LONDON-- Tesco PLC, the U.K.'s biggest grocery chain, posted a sharp drop in first-quarter sales as it struggles to compete amid heavy discounting from rivals.

The company said Wednesday its U.K. comparable sales excluding petrol in the three months through May fell 3.7% on the year, slightly better than the 4% drop predicted by analysts. International sales dropped by 8%, though they rose 0.5% at constant exchange rates. Group sales fell 3.2%.

"As expected, the acceleration of our plans is impacting our near-term sales performance," said Chief Executive Philip Clarke. "The first quarter has also seen a continuation of the challenging consumer trends in the U.K., reflecting still subdued levels of spending in addition to the more structural changes taking place across the retail industry," he said.

Tesco has struggled in recent years to compete with discount chains Aldi Stores Ltd. and Lidl UK GmbH, which are forcing the U.K.'s big supermarket chains to reduce prices in a fight to retain customers.

Data published Tuesday showed Tesco suffered its biggest fall in market share for 20 years. Figures from Kantar Worldpanel showed the company's share of the U.K. grocery market fell to 29% in the 12 weeks ended May 25, from 30.5% in the year-earlier period.

Of the "big four" U.K. supermarkets, only Asda Stores Ltd., a unit of Wal-Mart Stores Inc., increased its share of the market, with J Sainsbury PLC and Wm. Morrison Supermarkets PLC losing ground along with Tesco. Chains serving either end of the market performed best, continuing a recent trend, with gains for Aldi and Lidl and closely-held John Lewis Partnership's upmarket food store Waitrose holding on to its share.

The fall in first-quarter sales is the latest blow for Tesco whose shares have shed a quarter of their value since it shocked investors in January 2012 with its first profit warning in 20 years. Focusing on domestic growth, Tesco has pulled out of the U.S. and Japan and formed a partnership in China to replace its ailing solo venture.

Write to Ed Ballard at ed.ballard@wsj.com

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