Tesco has reported a 3.7% slump in like-for-like sales excluding petrol in its first quarter, blaming market conditions and a reduction in “indiscriminate” couponing.

Broker Bernstein’s Bruno Monteyne said Tesco’s performance represents “the worst domestic like-for-like performance seen in a quarter for Tesco in over ten years”.

Tesco chief executive Philip Clarke said: “As expected, the acceleration of our plans is impacting our near-term sales performance. 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. 

“We are determined to lead in this period of change, building long-term customer loyalty and positioning the business to win in the multichannel era.”

Tesco said its work to sharpen prices has included four main waves of price reductions in the quarter. It said volumes on the lines are up over 28%.

Tesco said its Clubcard Fuel Save promotion will be “a key point of difference” in building long-term customer loyalty.

However, Tesco said the reduction in the level of untargeted promotions and the deflationary impact from lower prices in the first quarter has affected its sales performance. It said on price, the entire market has seen a step-down in growth since the end of last year. On promotions, Tesco said it has chosen to reinvest for loyalty, rather than funding short-term “indiscriminate couponing”. This step down in couponing alone accounts for more than half of underperformance relative to the grocery market compared to the final quarter of last year. 

Tesco refreshed just over 100 stores in the quarter and will refresh over 200 more by the end of the first half. Tesco said disruption from the refresh programme will continue to have an impact on like-for-like sales performance.

Tesco has implemented lower delivery and service charges for grocery home shopping, including free Click & Collect and £1 one-hour delivery slots. Since launch, Tesco said it has fulfilled over 100,000 daily orders on four occasions, a milestone never previously reached, even during Christmas.

Clarke said: “We are pleased by the early response to our accelerated efforts to deliver the most compelling offer for customers. We expect this acceleration to continue to impact our headline performance throughout the coming quarters and for trading conditions to remain challenging for the UK grocery market as a whole.”

In its international business, overall sales increased by 0.5% at constant exchange rates, with a significant currency impact resulting in a sales decline of 8% at actual rates.

Clarke said: “In our international businesses, we have applied the same focus to building loyalty and maintaining capital discipline. We have seen some improvement in overall like-for-like sales performance since the last quarter and have now completed the formation of our partnerships with CRE in China and Tata in India.”