With their stockings overflowing with surging profits and sales, and the wrapping ripped off at least one profit upgrade, it seems that Father Christmas was generous with his gifts to the grocers over the festive period.

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Supermarkets’ Christmas strategies paid off – can they continue the trend for the year ahead?

Kantar data shows that grocers enjoyed the busiest Christmas since 2019, with customers making 488 million trips in the four weeks to December 24 and spending a record £13.7bn.

January kicked off with Aldi and Lidl both trumpeting record Christmas trading periods, with sales jumping 8% and 12% respectively. Aldi reported sales of more than £1.5bn for the first time over the period, while Lidl said 4.5 million more customers came through its doors in December.

The cost-of-living crisis may have all but nailed on a bumper Christmas for the discounters, but Tesco and Sainsbury’s also enjoyed strong festive periods.

Sainsbury’s boss Simon Roberts said the grocery retailer had recorded “the strongest sales growth of all the full-price supermarkets over Christmas” with grocery sales up 8.6%.

Tesco went one better, upgrading its full-year profit guidance off the back of 9.2% like-for-like sales due to what CEO Ken Murphy called the supermarket’s “best ever Christmas offer”.

With both the supermarkets dialling in Aldi price match schemes to go toe-to-toe with the discounters on price, perhaps the biggest surprise success of the period was Marks & Spencer.

While M&S’s resurgence has been well documented over the last year, it outdid itself this Christmas – reporting food sales up 10.5% on a total basis.

Where did the food retailers get it right over Christmas, and what does that tell us about what’s in store for 2024?

Price and promotions

While inflation ticked down for much of the second half of last year, it was still at 6.7% in December, according to Kantar. While this was the lowest levels seen since April 2022, many consumers were still feeling the pinch at Christmas.

As a result, keeping prices low was the name of the game in December.

To that end, both Tesco and Sainsbury’s invested heavily in slashing prices in the run-up to Christmas – through their dual Aldi price match schemes and respective membership schemes. Tesco slashed prices on 2,700 products by an average of 10%, while Sainsbury’s cut prices on some 6,000 products.

Since the start of the year, Asda has become the latest of the supermarkets to launch a direct price comparison with both Aldi and Lidl, which may yet heap further pressure on the discounters in 2024.

M&S said its success in the food category was also down to its sharpness on price. Chief executive Stuart Machin said: “In food, we inflated below the market with quality perception increasing further.”

However, the discounters insist that they will continue to win market share in 2024 with their pricing structures. Aldi chief Giles Hurley earlier this month pledged to cut prices, and said: “As we look to 2024, our promise to customers is that they will always make significant savings on every shop with Aldi because we have the lowest grocery prices in Britain.”

Lidl, meanwhile, claimed it was “the only supermarket to have won customer spend from every competitor” over the festive period, including £12.2m lured from Aldi.

The discounters taking market share from one another, rather than chipping away at the supermarkets, may yet prove a key theme if inflation continues to come down in 2024.

In terms of the general economic outlook for 2024, Tesco’s Murphy said he “gets the sense that things are balancing out for consumers,” but insisted it was “too early to call” whether the cost-of-living crisis is over.

Premium treats

Despite stubborn food inflation in December, customers still took the opportunity to treat themselves and traded up to the grocer’s more premium, own-brand offerings this Christmas.

Sales of Tesco Finest were up 16.7%, reaching “record” levels in the Christmas week, while Sainsbury’s Taste the Difference ranges jumped 13% in the quarter. Both supermarkets also invested heavily in bringing hundreds of new, more premium own-brand offers to shelves in time for the big day.

“Continued innovation” in supermarket own-brand products will be required to keep customers trading up in 2024”

Sainsbury’s Roberts said Taste the Difference was the grocer’s “fastest growing own product here for us,” before adding: “What happened this year was that customers got really confident in our core value and occasionally wanted to treat themselves.”

Aldi and Lidl customers also traded up during the period. Aldi said sales of its Specially Selected Wagyu rib joints “featured as a centrepiece on more tables than ever”, while gammon joint sales leapt 25%.

Best-selling products at Lidl included macarons, pâté and Deluxe crisps, including lobster cocktail and parmesan and truffle.

As the New Year haze dissipates, analysts predict that consumers will return to pre-Christmas patterns. GlobalData retail analyst Joe Dawson predicts that “continued innovation” in supermarket own-brand products will be required to keep customers trading up in 2024.

Members only

Both Tesco Clubcard and Sainsbury’s Nectar Prices played a huge part in the two supermarkets delivering value for customers over Christmas.

Tesco said that Clubcard sales penetration shot up another 3 percentage points over Christmas to 83% of all transactions. Sainsbury’s said Nectar participation reached 90% over the festive period.

Shore Capital analyst Clive Black said that the success of Nectar Prices “certainly exceed[ed] our expectations in its execution and impact” at Christmas, while Tesco Clubcard “struck a chord with the market.”

The supermarkets have doubled down on these schemes in the new year, with Tesco announcing its first double Clubcard points event in a decade earlier in the week. Murphy said that Tesco Clubcard would continue to be a strong driver for customers this year.

“Clubcard plays a part in making sure that great value is given to customers. It’s a composite of other factors that has been more compelling for customers than any one single mechanic,” he said.

“At the end of the day, the customer will shop around if they’re not getting the best price on an individual item. That’s been going on for some time and baskets have been splitting progressively.

“[Members’ deals] has been as copied by our competitors as the [Aldi] price match. We’ve really focused on cutting through all of that and saying, at the end of the day, the customer is simply getting the best value [at Tesco].”

Fast forward

While Christmas 2023 looks to have been a very happy one for food retailers, the outlook for this year remains cautious, if more optimistic than this time last year.

Despite delivering strong results, investors punished both Sainsbury’s and M&S with share price drops for failing to nudge up their profit expectations for the full year as Tesco did. Whether Roberts and Machin’s more cautious outlook was the right one remains to be seen.

With the year starting with unrest in the Red Sea, and the prospect of a brutal election campaign coming at some point this year, discretion may yet prove the better part of valour in 2024.