Falling sales at Tesco and Morrisons highlighted the squeeze on family budgets today as more shoppers turn to discounters for groceries.
Tesco said the weak market was to blame for its 2.4% drop in UK like-for-like sales on a year ago over the six weeks to January 4, as the market leader's trading performance continued to disappoint.
The update from rival Morrisons was described as "quite awful" by one retail analyst after a 5.6% fall in underlying sales led the Bradford-based chain to warn that profits will miss most City forecasts.
With Sainsbury's also reporting flat sales yesterday, the downbeat figures provided more evidence of the inroads made by discount rivals Aldi and Lidl as well as Waitrose at the premium end of the market.
Recent figures showed that half of households shopped at Lidl or Aldi over the three months to December 8, with the latter now boasting a 4% share of the market.
As household incomes fail to keep pace with inflation, Tesco chief executive Philip Clarke said families felt they had less to spend at Christmas than they did a year ago and in previous years.
He added: "While families still treat themselves and parents always want to give their children a good Christmas, budgets remained constrained and optimism around the economy and house prices led to slightly more borrowing on credit cards."
Tesco still took £1 billion in sales in the five days before Christmas, including its biggest ever trading day.
And unlike Morrisons, which has still to break into the online grocery market, Tesco said it generated £450 million from internet shoppers over the six week Christmas period, up 14% on a year earlier.
Overall, Tesco remains on track to meet the City's profit forecasts of between £3.1 billion and £3.4 billion for the year to April.
Morrisons said consumers had been managing their budgets very tightly and were shopping across a range of formats and retailers.
Chief executive Dalton Philips added: "In a very tough market our sales performance over Christmas was disappointing."
Morrisons shares were 7% lower and Tesco fell 2% as its update increased the pressure on Mr Clarke's £1 billion turnaround plan.
The retailer is scrapping more than 100 major UK store developments and focusing growth on convenience stores and its online offering, while also looking to transform stores into family-friendly retail destinations.
George Scott, a retail consultant at Conlumino, said the major chains had been drawn into more discounting in order to regain traction.
He added: "The continued and growing concern for Tesco will undoubtedly be the rising threat of the discounters.
"Aldi and Lidl have broken through the glass ceiling and are now very much viewed as accepted alternatives, even among more affluent shoppers.
"It is becoming more important than ever that Tesco, and its Big Four peers, develop strategies to effectively counter this momentum."
Yesterday, Sainsbury's reported that like-for-like sales in its latest quarter grew 0.2% but that it would no longer meet expectations for a full year like-for-like sales increase of 1-1.5%.