WM MORRISON has laid bare the scale of its turnaround challenge after reporting a third quarter slide in sales, as the Scottish Retail Consortium (SRC) warned there will be “casualties” unless steps are taken to ease the pressure on the supermarket sector.

Bradford-based Morrisons, which has around 60 stores in Scotland, reported a 2.6 per cent fall in like for like sales for the 13 weeks to November 1, excluding fuel.

The grocer insisted it was making good progress on its turnaround plan. It declared that it is improving the shopping trip to its stores, serving its customers better and that its customer satisfaction scores were "materially ahead of last year".

Morrisons noted that it continued to invest in lower prices while reducing the number of vouchers, which it said had impacted year on year sales by 2.4 per cent in quarter three and more towards the end of the quarter.

And the grocer flagged continuing progress in bringing down debt. It now expects net debt for the full year to be lower than its previously guided £1.9 billion to £21bn.

Net debt stood at £2.1bn at the end of the third quarter.

Richard Hunter, head of equities at Hargreaves Lansdowne, noted that Morrisons was cash generative and paying down debt, having cut net debt by £254m since year-end to £2.09bn. He also highlighted that cutting the dividend had freed up more capital.

“Even so, the fact remains that the supermarket sector is a notoriously competitive industry and others will not wait whilst Morrisons continues on its slow recovery,” Mr Hunter said.

“In particular, the current perceived wisdom of supermarkets moving towards convenience stores and online are not areas in which Morrisons has any noticeable strength, whilst the next trading period will bring the usual Christmas bunfight.”

Morrisons has been engaged in a fierce price battle since the economic downturn to maintain market share, while struggling to combat the discounters Lidl and Aldi.

It faces the high cost of maintaining a vast store estate while consumers shop increasingly online

Shoppers are also favouring more frequent trips to convenience stores instead of making one weekly trip to the supermarket for their grocery needs.

Morrisons recently announced the closure of 11 supermarkets and the sale of 140 M local stores, which were snapped up by retail entrepreneur Mike Greene for £25m.

Further to those moves it reported net new space sales growth of around 0.5 per cent, with depreciation expected to be around £390m for the year.

David Martin, head of policy at the SRC, said the Morrisons update comes as the “environment is incredibly challenging at the moment for large grocery retailers.”

He highlighted there was a “huge transformation” taking place in the industry, with the move to online and convenience shopping coinciding with intense price competition between retailers.

With retailers facing the prospect of increased labour costs in the shape of Chancellor George Osborne’s national living wage proposal, he said the need for government to reform the business rates system is pressing.

Noting that rates remain at the level set when the “going was good in the economy”, with retailers paying £700m in business rates annually, he warned that there will be “further retail casualties” without reform. “Unfortunately, some of these will be indigenous Scottish businesses,” Mr Martin said.

Morrisons’ chief executive David Potts said: "The business is moving at pace on the long journey towards improving the shopping trip for customers.

"Our priorities for the rest of the year are unchanged - to stabilise trading, reduce costs and further improve the capability of the leadership team. We are making good progress in many areas and customers are noticing improvements."

Morrison said it now expects underlying profit before tax to be higher in the second half than in the first. Its underlying first-half profits had dropped by 35 per cent to £117m.

Shares in WM Morrison closed down 10p, or 5.6 per cent, at 167.5p.