Thousands of Asda workers are facing redundancy or a dramatic cut in their working hours as Britain’s third-largest supermarket chain looks to cut costs.

Asda has begun a consultation with 3,257 employees in 18 underperforming stores, singled out as overstaffed relative to their current sales performance.

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The Guardian has learned Asda is also looking at staffing levels in a further 59 of its supermarkets, though at present this is an informal process. The retailer is not looking to cut jobs in these stores but wants staff to agree to work in different departments when required.

The GMB union said it had been contacted by worried Asda workers “fearing for their jobs” after new business plans were shared with store managers that included a substantial reduction in staff hours worked.

The 18 stores facing staff cuts include branches in Halifax in West Yorkshire, Broadstairs in Kent and the Basildon Eastgate store in Essex. Staff will face a series of one-to-one meetings over the next three weeks. The eventual job-loss figure is expected to be in the hundreds.

Last week Asda posted its worst annual figures since being taken over by Walmart in 1999, as fierce competition in the UK supermarket sector took its toll. The supermarket chain admitted its performance was “behind expectations” after pre-tax profit for 2016 fell 19% to £791.7m. Accounts filed at Companies House also showed sales fell to £21.6bn from £22.3bn, as shoppers flocked to cheaper rivals.

The supermarket industry is going through massive change as Tesco, Asda, Sainsbury’s and Morrisons are forced to cut costs to respond to the threat posed by the fast-growing discounters Aldi and Lidl, as well as grocery sales moving online.

In a sign of how the balance of power is shifting, Aldi overtook Waitrose in 2015 and then, in February, sailed past the Co-op to become the UK’s fifth-biggest grocer. Lidl is expected to overtake Waitrose this year. The two currently sitneck and neck with 5.1% of the market, according to the consumer consultancy Kantar Worldpanel.

Tesco is axing 2,300 staff this year as part of a cost-cutting programme that is hitting head office workers as well as staff based at its Cardiff call centre – due to close early next year. At the weekend it was revealed that Sainsbury’s plans to cut 1,000 head office jobs.

In recent years Asda has trailed behind Tesco, Sainsbury’s and Morrisons and is the worst-performing member of the “big four”. Its deteriorating performance led to the replacement of chief executive Andy Clarke last summer with the Walmart executive Sean Clarke parachuted in to lead a turnaround. He has focused on dropping prices, boosting the quality of food ranges and improving customer service.

Bryan Roberts, an analyst at TCC Global, said all the major supermarkets were trying to become more efficient as they juggled higher payroll costs following this year’s hike in the national minimum wage, and inflation linked to Brexit’s blow to sterling. “You need to be careful that you are cutting away fat without cutting into the muscle,” he said. Good customer service was a point of difference for Asda in its battle with the discounters, he added.

Last year Asda cut 750 jobs at its Leeds head office and in store. The process saw the closure of staff canteens in all stores and an end to shop-floor services such as photo-processing and pizza-making.

“We are currently in discussions with a number of our stores about changes that are needed to the number of hours required to run that store for our customers,” said an Asda spokesman. “It is common practice for a supermarket to need to make changes to hours based on the changing shopping habits of customers. We understand that any conversations about change are unsettling, but it is always our upmost priority to find alternative roles or working patterns for impacted colleagues.”

Roberts said Asda was “on the up” with the most recent set of industry figures showing it had pulled in an extra 398,000 shoppers in the 12 weeks to 16 July. The Kantar data showed Asda’s sales for the period grew by 1% compared with the same period a year ago.

Asda said like-for-like sales fell 2.8% in the first three months of 2017, which was marginally better than the 2.9% drop recorded in the last three months of 2016. Its second-quarter performance will be revealed on Thursday when Walmart, the world’s largest retailer, updates investors.