I have never been big on grocery stocks. They carry way too much debt, they have thin margins, and they are under increasing attacks from competitors. SuperValu‘s (NYSE:SVU) recent earnings report demonstrates all the reasons why grocery stocks are losers.

The question you should ask is, “Then should I buy the competitors?” The answer lies in the comparisons I’m about to make.

Depending on what part of the country you live in, SuperValu operates under the Acme, Albertsons, Cub Foods, Farm Fresh, Hornbacher’s, Jewel-Osco, Lucky, Shaw’s, Shop ’n Save, Shoppers Food & Pharmacy or Star Market banners.

During the past four years, the company has lost more than $2.5 billion. Whereas FY 2008 brought in $44.5 billion in revenue, FY 2011 looks closer to $36 billion. Because the company is losing money at the operations level, that means the half-billion dollars in annual debt service is just barely covered by its cash flow after backing out depreciation. With only a couple hundred million of cash on hand, it can’t afford to make any mistakes. People point to the generous 5% yield, but I don’t believe that is sustainable. Earnings will be flat for 2012 with only 6% annualized growth expected for the long term.

Now, compare that to what’s going on with two important competitors. The first is a company I love — Whole Foods Market (NASDAQ:WFM). The “Buy Organic” propaganda machine has so effectively taken hold of the American imagination that it has propelled Whole Foods into the stratosphere, and it’s now the big brand name of that sector.

While regular grocers struggle to make money at all, Whole Foods has operating margins twice the size, and net margins almost three times larger. While the grocers carry billions of dollars in debt, Whole Foods has only $17 million of it, and over $840 million in cash. Why? Because grocers are trying to be all things to all people. Whole Foods has chosen to own a niche, where it can be most things to most people — while also relying on a massive marketing machine that is obviously far more effective. In other words, why buy the horse and buggy of a standard grocer when you can buy the race car that is Whole Foods?

This brings us to yet another problem for the grocers — the dollar stores. Hoo, boy! It took a long time, but those companies finally realized that the way to consumers’ hearts was to offer them more food and beverage choices, particularly in a bad economy. This new focus has propelled the dollar chains across the board. Ninety-Nine Cent Stores just got bought out by a private investment consortium. Hedge fund genius Bill Ackman has purchased a massive stake in Family Dollar (NYSE:FDO), and my personal favorite, Dollar Tree (NASDAQ:DLTR), is at an all-time high.

And this is all coming at traditional grocers’ expense — and that includes SuperValu. If you don’t believe me, just look again at SVU’s earnings report and try not to gag.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.