by Roland JACKSON

LONDON(AFP) – Britain’s biggest retailer Tesco suffered its largest quarterly drop in sales for four decades, it said on Wednesday, hit by supermarket price wars and the rising popularity of German-owned discounters.

Tesco, the world’s third biggest supermarket group, is facing fierce competition from Lidl and Aldi, as well as from traditional supermarket rivals comprising Wal-Mart division Asda, Sainsbury’s, William Morrison and Waitrose.

British sales excluding petrol in stores open at least a year sank 3.7 percent in the three months to May 24 from a year earlier, Tesco said in a gloomy trading update.

That was the third successive quarterly drop and sent the company’s share price falling on the London stock market.

Chief executive Philip Clarke, who began working at Tesco as a shelf stacker 40 years ago, described the sales performance as the worst he had ever seen.

“There hasn’t been a quarter of like-for-like sales like this before that I can remember, but I’ve never seen a period of such intense transformation for the industry,” Clarke said.

– Discount chains flourish –

Discount chains flourished in Britain during the recession, as consumers tightened their belts to save cash, and still remain popular despite the economy’s strong recovery this year.

Supermarket price wars in Britain have meanwhile pushed the annual inflation rate lower, weighing on the retail sector’s performance.

Clarke added that Tesco was “more competitive than we have been for many years” but warned that intensifying efforts on price-cutting and store refurbishment would continue to weigh.

“As expected, the acceleration of our plans is impacting our near-term sales performance,” he said in Wednesday’s earnings release.

“The first quarter has also seen a continuation of the challenging consumer trends in the UK, reflecting still subdued levels of spending in addition to the more structural changes taking place across the retail industry.”

He added that acceleration of the group’s own restructuring would impact its headline performance in coming quarters.

Clarke said the retail sector was suffering owing to years of falling wages among customers, once changes to inflation were taken into account.

He added that despite signs of economic optimism, “for the majority of customers it is not getting into their pockets”.

Industry data on Tuesday revealed that Tesco’s overall grocery market share in Britain had fallen sharply in recent months.

– Tesco ‘losing market share’ –

Data from Kantar Worldpanel showed that Tesco’s share of the British grocery market fell to 29 percent in the 12 weeks to May 25, compared with 30.5 percent in the same period a year earlier.

Tesco on Wednesday added that the group’s total sales including petrol also slid 3.7 percent in first quarter.

Wednesday’s news sent Tesco’s share price slipping 0.59 percent to 295.75 pence on London’s FTSE 100 index of top companies, which was down 0.31 percent at 6,815.40 points around midday.

“Tesco results… confirm how difficult the changing landscape is for the beleaguered brand,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.

“Tesco is still struggling to work out where it fits in a world of discount supermarkets and high-end grocery shops, and as a consequence it is losing market share to both.”

Back in April, the group posted the second drop in annual profits in a row, hit by difficult trade in Europe and a costly investment plan that was aimed at turning around its domestic business in Britain.

Tesco is the world’s third-biggest supermarket group after French rival Carrefour and with US retailer Wal-Mart in first place.

The embattled company hopes that expansion into India and China can offset weakness in Europe.

Over the past two years, Tesco decided to close its failed US division Fresh & Easy and to exit from Japan.