Morrisons outperformed the industry over the Christmas period, but as we officially enter a recession, can it stay on top this year and continue to beat Tesco, Sainsbury's and Asda?

Morrisons delivered a rare piece of good news to the otherwise dreary retail industry yesterday, with a market-beating festive performance.

The Bradford-based grocer notched up like-for-like sales, excluding petrol, of 8.2 per cent over the Christmas period - dwarfing the performance of its rivals Tesco and Sainsbury's.

Morrisons has clearly emerged the one to watch. Last year Tesco waged war against the hard discounters Aldi and Lidl, as it believed they were stealing its customers. It positioned itself as Britain's biggest discounter and invested millions in new product lines.

Yet Morrisons this week revealed it attracted 2.2 million extra customers over the festive period and while chief executive Marc Bolland is too much of a gentleman to name which supermarkets he is taking customers from, but Tesco, Sainsbury's and Asda are clearly losing some customers to Morrisons.

The one to watch

Perhaps Tesco was too hasty in placing its focus on the discounters. Aldi and Lidl are gaining market share and will continue to do well in the downturn, but they will never be as formidable as one of the big four grocers.

Morrisons has been gaining ground for a while after falling by the wayside after the acquisition of Safeway, but it looks to be in the strongest position as we now officially enter recession.

Analysts have pointed out that gross margins have been hit slightly, as the grocer conceded that the depth of promotions was 1 to 2 per cent higher than the previous year, in line with the rest of the industry.

But despite the margin hit, Morrisons claims to have won the battle for the title of cheapest grocer at Christmas. And for that reason, the margin hit may well have been worth it. If shoppers believe Morrisons offered them the best value at Christmas, they will no doubt keep shopping there as the downturn continues to bite.

Morrisons is also moving in on Sainsbury's and Tesco's stomping ground. Bolland said Morrisons showed strong growth in the south of England over the festive period, particularly in and around London.

Following the Co-operative Group's acquisition of Somerfield, Morrisons is also about to close the deal on 38 former Somerfield shops, of which Bolland said a good chunk were in the South.

Morrisons' Market Street is the key to the Southern customers. Aldi and Lidl have the value, but they don't have the freshness that Morrisons can provide.

Bolland pointed out that those shoppers who may have gone to Marks & Spencer or Waitrose have tried Morrisons because of the downturn, but been so impressed by its fresh produce such as meat and fish that, he believes, they are now a customer for life.

The supermarket price war will continue to be fierce this year and the grocers may all have to take margin hits, but if Morrisons has won Christmas, it may well win the new year.