Despite gloomy predictions the top four food retailers, Tesco, Asda, Sainsbury's and Morrisons all experienced double digit growth. The final quarter of 2006 showed growth of five per cent for supermarkets, but growth at 11 per cent showed a marked increase at Christmas.
"This suggests whilst consumers may have been hesitant to spend large sums of money on the high street, they were compelled to significantly raise their supermarket spending over the two weeks," said Edward Garner, research director of TNS Worldpanel.
However retail analyst Verdict Research, part of the Datamonitor group, warns that retailers must take heed of consumer trends if they are to face what it predicts will become a tougher retail environment in 2005.
Maureen Hinton, retail Analyst at Verdict research claims that it is too early for retailers to celebrate, as growth has come at the expense of operating margins.
Cost inflation together with slashed prices as retailers buckle under consumer demand for cheaper goods have reduced margins significantly.
There was surge in sales in the last two weeks of December, one of those weeks being the sale period, returning even lower profits.
Rupert Eastell, head of retail at accounting firm BDO Stoy Hayward said the amount of choice offered to modern shoppers means that price dropping is not necessarily the answer that retailers are looking for.
"Fluctuating results reflect the difficulties retailers face in making predictions about the climate in the year ahead. They are also a clear indication that today's high street shoppers are, arguably, becoming increasingly savvy," he said.
Hinton says that if supermarkets don't want to loose out to competitors, then they must offer an online transactional delivery service. Online retail sales rose by 40 per cent during the final quarter, increasing online sales by as much as £1bn to £3.5bn, 4.7 per cent of total sales.
Verdict points out that modern families require child friendly out of town stores, which offer everything from the weekly grocery shop to toys, clothing, electrical goods and furniture.
Despite price conscious consumers, ethical and health trends have led shoppers to upgrade when selecting products, enabling supermarkets to convince customers to spend more per transaction, say Verdict.