Despite a grim earnings year for the grocery sector, there is one bright, shining light: Whole Foods Market (Nasdaq: WFM) reported its Q1 2012 results on Feb. 8, beating analysts' predictions on profit and store sales growth.

Earnings per share were $0.65 per share versus the forecast $0.60, and sales growth weighed in at 8.7% to analysts' expected 8.3%. Whole Foods accomplished this feat with a market strategy that, unlike that of conventional food stores, takes the spotlight off of cost-cutting and trains it on customers' health and the state of the world at large. In fact, if you see any signs using the word "save" in a Whole Foods store, it is most likely referring to the environment, not your cash.

Traditional grocers suffer more than natural food stores
Grocery stores, with their notoriously slim profit margins, have struggled through the recession, and some are now looking the worse for wear.

The granddaddy of all grocery stores, Kroger (NYSE: KR), has had a particularly bad time lately, shouldering a heavy debt load and suffering from consumer belt-tightening. As CEO David Dillon put it, the company suffers from "increasing stress" and "smaller baskets."

Worse off still is SUPERVALU (NYSE: SVU), currently implementing layoffs in an effort to bring some balance to its books by the end of its fiscal year on Feb. 25. This is unlikely, given the company's crushing debt, $750 million loss, and stock value that has plunged nearly 20% over the last year.

The Fresh Market (Nasdaq: TFM), while smaller than Whole Foods, is another natural food store that has seen its fortunes rise over the past three months. Although its 15% stock value increase during that time period can't rival Whole Foods', it is certainly moving in the right direction. Considering that its growth for all of last year was a bit flat, this is quite an accomplishment. The Fresh Market had raised its outlook for this year after releasing a glowing third-quarter report last November. So far, it's right on the money.

Whole Foods, meanwhile, has been growing by leaps and bounds and showing a rise in stock value of nearly 37% year-over-year. The company is all about growth and expansion, as it has been gobbling up smaller natural food stores for years on its way to becoming the dominant force in this market sector. Over the past year, it has been opening new stores in and around college towns, targeting a younger generation that it hopes to nurture into lifelong customers.

Are people really that enamored of natural and organic foods? The answer, it seems, is a resounding "yes." Whole Foods knows its customer base, and it's not only 20-somethings. College towns supply a well-heeled population of instructors, professors, and administrators who do not mind paying higher prices for just about everything in the store -- hence the nickname "Whole Paycheck." I can attest to this, as the store in the college town near me is always brimming with customers, no matter when I drop in.

Whole Foods has raised its outlook on 2012 sales growth and has plans to open between 24 and 27 new stores -- and the company can well afford it. Management reports generating more than $340 million in cash during the last quarter, and they are using approximately one-third of it to maintain older stores and open new ones. Whole Foods returned $18 million to stockholders in the form of dividends, as well.

Smaller stores and an expanding customer base bring home the (organic) bacon
Whole Foods has realized greater profit in shrinking the size of its stores, finding that they outperform the larger ones. Stores opened in 2011 averaged 38,000 square feet -- smaller than those brought online in 2010 -- and yielded 29% higher sales per square foot. For 2012, the footprint is smaller still at 33,000 square feet, and the company plans to realize even higher productivity.

Whole Foods is finding that moving to communities with college campuses translates into lower development and business costs while still providing a large customer base. Additionally, the stores provide goods that other grocery chains do not. They also stock a large supply of natural supplements, as well as non-toxic household products. Management prides itself on offering a large array of perishable goods, and it believes this area is largely responsible for the company's loyal contingent of customers.

A natural investment strategy
Whole Foods Market has a perfect recipe for continued growth and earnings, both of which increased despite rising food prices. Its core customer base is extremely loyal, and its new customer retention rate is excellent. Its increased guidance for this year shows a confidence borne out by its stellar market experience. This company offers a full plate of positive indicators for the savvy investor to chew on, no doubt about it.

What about The Fresh Market? I say this stock looks very tempting. The company appears to be on the right track for growth and earnings and, like Whole Foods, tends to concentrate on perishable grocery items. If it is smart, it will take a page from Whole Foods' book. Another thought: Perhaps they will attract the behemoth's attention and become part of the Whole Foods family. Now, there's a tasty tidbit to savor.

If this article has whetted your appetite for more information about retailers who profit by setting their own pace, take a peek at our report, The Motley Fool's top Stock for 2012. It's chock-a-block full of great investment advice -- and, best of all, it's free!