The festive season has rarely been as critical to retail's fortunes as it is this year. With recession - and a deep recession at that - now a foregone conclusion, high-street players are understandably jittery.

Grocery retailers, too, will have to work harder than ever to get shoppers to part with their money. According to the latest figures from the Post Office, 40% of adults have cut their spending on food by an average of £49 a month.

"Obviously it's going to be a very challenging Christmas," says Verdict Research lead analyst Nick Gladding. "But there are many positives for retailers - people are looking to shop more cheaply and many grocers already have good value propositions in place."

Indeed, by pushing the value message through their ranging, promotional and marketing tactics, those who don't let the crunch steal Christmas could well end up stealing it themselves - by way of market share grabbed from the high street.

Supermarkets take a value position
High-street retailers are deploying a barrage of 'guerilla tactics' to entice shoppers into stores. Marks & Spencer cut the price of all its clothing and wine by 20% this week in the wake of similar desperate measures from Debenhams, while Threshers has wheeled out its tried-and-tested 40% off offer and Gap has reduced clothes by 30% for staff "family and friends".

The grocers have not stood idly by. A good proportion of the direct mail landing on shoppers' doormats this month has been from the supermarkets flagging up their in-store promotions, offering spend -related discounts or money-off coupons. Ditto press and in-store advertising. Morrisons, for instance, is offering customers £20 off their Christmas shopping if they spend more than £40 in each of the five weeks leading up to 14 December.

The multiples have also been aggressively promoting their own-label offers. Tesco flags up how its new discounter range will benefit shoppers. "We will be offering more affordable alternatives that were not in store last Christmas, saving customers about 20% on familiar branded equivalents," boasts a spokesman.

The value message is coming across loud and clear in the multiples' PR and advertising campaigns. To underscore its value credentials, Asda appears to have dropped celebrities from its advertising campaign this year. The retailer claims it will put the "enormous fees" such celebrities command toward helping reduce prices in store (see box, p41).

According to a new survey by Deloitte & Touche, the ability of supermarkets to adapt quickly to changing economic circumstances gives them the upper hand over smaller retailers. This is why, claims the survey, 79% of consumers are planning to do most of their Christmas food shopping at supermarkets, an increase of three percentage points on last year.

"Although this Christmas may be one of the toughest in decades, we think talk of it being cancelled is overplayed," says Tarlok Teji, lead partner for UK retail at Deloitte. "Supermarkets will benefit in lots of ways. For instance, they are poised to take market share from the likes of farmers' markets and speciality shops as people trade down."

Their flexibility and diversity of offer are vital assets, Teji says. "Our research shows that people will trade up and down during the same shop. They might buy something additive-free and a bit more expensive for their kids, while getting something from the value range for themselves," he notes. "They are putting cheap and premium in the same basket."

The supermarkets themselves are confident that premium categories will thrive this Christmas as consumers turn to affordable luxuries. Tesco says it expects its Finest and frozen ranges to sell particularly well. The more overtly premium supermarkets should also thrive. "There will be a return to premium retailers, which traditionally do well at Christmas," predicts Gladding. "The likes of Waitrose and M&S will benefit from shoppers trading up to better quality items."

A move away from frivolity
Online shopping represents a huge opportunity this Christmas. Deloitte estimates total online Christmas gift and food expenditure will be £4.7bn, up 10% on 2007. Much of this growth will be to the advantage of grocery retailers, if evidence from Hitwise is anything to go by. It claims that online searches for non-food gift products drove "significant" traffic to supermarkets last year.

Non-food also looks set to be another big winner, for the multiples at least. The Deloitte survey suggests 66% of shoppers plan to use supermarkets for some of their Christmas gift shopping compared with 52% last year. There has been a noticeable shift in the non-food categories tipped to do well, however. Each year Deloitte produces a 'gift list' of the most popular non-food categories - and this year clothes have come out on top.

"You may think that's surprising, but what we're finding is that people haven't been buying clothes. So come Christmas, that's what everybody is after," says Teji. "People don't want throwaway gifts this year - they are after items of value."

Marks & Spencer chief executive Stuart Rose clearly agrees. At the opening of Westfield Shopping Centre in west London last month, he claimed: "People are moving away from frivolity. People do not want trivia, they are buying more sensibly."

Still, there are consumers who seem impervious to the recession and these also present opportunities for retailers, according to Teji. "The 16-to-24 age group is fascinating," he says. "It is a group that has never experienced a recession before. These people don't have mortgages or families to worry about, they've grown up with instant credit and are accustomed to living with debt. They are the ones who will remain brand-conscious and supermarkets of all sizes need to think about how they can tap into that market."

A changing landscape
Some shoppers may be happy to ignore the recession, but there's no changing the fact that the retail landscape this Christmas is dramatically different. And no trend illustrates this better than the rise of the discounters, another key group of grocery retailers poised to thrive over the next few weeks. They could well grab market share from other grocers, predicts Gladding.

