Mart's biggest suppliers, companies like Kellogg (NYSE: K) and General Mills (NYSE: GIS), could be hurt by the cutback in expansion. But it seems like it could just as easily swing the other way: Will people really consume less cereal because there isn't a new Wal-Mart in town? I doubt it, and suppliers could benefit from the greater pricing power that they enjoy with smaller companies as opposed to Wal-Mart, which wants to buy everything a little (and sometimes a lot) cheaper than everyone else.

I'm a little bit puzzled at how negatively analysts are seeing this news as being for the suppliers. While it's true that Wal-Mart makes up a huge portion of the business of many food companies, the sales that were going to go to Wal-Mart will now go to its competitors, who will be able to move more product without a new competitor in town. And, with few exceptions, sales to companies like Kroger will probably carry higher gross margins than sales to the world's biggest retailer.

The major grocery chains are, of course, jumping for joy at this news. Trying to compete with Wal-Mart, especially on price, is extremely difficult for every one of its competitors, and grocery stores normally lose a massive amount of market share when a new Wal-Mart supercenter moves in.

The only loser here may be the consumer, who will have to pay more for groceries.

The best way to beat Wal-Mart (NYSE: WMT) is to avoid trying to copy it, and some grocery stores are finally figuring that out. After years of trying to compete with the big box on price, which is impossible, they're now trying to offer consumers what Wal-Mart can't offer: A less hectic shopping environment, better service, and a generally more pleasant experience. And they're finding out that many, many consumers are willing to pay a a little extra for that.

Grocers are finding that they can beat Wal-Mart with services like prepared foods, and consumers like that stores like Kroger (NYSE: KR) and Safeway (NYSE: SWY) are rarely out of stock on items, a common problem at Wal-Mart supercenters. Some consumers are also realizing that by following the weekly specials, they can sometimes save money by shopping at traditional grocery stores.

The moral of the story is clear: Most mom and pop stores, and even huge chains like Kroger, will never really be able to compete with Wal-Mart on price. So why bother trying? When a Wal-Mart opens up nearby, they will lose some customers. But there is an ample market for quality service and a good shopping experience, the two things that Wal-Mart really can't provide.

When looking at ways to compete, companies have to ask themselves "What can I do that my competitor can't?" After finally realizing that they won't win in a price-war with Wal-Mart, they've given up that battle. And that just might be the first step toward victory.

Most of you have probably heard about the local ordinance that will ban the use of petroleum-based plastic bags in the city of San Francisco. Reports state that the measure is likely to pass with the Mayor's signature. I will refrain from stating any opinion on whether I think the move is good or bad. What I want to mention about the likely change in West Coast grocery bag options is that I think this provides an opportunity for the snatching of some timely investments.

Quick! Find those companies that produce brown kraft paper roll stock and get a little chunk of them. When the bag measure passes, those companies might get a nice boost. You may wish to consider subsidiaries of (privately held) Koch Industries, International Paper (NYSE: IP), Kimberly-Clark (NYSE: KMB) or possibly Domtar (NYSE: DTC) (Toronto:DTC). On the local level, find the companies that are manufacturing brown paper bags for the West Coast market.

It is my personal opinion that this change in bag material usage will catch on fast, most especially on the coasts. Look into the shopping bag manufacturing field with a critical eye and watch this situation closely. If it looks like this shopping bag pony is going to "break out of the gate," I have a sneaking suspicion that this will be one pony that you want to ride!