Rivals are luring customers from Sainsbury

Market research group TNS said the chain's market share fell to 16.1% in the 12 weeks to 14 September against 17.2% in the same period last year.

Tesco extended its market lead to 27.1% as the hot summer boosted sales of barbecue foods and beer.

Asda, which recently overtook Sainsbury, retained the number two slot, boosting its share to 16.9%.

Analysts said Sainsbury failed to benefit from the summer weather which heated up sales at rival chains, adding that it had also been hit by stock availability problems.

Meanwhile, Asda welcomed the news saying: "Retailing is a simple business.

"Customers reward those that listen to their needs and the latest figures show we're doing just that."

Relaunch

Sainsbury has been trying to reinvigorate its performance by moving into the non-food arena, where Asda has had particular success.

Its George clothing range has proved to be successful at luring shoppers away from traditional high street stores - so much so that its US owner Wal-Mart has now exported the brand to the US.

Sainsbury has now retaliated by launching its new non-food range which includes soft furnishings, books and home entertainment products.

A spokeswoman for the firm said: "We're very excited about the non-food relaunch.

"Since Wal-Mart took over, Asda has been a dominant force in reshaping the industry.

"In future we'll continue to focus on overall value for money for customers, improvements in store and in fresh foods."

However, she also underlined the fact that Sainsbury was "still in the lead" with regards to grocery market share.

Asda expanded its market share once again

Financial consultants Smith Barney said of the news: "Sainsbury continues to disappoint.

"Despite an excellent summer, the company lost implied sales and posted its worst market share figures on record.

'Underperforming'

"Sainsbury's market share is down 1.1 percentage points since this time last year and it was the only major to deliver an underlying sales decline this month.

"Despite ... its extensive refit programme and heavy opening schedule, Sainsbury is even underperforming Safeway."

Elsewhere in the supermarket league, Safeway which is currently subject of a takeover battle held fourth position, despite its market share slipping to 9.2% from 9.7% a year ago.

The smallest of the pack, Morrison - which along with retail entrepreneur Philip Green is thought to be the main runner in the Safeway battle - held 6.1% of the market, based on till receipts provided by the industry, TNS said.

The government is expected to reveal which firms will be allowed to bid for Safeway tomorrow (Friday).