Like the multiples, they've beefed up their marketing. Lidl is promoting its Christmas Market range, playing on its German heritage and the links with the famous German Christmas markets. "I think it will cement Lidl's position as an alternative to established retailers for shoppers looking for better value," says Verdict's Gladding. "Lidl will definitely build on the momentum it has had through the year and achieve good Christmas sales."

Netto is also getting into the festive spirit. This week it took a leaf out of the multiples' book by launching a PR campaign flagging up that shoppers only need spend £6.47 per head to get everything they need for a Christmas dinner. Point-of-sale material, meanwhile, boasts: 'There's never been a better time to save without compromise at Netto.'

One of Netto's more quirky offers is 'The Dog' - a set of six collectable soft toy dogs that are given away when shoppers collect 40 tokens. Each time a customer spends £5 in store, they are given a token. "This is the first time we have run a collectables-based programme," says Netto marketing manager Mike Hinchcliffe.

"The run-up to Christmas is always key and in the current climate we need to employ the best techniques and incentives. We have already seen a significant rise in footfall and sales since the promotion was launched."

The local view
And the independent retailers and c-stores are not standing idly by as the multiples and the discounters capitalise on crunch Christmas. Historically they have shunned heavy promotional or marketing activity over the festive period, claiming they have been too busy with the day-to-day running of their shops to even attempt to compete with the multiples.

This year, however, there has been a marked change in tack. The My Shop is Your Shop campaign, set up by the Federation of Wholesale Distributors, is keen to show c-stores there are plenty of ways to generate sales at Christmas without having to compete on price.

It has published a list of community-based ideas on its website, some as straightforward as offering shoppers a glass of wine or sending Christmas cards to customers.

The campaign has two objectives, says MSYS chairman Alan Toft - to encourage the consumer to recognise the community value of the local store, and to motivate the retailer to make the most of the community as a footfall driver.

"We've scored a record number of hits on our website this month - there's been a real jump in numbers," says Toft. "We believe the days where indies were reluctant to engage in promotional activities because they were too busy have gone. They now realise Christmas is the biggest community event of all."

One retailer who has adopted a number of the MSYS initiatives, including a loyalty card, a Christmas card postbox and a Christmas tree made up of top-selling food products, is Lesley Brown, who runs Frank Marsh Stores in Barnstaple, Devon. "We don't usually have a Christmas tree, but with a Lidl opening down the road we feel we need to try something new," she says. "We're also going big with the Euro Shopper range because it's one area where we think we can come back at the Lidls and Aldis of this world."

In the past, the store has sold Christmas toys. This time around Brown has realised she can't compete with larger retailers on non-food so is instead focusing her attention on the core lines of confectionery and general groceries, while keeping a cautious eye on stock control. Brown understands the need to make this Christmas count - she knows the going will get really tough come the new year.

And it's going to get tough for all retailers. Only those that pull out all the stops to optimise sales this Christmas will be well placed to face the challenges 2009 holds.

How the mults are marketing Christmas

Part-time crooner, part-time TV presenter Des O'Connor is to front Tesco's campaign, which airs at the end of this month. The ad shows O'Connor singing Chestnuts Roasting while walking through a selection of offers. "Des sets the tone perfectly for the feelgood Christmas our customers want this year ," says commercial director Richard Brasher.

Jamie Oliver shares the limelight with cheeky Geordies Ant and Dec this Christmas. Having found nothing but pickled onions and pineapple chunks for their party, the duo bump into Oliver, who shows them how to whip up some festive food.

Richard Hammond is fast becoming Morrisons' own Jamie Oliver as he fronts its Christmas campaign again this year. Hammond is seen riding a Morrisons trolley-cum-sleigh to Lapland, telling himself what he wants for Christmas. Upon realising most of the food he fancies is back in the UK, he does a u-turn.

After last year's procession of ad campaigns featuring the likes of Julie Walters, Paul Whitehouse, Ian Wright and Victoria Wood, it seems Asda's love affair with celebrity-dom is over. This Christmas the retailer has decided not to use celebrities, pledging instead to put the money toward reducing food prices.

First aired last Tuesday, the Waitrose campaign shows people on their way home. It includes a student on a packed train and a child sleeping among presents in a car. "Few things evoke a warmer feeling than coming home for Christmas," says advertising manager Gillian Connor.

Marks & Spencer
Take That's music may be synonymous with Morrisons' ad campaigns in recent times, but M&S has gone a step further and bagged the actual band members. The band, along with regular leading ladies including Twiggy and Myleene Klass, are shown in a traditional homely setting, eating mince pies, playing board games and exchanging presents.

The Co-operative Group
She may not be a household name, yet, but Co-op believes singer Gabriella Cilmi and her version of the Connie Francis song Warm This Winter will hit all the right notes with consumers. The retailer says the upbeat song fits in well with the 'magical moments' of Christmas. "From buying the tree to going to your children's school nativity play, we are capturing the festive spirit in the run-up to Christmas," says Debbie Robinson, director of food retail marketing.