The fight for food spend at Christmas is a retail battle like no other. Alex Lawson looks at how the big grocers are positioned for the last week of festive trading.

Shifting plenty of turkeys and mince pies – not to mention non-food lines – in the crucial festive season can make the difference between a merry or a mediocre Christmas for the top grocers.

This year, the first time since 2005 that there has been a full week of trading ahead of Christmas Day, the battle will go right to the wire. But it is a showdown that the supermarket groups have prepared long and hard for.

As Sainsbury’s retail and logistics director Roger Burnley put it on a recent store tour: “We start planning for Christmas in January – it’s the most important time of year for us.”

His colleague, Sainsbury’s commercial director Mike Coupe, believes that shoppers will leave it late to make their Christmas purchases, although he thinks people will still splash out. “There’s a lot to play for,” he said.

There certainly is. Typically bringing a rise in volumes, a rush of online deliveries and increased consumer focus on quality, Christmas tests every aspect of the grocers’ businesses, from quality assurance and logistics to staffing and promotional stance.

Kantar Worldpanel has observed a number of shopper trends in the build-up to Christmas. Consumers have been shopping little and often across grocery – trips per week are up from 4.8 in 2008 to 5.1 in 2011 – and about 40% of groceries are now bought on promotion.

Price wars

This Christmas, price and promotions are likely to play a crucial role, following high-profile initiatives in the last few months such as Tesco’s Big Price Drop and the roll-out of Sainsbury’s Brand Match, which have generated editorial column inches along with the ads in the media.

Oriel analyst Jonathan Pritchard says creating a media stir around low prices was the perfect tactic in the run-up to this festive period, when customers are most likely to change their preferred store in favour of trading up for quality or down for volume. “It definitely makes sense to try to get footfall in the run-up to Christmas,” he says.

Sainsbury’s research released last week showed that the average Briton spends the equivalent of 34.5 days in their lifetime doing Christmas shopping – a length of time that indicates the size of the prize for the grocers and the marketing efforts spent drawing customers in.

“The key is to get in the shoppers’ sat-nav as the ideal destination in October and November and then you have them for that crucial Christmas shop. People are not going to go to four different shops but they might go to one or two,” says Pritchard.

Waitrose managing director Mark Price is confident the grocer has its positioning right this Christmas. He says: “Traditionally people trade up at Christmas and our performance is ahead of last year.

“The promotional tiers are selling really well – our top-tier brands are up 26% on last year and we have everything you need on a budget with Essentials too.”

But Price does not believe shoppers are universally trading up. He says:

“A lot of people see the premium end of the market as safe and the lower end as doing well, but I think if that was true then you would see a better performance at Marks & Spencer and Asda. There is a difference between the cheapest and the best. If people wanted cheap cars, for example, then the best-selling car would be a Skoda but it’s not.”

All eyes have been on Tesco in the run-up to Christmas and it would have been dismayed to gain ‘Big Price Flop’ headlines after reporting a like-for-like sales fall of 0.9%, excluding petrol and VAT, in the UK in the third quarter.

Tesco had been worried that customers would cherry-pick the best promotions and do half their shop there, and half at another retailer. Keen to retain their entire weekly grocery shop, it slashed prices on key staples as part of the Big Price Drop promotion.

Despite the tone of some of last week’s headlines, Tesco chiefs warned that the Big Price Drop should not be judged too early. Finance director Laurie McIlwee says the retailer is “determined” to return to like-for-like growth next year.

Drumming up footfall

The £500m initiative has attracted an additional 346,000 shoppers and the deflationary effect of grocers’ price reductions overall has resulted a 1% drop in food price inflation, according to the Office for National Statistics.

Pritchard says: “What Tesco has to do is turn things around. It’s all very well getting more people through the door. The question is, has the deflation been paid for by suppliers or Tesco itself?

“What has been positive is that Tesco’s service, quality and innovation has not gone down. Customers do not believe a lot of what the supermarkets say, so it helps when the shopping experience is actually better than they expect.”

Nomura analyst Nick Coulter says: “Tesco has a wealth of experience in terms of investing in price and it’s not unreasonable for it to believe that its sales will build over time. Consumers are alive to opportunities and will undoubtedly find the most compelling offer long term.”

Coulter says Tesco is the only retailer that has the pot – gleaned from ditching its Double Clubcard points offer – to reallocate funds.

Shore Capital analyst Clive Black says The Big Price Drop is a process that “sharpens and co-ordinates Tesco’s price value message” and that it “is rational and measured, not game changing, but it does show that Tesco is perhaps batting from the front foot and setting its own agenda”.

