Phrases such as "a robust and solid performance", "a return to premium" and "an improved year-on-year performance" have been heard numerous times this month as retailers have begun to report on their Christmas trading performances.

With better than expected results for many , we examine the key drivers of this growth.
 

In the bleak mid-winter

Christmas 2009 was always expected to be a tough year for retailers. With the UK economy remaining in recession and high unemployment levels spending was predicted to be subdued and restrained. While much of this remained true, what is also evident from the results is that for many consumers, Christmas represented an opportunity to put aside many of these concerns and enjoy the holiday celebrations.

Record performances

With food and grocery retailing offering consumers a degree of affordable indulgence, many retailers delivered record performances, generating double digit sales growth. And with food price inflation significantly lower than a year ago, many of these have been particularly impressive.

Looking at broader industry data covering the Christmas period, Nielsen reported growth of 6.7% within the grocery multiples, and TNS growth of 5.2% across total grocers.

The food and grocery sector was not alone in delivering a better than expected performance, with the BRC Retail Sales Monitor revealing total retail industry growth of 6.0%, with non-food growth outpacing food.
 

Weaker comparables

While these results will give rise to a degree of satisfaction within many boardrooms, we must remember that the industry is trading against relatively weaker comparables from Christmas 2008.

Following the collapse of Lehman Brothers in September 2008, triggering a wider banking crisis in the UK, spending in-stores was severely curtailed as consumers sought to reduce their debts and save for potential challenging times ahead. Non-food ranges in particular were affected and the major supermarkets were not exempt from this.

However, this year, a stronger non-food performance has been a key factor in driving improved growth for a number of the supermarket operators.

Our complementary non-food range grew at over four times the rate of food in the quarter. Investment in infrastructure has enabled a substantive step up in the execution of marketing led events, such as Halloween, Toys and Entertainment as well as good growth in clothing and Christmas ranges.     Justin King, Sainsbury's Chief Executive          7 Jan 2010

A return to premiumisation?

While statistics on strong sales of champagne, luxury chocolates, Fairtrade ranges and ethically sourced products peppered retailers' results announcements, it is unlikely that they represent a change in mindset amongst consumers.

Increased sales across these types of products certainly provided a boost to sales, however, Christmas was viewed by many consumers as a time to treat themselves and their families after a particularly tough year, with food and grocery providing the opportunity to do this.

Given the economic reality for many, 2010 is unlikely to see any easing of these financial pressures, and given the measures that the Government could implement to reduce the public sector deficit, value for money is set to remain a front-of-mind issue for shoppers.
 

	Wintry weather provided a boost for local stores

Winter weather benefiting convenience

Although convenience retailing has been performing strongly in response to wider macro-industry trends, Christmas can often prove to be a challenging trading period as consumers migrate to larger format stores for their Christmas food requirements.

However, this year the wintry weather in the immediate run-up to Christmas Day curtailed the travel plans of many. This undoubtedly provided a boost to locally based stores, including convenience stores, with many shoppers only being able to travel on-foot to their nearest store.

Given the investments which many convenience retailers have undertaken in improving their propositions, including broadening their ranges beyond distress or impulse products, improving store environments and delivering stronger value for money, many of the new shoppers into these stores during this period are likely to return again in 2010.

The weather conditions at the start of this year are also likely to have created a further spike in demand.
 

Challenging the flexibility of online

While the wintry weather benefited the convenience sector, it proved to be a significant challenge for online retailers. With many routes becoming impassable, a significant proportion of deliveries had to be re-scheduled. Given that services were running at full capacity with almost all delivery slots filled, this proved to be a complex operation, with many innovative solutions developed, including the picking of orders in-store for collection by customers.

The popularity of similar models elsewhere, including Auchan's 'Drive' service in France and Walmart's 'Site-to-Store' service in the US, the crisis may have inspired a new opportunity for online food and grocery retailing in the UK, especially with a number of retailers already offering a similar service for their non-food online propositions.
 

Incentivising loyalty

In the run-up to Christmas, loyalty schemes were in the spotlight as retailers sought to limit the impact of shoppers visiting a range of stores for their groceries. During the recession, retailers have experienced declining loyalty as shoppers have sought out the best prices and promotions. Consequently, there was a significant increase in loyalty based activities:

• Tesco re-launched Clubcard with double point earnings and brought forward the mailing of vouchers
• Sainsbury's installed coupon printers at the point of purchase
• The Co-operative Group extended its Dividend scheme to Somerfield shoppers

Even those retailers without formal loyalty schemes sought to lock-in their shoppers over the Christmas period, with Morrisons, for example, repeating its successful scheme from 2008.
 

A prosperous year ahead

Based on these results, can the industry look ahead to a prosperous 2010?

Trading conditions in 2010 are set to remain challenging, and while the UK economy is expected to emerge from recession later this month, higher taxes and cuts in Government spending are likely. Consequently the focus on value for money that became such a dominant theme for the industry throughout 2009 is set to remain.

However, as demonstrated over the past 12 months, this will not limit the opportunity for innovation, provided that it results in a proposition which is relevant for shoppers in today's economic environment.
 

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Stewart Samuel is a Senior Business Analyst at IGD, analysing food retailer strategies across key markets in Europe and North America.

Stewart has worked on a number of reports over the last 12 months including The Evolution of Convenience Retailing and Building Customer Engagement Capability in Recessionary Times. He has also worked on a number of special projects as part of IGD's commissioned projects service, with a particular focus on small format developments.