Sales fell by 3.9% for Asda Reuters

Budget supermarkets continue to give the mid-market players a bashing after Asda reported its third consecutive quarter of falling sales.

Sales in the company's first quarter of the financial year were down by 3.9% -- a steeper fall than the 2.6% drop it experienced in the three months prior.

While the likes of German serial discounters Lidl and Aldi continue to snap up market share, the UK's four major supermarkets – Tesco, Asda, Sainsbury's and Morrisons – have all reported a drop in sales over the previous three months.

Asda President and CEO, Andy Clarke, issued reassuring words: "This last quarter has been unprecedented. We have seen deflation in the market and exponential shifts in the industry.

"Whilst I take no pride in reporting a negative number, we are in a period of expected turbulence, not distress. We won't buy short-term sales at the expense of long-term profitability. Throughout this period of change in our sector, Asda has been first to market with its response."

Jon Copestake, retail analyst at the Economist Intelligence Unit warned that profitability will continue to decline for Asda and its closest rivals: "Asda is facing the same challenging environment as the rest of its mid-market competition as the mounting challenge from discounters and investment in lower prices takes its toll on bottom line sales.

"It seems that consumers are becoming more entrenched in their price sensitivity and this is being compounded by the deflationary environment in which oil and commodity prices have been falling. The positive for supermarkets is that cheaper external costs have allowed them to pass on savings to the consumer, but the negative is that eroding margins are likely to continue even as external prices recover."