SAINSBURY'S has reported its first fall in sales for nine years and says the grocery market is growing at its slowest rate since 2005.
The group revealed that like-for-like sales excluding fuel fell 3.1 per cent in the 10 weeks to March 15, marking a sharp reversal of recent fortunes and the first fall after 36 consecutive quarters of rising sales in a row.
Outgoing boss Justin King said the group came up against tough comparatives from a year earlier when it outperformed many rivals amid the horsemeat scandal and benefited from the timing of Mother's Day and Easter trade.
But he stressed that the market was facing tough conditions in the latest downbeat trading statement from one of the big four players as cost-conscious consumers increasingly turn to discounters such as Aldi and Lidl.
He said: "Although some economic indicators are showing an improvement in the health of the economy, we expect the outlook for customers to continue to be challenging for the coming year."
The group's fourth-quarter sales decline was steeper with fuel included, falling by 3.8 per cent.
Experts at Shore Capital Stockbrokers slashed full-year profit forecasts for Sainsbury's as they said the sales slide was slightly worse than already- downbeat expectations.
But Sainsbury's appeared to resist being drawn into the price war waged by its three main rivals to take on the might of the discount chains.
Morrisons last week followed the lead of Tesco and Asda, pledging to invest £1bn over three years after it dropped to a £176m annual pre-tax loss and warned over results for the year ahead.
The dismal figures from Morrisons sparked a shares rout among listed supermarkets amid worries over a full-blown price war.
All four of the major players have reported sliding sales in recent months, while the likes of Aldi and Lidl have benefited from a switch to cheaper alternatives.
But despite the fourth-quarter sales plunge, Sainsburys said it had continued to outperform its main rivals and bucked the trend for falling market share, held at 17 per cent in the 12 weeks to March 2, according to recent data from Kantar Worldpanel.
Instead of unveiling a swingeing price-cutting campaign, Sainsbury's highlighted the value for money of its popular own-brand ranges, claiming they were already 20 per cent cheaper than branded equivalents and now make up 51 per cent of all sales.
It also put faith in its growing clothing ranges, boosted by a collaboration with designer Gok Wan, convenience store business and online delivery offering.
Sainsbury's said that, while it will not launch an explicit price-cutting programme, it has already lowered the cost of of milk, bread and eggs in response to moves by its competitors and confirmed it would follow suit as and when they bring prices down.
Mr King said the retailer was not at all complacent about the threat of the discount chains, but disagreed with Morrisons boss Dalton Philips, who said last week that it was the biggest structural shift in the grocery sector since the advent of supermarkets in the 1950s.
"The discounters have been around for years - they're not a new phenomenon," said Mr King.
"We should all be pleased with lower prices and in the long run that's good for the market," he said.
The fourth-quarter sales drop threatens to mark the end of an era for Sainsbury's after a resurgent performance in recent years.