• Sainsbury is the only large U.K. grocer to post sales increase
  • Deflation worsens with price war showing no signs of abating

Tesco Plc’s sales continued to worsen in the run up to Christmas as the U.K.’s largest supermarket chain bore the brunt of competition from discounters Aldi and Lidl.

Tesco’s sales fell 3.4 percent in the 12 weeks ended Dec. 6 as fewer shoppers visited its larger supermarkets, according to data from researcher Kantar Worldpanel. The performance was the worst in what was another bleak period for grocers, as sales grew by just 0.1 percent across the industry.

“Slow growth means a distinct lack of seasonal cheer for the market," Fraser McKevitt, head of retail and consumer insight at Kantar Worldpanel, said in the statement. “All supermarkets are cutting prices, particularly on staples like eggs and butter."

Deflation worsened to 1.9 percent as the price war sparked by Aldi and Lidl showed no sign of abating. The German discounters, who now account for 10 percent of the U.K.’s grocery spend, are likely to attract about 10 million shoppers over the Christmas period, Kantar said.

J Sainsbury Plc outperformed its large rivals with sales growth of 1.2 percent, sending the stock as much as 4.4 percent higher. The growth was achieved across the company’s supermarket, convenience and online businesses, Kantar said. Wal-Mart Stores Inc.’s Asda continued to struggle, with sales dropping by 3.4 percent and sales at Wm Morrison Supermarkets Plc declined by 2 percent.

Despite the decline in sales, the battered share prices of U.K. supermarkets rose. Tesco advanced as much as 3.3 percent to 147.7 pence, having closed at its lowest level since 1997 yesterday. Morrison rose as much as 3.9 percent to 145.6 pence.

Market sentiment around the sector has been at a low ebb. Short selling, where investors seek to profit from a falling share price, is near record levels at each of the three listed U.K. grocers, according to data from Markit.

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