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Like-for-like sales in the 10 weeks to 19 March were up 1%, against growth of 3.6% in the previous quarter
J Sainsbury has sounded the alarm over consumer spending by reporting weak sales figures, blaming rising inflation and job insecurity, especially in the public sector, which is bearing the brunt of government cutbacks.
The supermarket said its like-for-like sales grew by 1% in the 10 weeks to 10 March, against 3.6% over the 14 weeks to 8 January, missing analysts' forecasts. Sainsbury's shares fell by as much as 6%.
Chief executive Justin King said: "We expect the consumer environment to remain tough, with our customers facing fuel price inflation, uncertain employment prospects and a reduction in government spending." He did not think economic prospects for the UK would improve significantly in the near future.
Analysts said that, once inflation was stripped out of the figures, sales volumes had slipped into negative territory in recent weeks.
But King countered that Sainsbury's had still outperformed the market in the fourth quarter of the financial year after attracting 21m customers a week, up 1m on last year.
Sainsbury's surpassed its "big four" rivals in Christmas trading, but competition pressures have intensified as Tesco and Asda have launched price-cutting initiatives.
Shoppers' finances are being hammered by soaring fuel and energy bills, as well as the January VAT rise. Last week, Tesco's UK chief executive Richard Brasher claimed that the "inexorable rise of fuel prices", as well as other household costs, added up to a 5% rise in income tax for poorer families.
Filling up at the pumps, as well as higher utility bills and taxes, are estimated to be costing households £12 more a week than last year and Brasher said the squeeze on disposable incomes was a real challenge for Tesco's customers.
Clive Black, a retail analyst at Shore Capital, said Sainsbury's sales figures were worrying. He said that the like-for-like revenue rise of 1%, excluding fuel, suggest that the actual volume of goods sold fell by between 2% and 3% once inflation was taken into account.
Black said: "The figures are indicative of how markedly and rapidly the UK consumer economy has declined in the first quarter of 2011. To my mind, the clamp on consumer spending is creeping its way up the income scale. New Look and Primark said sales were bad, but now John Lewis and Sainsbury's data shows us it is getting tougher for all households."
Evolution Securities agreed that Sainsbury's was outperforming the industry, but said that most stores are taking less in cash sales than a year ago, and shifting significantly less volume. The broker said that Sainsbury's figures showed the impact of the perfect storm that threatens the sector.
Nick Bubb, analyst at Arden Partners, said: "Sainsbury's were very pleased with themselves for delivering 3.6% growth in the third quarter, but once higher VAT and the benefit of store extensions were stripped out, the performance wasn't so impressive."
To combat the tough consumer environment, King said Sainsbury's had introduced initiatives such as its meal planner tip cards, which help shoppers find up to five family meals for around £20.
The group's focus on non-food sales, which includes clothing, DVDs and electrical items, is still paying off, with that sector growing at three times the rate of food.
The supermarket announced a partnership with celebrity fashion expert Gok Wan in the quarter to promote a range of womenswear.
Sainsbury's continued with its expansion strategy – opening 193,000 sq ft of space, comprising three new supermarkets, one extension and 21 convenience stores.
Recent figures from Kantar Worldpanel have shown that discount chains are enjoying a boost as hard-hit consumers look to cut their weekly outgoings.