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Who’s winning the UK supermarket wars?

Shoppers walk down 5th Avenue in New York City.
Adam Jeffery | CNBC
Shoppers walk down 5th Avenue in New York City.

The U.K. supermarket landscape is changing, with the Tesco's long-held place at the top of the market beginning to look shaky.

Low-price retailers like Aldi and Lidl are making inroads at the bottom end of the market, while Waitrose is winning market share at the higher end. This trend, shown in recent Kantar Worldpanel figures, has hit the big four mid-market retailers: Tesco; J Sainsbury; Morrisons and Walmart-owned Asda, with only Sainsbury increasing its market share over the past year.

The latest changes in the market was highlighted Wednesday in statements by Tesco and Sainsbury. More than £1 billion was wiped off Tesco's market value after it confirmed that its like-for-like sales were flat in its second quarter – the 13 weeks to August 24.

(Read more: Sainsbury's outshines Tesco)

Tesco, the world's third-largest retailer in terms of revenue after Walmart and Carrefour, has recently retreated from overseas markets like the U.S., where venture Fresh & Easy disappointed. The retailer has also announced that it was ploughing $558 million into its China joint venture.

Tesco's uneven performance abroad has raised concerns among investors that it should get rid of its other international operations, according to Joe Rundle, head of trading at ETX Capital.

But the company, is likely to remain a buy, according to Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, who pointed out that its shares have underperformed the FTSE 100 this year.

At the same time, smaller rival Sainsbury said that their sales rose 2 percent over the same period.

The supermarket has restored its reputation after a difficult patch last decade, and won plaudits in the City for sticking to its strategy of focusing on its food offering, rather than expanding relentlessly into other areas like Tesco and Asda.

(Read more: Tesco launches £119 tablet)

"Among the listed UK grocers, we believe Sainsbury has the most consistent strategy, best execution and the most favorable geographic exposure," Citi analysts said.

One potential cloud on the horizon is the departure of its chief executive Justin King. While no announcement has been made, next March will mark a decade in the job for King, and speculation is building that the 52 year old may be approaching the end of his career at the retailer.

Meanwhile, at the discount end of the market, recent reports in the media have said that discount retailer Poundland – famed for charging just £1 for its stock - is considering an initial public offering early next year. It announced Tuesday that total sales rose by 15 percent to £880 million in the year to April. The retailer, which is currently privately owned, says its business has been boosted by wealthier customers trading down.

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