Coulter agrees that staying at the forefront, rather than using tactics such as Sainsbury’s Brand Match, gives more control over promotion periods and stocking.

Asda has declared itself “ready for Christmas”, claiming “our 180,000 colleagues are ready to serve with our lowest prices, best quality and best ranges. We’ll do our best to give our customers the sparkle they’re looking for”.

Coulter says: “Asda seems to be performing a little better. It is probably the other retailer apart from Tesco that has invested a little bit on price, and obviously the consumer is focused on price at the moment.”

However, Pritchard disagrees. He says: “Asda has not covered itself in glory. It is getting a bit squeezed between the other major multiples and the discounters. It is trying to move upmarket but also has to defend its position.”

Black adds: “Asda has a boost from the Netto conversions that the others do not. All are good operationally – Morrisons seems to perhaps be still most in the groove. Recent trading momentum has been tight among the major players and, in the absence of someone dropping the ball, we expect more of the same.

“Logistics are a critical feature of not dropping the ball at Christmas. A Sunday Christmas brings distinct trading patterns and I suggest that most supermarkets expect a massive final week. Making sure that the stock is in will be critical but we sense that most will have done their homework.”

Opening times are also a key indicator of how Christmas might play out. Morrisons and Waitrose have employed similar tactics, with the former opening half of its 471 stores for two to three hours extra from 7am to 11pm in the run-up to Christmas but closing on Boxing Day. Similarly, Waitrose is only opening its Little Waitrose convenience stores and petrol stations the day after Christmas.

Sainsbury’s says it is to open a “record”, but so far unconfirmed, number of its stores over the period, while Tesco’s larger stores are open 24-hours a day from December 21 to Christmas Eve. Some 2,000 of its stores will also be open on Boxing Day.

Product-wise, there’s a very strong traditional focus this Christmas. Morrisons expects turkey sales to rise by more than 5% and has introduced stollen to its range. Sainsbury’s is promoting classic festive biscuit tins, Waitrose’s Heston Blumenthal Hidden Orange Christmas Pudding has already sold out, and Asda expects strong sales of its cranberry-topped pork pies.

All the trimmings

The battle for non-food spend could prove key this Christmas. Tesco has managed an improvement in electricals on last quarter, defying a struggling wider market.

Sources inside The Co-operative are confident it will have a strong Christmas on non-food, with an extended range and upgraded website.

But several analysts think that Morrisons is best positioned to make the most of Christmas, precisely because of its focus on food rather than other merchandise should shoppers prove reluctant to splash out on categories such as electricals as spending power remains squeezed.

Chief executive Dalton Philips warned last month that his customers are strapped for cash and has launched Collector card, giving shoppers £25 off when they have spent at least £40 in each of six previous shops. “Shoppers are feeling bruised, with many telling us they’ll spend less in the shops this festive season,” he said.

Iceland is also in a good position. Sources are confident of brand ambassador Stacey Solomon’s connection with consumers and its strong emphasis on party food resonating with festive shoppers.

So once Christmas is out the way, what is to come in January? Morrisons has said it will embark on another round of promotions as it launches its M Savers value range, and Tesco’s Big Price Drop will continue. Black says: “We expect more price shouting and tub thumping in the new year. However, much of this is already planned, as will the encouragement to be a bit more healthy and the new year sale.

“We do not anticipate a disorderly price war but with the UK consumer economy remaining challenged, it certainly won’t be easy.”

Some observers think 2012 could be the year of the venture brand – own-labels that do not bear the grocer’s own name such as Tesco’s ChokaBlok ice cream brand – as supermarkets seek to muscle in on some of the margin seen by the big FMCG names.

But over the next week, a focus on tradition could stand all of the grocers in good stead, as shoppers prise open their purses for that crucial final big shop.

A multichannel Christmas

Multichannel is proving more important than ever ahead of this Christmas. Waitrose has embarked on a heavyweight School of Christmas Magic campaign on Facebook, YouTube and Twitter to complement its TV advert, while Tesco is hosting a live Tweet-along with expert chefs from Christmas Eve through to 8pm on Christmas Day. Moreover, consumers are using online shopping to aid menu planning, avoid waste and prevent impulse buying this Christmas.

Retail Week’s new Multichannel Now report emphasises the increasing importance of multichannel in non-food, as the grocers add non-food space.

One ecommerce director notes: “Sainsbury’s and Tesco in particular have an issue about what they are going to do with all their non-food space.”

Recent steps such as Tesco’s augmented reality kiosks, allowing customers to browse its complete range of electrical products in 3D in store and at home, and Morrisons’ imminent introduction of kiosks to sell Kiddicare products show 2012 could be a significant year for supermarket multichannel.