In general grep seems smart enough that it would do that, but it hasn't been my experience. Just last week I was searching through a couple hundred gigs small xml files. I found that:

    $ LC_ALL=C fgrep -r STRING .

was much faster than plain grep. This was on a CentOS 5 box, so maybe newer versions of grep are smarter.

But then again, if I was on a newer box I'd just install and use ack or ag.