Grocery sales could drop further and remain negative longer than they did during the last downturn due to the severity and depth of the current economic downturn, Pali Research said on Tuesday.

The industry is at the beginning (of) its sales challenges rather than toward the end, Pali Research analyst Robert Summers said in a client note.

Major U.S. food retailers include Wal-Mart Stores Inc , Kroger Co , Supervalu Inc , Safeway , Whole Foods Market Inc , Target Corp , Costco Wholesale Corp , Publix Super Markets Inc
and Winn-Dixie Stores Inc .

Earlier this month Wal-Mart said it was selling to higher-income shoppers as consumers look for ways to save money on food. The retail giant also said groceries accounted for 49 percent of its U.S. sales for the fiscal year that ended January 31, up from 47 percent a year before.

Kroger, the No. 1 U.S. supermarket chain, reported that identical-supermarket sales, excluding fuel, in its fiscal fourth-quarter ended January were up 3.8 percent -- lagging some analysts' targets.

Whole Foods, which caters to more affluent shoppers, posted its first decline in same-store sales in its 29-year history in its latest quarter.

Summers pointed to the correlation between unemployment trends and grocery industry sales.

The U.S. jobless rate hit 8.5 percent in March, the highest level since November 1983. Since the recession began in December 2007, about 5.1 million jobs have been lost, with almost two-thirds of the job losses occurring in the last five months, according to the U.S. Bureau of Labor Statistics.

Some local markets are running higher than the U.S. average. In February 104 metropolitan areas -- including greater Detroit and greater Los Angeles -- had jobless rates of at least 10 percent -- up from 12 areas a year earlier, according to BLS data.

Shares of Wal-Mart, the largest U.S. grocery retailer, were down 2.4 percent at $52.15, while shares of major grocery chains Kroger and Supervalu fell 4.9 percent and 3.5 percent, respectively.

Shares of Whole Foods were down 5.6 percent at $17.50 on the Nasdaq on Tuesday afternoon.

(Reporting by Lisa Baertlein, editing by Matthew Lewis)