11/01/2012 10:13 GMT

Sainsbury's Reports 'Best Christmas Ever' Despite Economic Gloom

Sainsbury's has reported better-than-expected sales during the festive season, with customers making a record 26m purchases in the week before Christmas.

Like-for-like sales were up 2.1% in the 14 weeks ending 7 January, helped by a combination of discounting and new store openings. The company added its 1,000th store during the quarter as it builds a convenience store chain in urban centres.

"This was a strong quarter, rounded off by our best Christmas ever, despite the economic backdrop," Justin King, Sainsbury's chief executive, said.

General merchandise sales grew faster than food, with the company's TU clothing brand boosted by a range of Christmas party wear fronted by the TV stylist Gok Wan, and Christmas gifts, including games and toys, performing well, King said.

Own brand goods also outperformed, with the "Taste the Difference" range of premium products expanding by 10% in the quarter. The chain shifted £2m worth of Taste the Difference Norfolk turkeys and 50,000 Christmas puddings. Basic products also sold well.

A price matching scheme, created in response to major investments in price reductions at Tesco, the UK's largest retailer, will be extended. Supermarkets began a price war in the autumn as inflation - which peaked at 5.2% in September - and wage stagnation began to impact on even the purchases of staple goods. Energy prices and a hike to the value added tax (VAT) rate drove inflation upwards.

Online grocery sales were up nearly 20%, with 160,000 orders being delivered per week, and "click and collect" - an increasingly common service in retailers, allowing customers to buy online and pick up their purchases in store - growing strongly. Nearly 75% of online orders of general merchandise were fulfilled using click and collect, the grocer said.

"Consistent with trends over the past year, we expect customers to spend cautiously in 2012, particularly in the first few months as they tighten their belts post Christmas," King said. "Although the short term remains challenging, key events later in the year, such as the Queen's Diamond Jubilee and London 2012 Olympic and Paralympic Games, provide opportunities for growth.

Signs that consumer price inflation (CPI) will start to moderate in 2012 are growing, with the British Retail Consortium's measure of shop rice deflation, a key indicator, hitting a 16-month low of 1.7% in December.

CPI figures for December are released next week and retailers, who have had at best a mixed Christmas, will be hoping for some respite.

The BRC data suggests that consumer price inflation data out next week will show an appreciable drop in December," Howard Archer, chief UK and European economist at IHS Global Insight, said in a note to clients: "We suspect that consumer price inflation could come down close to 4.0% in December and it could well fall close to 3.5% in January as last year’s VAT hike drops out."