The UK economy may be kicking back into gear, but it seems no one told food retailers.

The British Retail Consortium this morning released figures suggesting life is currently good for UK retailers, with one notable sector exception.

While overall UK retail sales in May were up 0.5% on a like-for-like basis (2% on a total basis), the BRC recorded the first quarterly food sales fall since the organisation’s records began in 2008. The figures showed a three-month 0.2% fall in total food sales (excluding Easter distortions), while food sales fell 2.2% averaged over the three-month period on a like-for-like basis.

The major grocery players are therefore facing something of a perfect storm – the food market itself is shrinking, while their share of that market is being rapidly eaten into by the discounters.

In this environment Sainsbury’s widely expected announcement of a 1-1.5% drop in first quarter sales tomorrow will not look too disastrous to the market.

Certainly Sainsbury’s is performing better than its listed contemporaries. Of the big four retailers only Asda saw sales rise last quarter – a 0.1% rise excluding fuel for the 15 weeks to April 20. Tesco reported a 3.8% drop in like-for-like sales excluding fuel in its first quarter and Morrisons recorded a 7.1% sales drop.

However, the sales fall is still somewhat disappointing, according to HSBC analyst David McCarthy, given the supermarket’s £1bn capex last year which was primarily directed at the existing business rather than new space.

The positive news from the BRC data is that the trend in non-food sales is on a sustained upwards curve, most notably boosted by big ticket fashion items, suggesting that consumer confidence is growing and purse strings are loosening.

That the boost to consumer confidence hasn’t translated to improving food sales backs up the theory that the structural change occurring in the grocery market is having a far-reaching impact.

Analysts at Shore Capital today noted: “Subdued demand [for food] reflects changes to consumer behaviour arising from the deep and extended recession as well as new competitive dynamics; particularly the rise of the limited assortment discounters  and high street value retailers.”

Accusing the Big four of “sleeping at the wheel”, they note that grocers are being squeezed not only by discounters but by greater competition from food eaten out of the home now the economy is picking up.

It is therefore no surprise that grocers are looking at trading opportunities outside the traditional superstore model to drive growth and soften the impact of falling sales.

Just this morning Tesco launched a new current account banking product and Tesco, Morrisons and Asda are all planning major staffing restructures to prioritise online growth amid big investments in internet offerings.

Supermarket chains are investing in click and collect

However, HSBC’s McCarthy worries that the quoted grocers are spending too much time and money focussing on online to the detriment of their core businesses.

“We believe that the quoted three would be better off investing in the core offer rather than focusing on growing much less profitable/loss-making online operations,” he said.

He points out that the internet is taking around 1% market share per annum, but that Aldi and Lidl combined are winning share at twice this rate without online operations.

“Large store operators have overly focused on each other for several years and continue to do so, in our view, rather than focusing on the wider market and consumer. That the discounters are growing faster than total online suggests that consumers want lower prices more than they want home delivery.”

It is a standpoint that would have drawn considerable support from angry shareholders at Morrisons’ AGM last week, where attendees, including Sir Ken Morrison, criticised the board for focusing on its new online venture above its core supermarket offering.

There is no doubt the food retailers are under pressure to find answers to the current market dynamic. There is also little doubt that online will continue to grow, but whether it can grow fast enough to be the primary mover in arresting the current grocery sales slump is certainly questionable.

Tesco’s Philip Clarke and Morrisons’ Dalton Philips are amongst those to have staked their jobs on online being the right call.