Supermarket giant Sainsbury's revealed a bigger-than-expected slowdown in sales growth today as it highlighted the squeeze on consumer spending.
The UK's third biggest supermarket chain said it had seen "customers manage their spending carefully" with same-store sales growth of 1%, including VAT but excluding fuel, in the 10 weeks to March 19.
This compared with market expectations for a figure in the region of 2% and against growth of 3.6% in the previous quarter.
But chief executive Justin King said the chain still outperformed the market in the fourth quarter of its financial year after attracting 21 million customers a week - up one million on last year.
Sainsbury's surpassed its "big four" rivals in Christmas trading, but competition pressures have intensified in recent months 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 and wider Government austerity cuts.
Growth rates are slowing across the supermarket sector, particularly on an underlying basis when VAT and rising food price inflation are taken into account.
Sainsbury's reported total sales growth excluding fuel and including VAT of 3.5%, a slowdown from 6% seen in the third quarter.
The supermarket said it had seen significant growth in fuel sales - despite fuel price inflation of around 16% - as it offers competitive prices at the petrol pumps.
To combat the tough consumer environment, Mr King said the supermarket 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 the sector growing at three times the rate of food.
The supermarket unveiled a partnership with celebrity fashion expert Gok Wan in the quarter to promote a range of womenswear.
The chain continued to roll out its expansion strategy - opening 193,000 sq ft of space, comprising three new supermarkets, one extension and 21 convenience stores.
Mr King said: "We expect the consumer environment to remain tough, with our customers facing fuel price inflation, uncertain employment prospects and Government spending cuts."
But the chief executive added that the firm was well-positioned for further growth in 2011/12.
Recent supermarket share figures from Kantar Worldpanel have shown that discounters are enjoying a bounce-back as hard-hit consumers look to cut their weekly outgoings.
In the 12 weeks to February 20, Kantar said Sainsbury's was the fastest-growing of the top four with growth of 4.5%.
Lidl and Aldi notched up impressive hikes of 13.6% and 13.4% respectively.Reuse content