The organic and natural foods market is growing at a robust pace. According to analysts, the market is slated to grow at a compound annual growth rate, or CAGR, of 14% until 2018 , opening up tremendous opportunity for the likes of The Fresh Market (UNKNOWN:TFM.DL).

However, The Fresh Market's performance so far this year has been discouraging, with the stock down 14%. But then again, it has done comparatively better than rivals Whole Foods Market (NASDAQ:WFM) and Sprouts Farmers Market (NASDAQ:SFM), which have lost 28% and 18%, respectively, of their market capitalization in 2014. So, is The Fresh Market a better pick than its peers in the organic and natural foods space? Let's find out.

A look at the previous quarter
The Fresh Market's fiscal 2014 started on a positive note, with the company thrashing consensus estimates on both earnings and revenue. In the first quarter, comparable-store sales, or comps, grew 2.5% versus the year-ago quarter, despite weather-related interruptions. On the back of positive comps and seven new store openings, sales increased 17.6% year-over-year.

Earnings per share came in at $0.43 per share, representing a decline of 7% year-over-year. The higher operating losses and other expenses at stores in California and Texas dragged earnings down. However, the company reaffirmed its 2014 earnings outlook in the range of $1.56 to $1.66 per share, excluding store closure costs. 

The way ahead
The Fresh Market's policy of measured unit growth of around 12% to 15% per year, and its focus on less capital-intensive real-estate deals, have played out well. During the quarter, it added seven stores in its existing markets. Six of these seven new stores clocked first day sales that ranked in the top one-third of all new store openings in the history of the company. Going forward, The Fresh Market plans to add 23-24 stores and remodel 4-5 stores in fiscal 2014. 

Management believes that it has a differentiation factor that allows it to perform well even as the competition is heating up. From the company's first-quarter conference call:

We have observed and recent extensive third-party customer research has confirmed that consumers come to us because of our unique combination of outstanding food quality, engaging customer service and an inviting store environment. We believe this combination provides us great flexibility and differentiates us from our competitors who compete on ingredients based product assortment, price or some combination.  

However, Mr. Market doesn't seem to buy this if we look at how the stock has been beaten down over the last year. The latest decline came in early May, when Whole Foods, during the second quarter, missed earnings estimates by $0.03 per share and revenue estimates by $40 million. In addition, Whole Foods also disappointed on comps and lowered its guidance. This had a knock-on on The Fresh Market's share price as well, as seen below:

TFM Chart

TFM data by YCharts

The competitive scenario
Whole Foods is trying to get back on track. It plans to open 36 to 39 stores in fiscal 2014 and 38 to 45 stores in fiscal 2015. It expects to end fiscal 2014 with more than 400 stores and attain the 500 mark by the end of fiscal 2015. Moreover, Whole Foods sees the opportunity for over 1,200 stores in the U.S. alone, and has set a goal of achieving sales of $25 billion in next five years. 

Also, compared to Fresh Market's 157 stores in 26 states, Whole Foods has a much deeper market penetration with 374 stores across 41 states. Moreover, its presence beyond national borders makes it a relatively stronger and resilient player as compared to peers.

However, Whole Foods might struggle going forward due to intense competition in the industry. For example, rival Sprouts Farmers is providing heavy promotional discounts to attract more customers.

Sprouts Farmers' business is centered on "Healthy Living for Less!" It is one of the fastest growing companies in the organic and natural food business. According to a study by Bloomberg's Jennifer Bartashus, a basket of 148 brand-name items cost $691.92 at Sprouts as compared to $780.64 at Whole Foods.  

As a result, during the second quarter, Sprouts' earnings per share grew a whopping 64% versus the year-ago quarter. Its revenue growth was impressive at 26%, and comps grew 12.8% year over year. In fact, Sprouts' comps have been positive for 28 consecutive quarters.

Sprouts' growth is outpacing not only the overall food industry, but also the natural and organic sector. The company is aiming for 23-34 new stores in fiscal 2014, leading to stronger competition in the industry.  

The takeaway
The Fresh Market did well in the previous quarter despite the harsh winter weather. In addition, although the company saw a drop in earnings, it reaffirmed its full-year outlook. Also, its expansion moves are impressive and should enable The Fresh Market to tap growth in the organic food industry. Investors should take a closer look at the stock and consider scooping up some shares on the pullback.