A big rise in new selling space, a possible steep fall in food price inflation and signs of recovery at rivals in the non-food sector are likely to test the resilience of Britain's top grocers in the coming months.
Supermarkets have been among the best performing business sectors in the recession, helped by their focus on selling essential items and by shoppers trading down to them from restaurants and often more expensive specialist retailers.
Shares in Britain's three big listed grocers - Tesco, J Sainsbury and Morrison - have outperformed the benchmark by between 17 per cent and 27 per cent over the past year.
This resilience has even continued this year, when equity markets have been recovering and so-called defensive stocks - like food retailers - have been losing ground. Only Morrison has slipped a little off the pace of the broader stock market.
The consistently strong performance has encouraged several big supermarket groups to step up their expansion plans.
Morrison, Britain's fourth-biggest grocer, said in March it had identified over 100 sites for expansion and it would add about 350,000 square feet of selling space, or 10 stores, in 2009-10 on top of a deal to buy 38 stores from rival The Co-Op. It then plans to add 500,000 square feet of space in 2010-11.
Sainsbury, the number three grocer, said last week it planned to step up its expansion rate in 2009-10 to about five per cent, or 850,000 square feet, from four per cent in 2008-2009, and to keep it at least at that level in the years ahead.
Number two Asda, which is owned by US group Wal-Mart, said it was pressing ahead with its plans to open 580,000 square feet of selling space this year and it would like to do more if planning regulations allowed.
Industry leader Tesco is also keeping its foot on the pedal, with plans to add two million square feet in 2009-10.
Some analysts think all of this is too much - equating to about a five per cent increase in new selling space a year for an industry which historically grows only about three per cent.
"5 into 3 doesn't go," said Bank of America-Merrill Lynch analyst John Kershaw in a research note this week, noting that each grocer has to expand to keep up with its rivals.
"This can be a real turn-off for investors, given it suggests a highly competitive, highly capital intensive, low growth sector."
Admittedly, much of the new selling space - half in the case of Sainsbury - is being set aside for expansion into non-food ranges, like clothing, homewares and electrical goods.
But Kershaw estimates the increase in grocery selling space will still be ahead of market growth, at about 3.5 per cent.
Expansion into non-food may also start getting tougher if tentative signs of economic recovery start to gather pace.
Many of the specialist retailers which have borne the brunt of the downturn in consumer spending will emerge stronger, having cut costs, improved productivity and increased market share amid the demise of weaker rivals.
The challenge for Britain's grocers will be compounded if food price inflation starts to fall, as it has elsewhere. Rising food prices boost sales and cash flows for grocers, while falling prices can step up the pressure on those that are losing market share to take action, intensifying competition.
"When inflation goes, the picture could turn ugly," JP Morgan analysts wrote in a recent research note.