Sainsbury's, which vies with Asda for the grocery market number two spot UK-wide but is fourth in Scotland, posted like-for-like sales growth of 0.2% for the 14 weeks to January 4, compared to the same period in the year before,.
A late Christmas surge offset Halloween and Bonfire Night damp squibs.
Chief executive Justin King said: "It is tougher for customers today than it has been for a generation."
He added: "The economy recovering is currently manifesting itself in more people in jobs.
"But for the vast majority of people they have less money in their pockets than a year ago."
Sainsbury's predicted a similarly subdued performance of barely growing sales in the early months of 2014.
"October and November were very tough months," Mr King reported. Customers cut back after spending "quite liberally" during the warm summer months while wet weather over Halloween and Bonfire Night and the compulsion to save for Christmas also constrained spending.
When purse-strings finally loosened, the retailer, which has 74 stores in Scotland, saw its busiest ever trading week in the seven days before Christmas.
James Anstead, analyst at Barclays, said: "Although this is clearly a step down from recent quarters, it is just as clearly ahead of market expectations.
"It seems that Sainsbury's enjoyed a much better December than October and November - to some extent because of better industry trends but also perhaps due to its own stronger relative performance."
Sainsbury's, which has focused on its own-brand ranges in recent years, said sales of top-end Taste the Difference items was up more than 10% on last year.
This included 100,000 fresh turkeys and turkey crowns and more than one million bottles of prosecco sparkling wine. Despite this surge, with price inflation running at around 2.5% during the quarter Sainsbury's has continued to be hit with falling sales volumes, an experience likely to be shared with other big four grocers.
Mr King said of Christmas trading for the market overall: "You will see that the market overall was flat or in slight decline. That will be for the first time for the 30 years I have been in the industry." Clive Black, analyst at Shore Capital, said: "Sainsbury's, along with its other 'Big Four' superstore competitors, is likely to be losing market share and suffering negative volumes, unchartered territory for the industry, as hard discounters, premium retailers and specialists win."
His analysis was underscored by Waitrose, owned by John Lewis, posting a 3.1% rise in like-for-like sales in the five weeks to Christmas Eve.
Co-operative also surprised industry observers by posting a 1% rise in like-for-like sales for the 13 weeks to January 4. For the final three weeks of the quarter sales were 3.5% ahead of last year.
This comes at a time when much attention at the mutually-owned group, headed by Scot Euan Sutherland, has been on restructuring Co-op Bank.
Sainsbury's cut its guidance for full-year sales growth to less than 1% from 1% to 1.5% previously.
Mr King said: "Looking forward we expect customers to continue to spend cautiously in the year ahead as they tighten their belts after Christmas."
He said conditions will remain "challenging" as wage growth continues to lag inflation.
Sainsbury's shares closed the day down 8.9p or 2.4% at 360p which wiped around £170 million off its market worth which stands at £6.84 billion.
Market leader Tesco, which reports today, yesterday closed down 3.45p or 1% at 328.3p.
Wm Morrison finished the day up 0.24% after adding 0.6p to close at 254.2p.