As Asda pre-tax profits plummet 18.8%, is this rock bottom for the grocer? Ged Futter fears not.

“We have hit our nadir, every business has got one and this is ours that we’re declaring today, there are green shoots coming in the third quarter,” said former Asda boss Andy Clarke in August 2015.

At the same time chief financial officer Alex Russo said that Asda had the strongest balance sheet of all its supermarket rivals and profits were holding up despite negative sales.

Roll on two years and Asda’s sales are down 5.7% and pre-tax profit has plummeted almost 19% to £791.7m. This year’s statement from Asda? “Our sales performance, relative to the market, is behind expectations”.

Behind expectations? Every measure that you look at shows a business that is struggling to find its identity.

Asda was always ‘the customer champion’, price was king and volume growth was the engine that drove it all.

Are there really green shoots?

So, is this the new nadir? Has Asda now reached rock bottom and are there really green shoots?

When the last set of Kantar figures were released, overall sales were up 2.2%, which must be a good thing.

The same release said that inflation in food is running at 3.2% and that Asda is the only retailer where branded products are outpacing own-label lines.

In a food retail market where the king of price is now Aldi, which stocks few branded products, is it a surprise that inflation is running higher on branded products?

So, are we seeing green shoots or are they just vines that are drawing Asda further back into the mire and further away from volume growth and any kind of share growth?

Deep-rooted problems

At the recent Groceries Code Adjudicator (GCA) Annual Conference a survey showed that almost 20% of suppliers said that Asda’s practice when dealing with them had worsened in the past year.

This was the worst performance of all retailers and is indicative of a business that is struggling to engage with the supply base.

This is also the feedback that we are hearing from suppliers who are trying to maintain and build their business with Asda.

A business that has underperformed the market for 11 consecutive periods is unlikely to provide any confidence to suppliers, especially when Asda’s rivals appear to be snapping up businesses and long-term contracts.

It’s easy for us commentators to sit on the sidelines and say where things are going wrong and how they can be fixed.

The issue with Asda, I believe, is far deeper rooted and there is no easy fix.

I can’t see the green shoots growing fast enough to outpace its rivals because the pillars that the business was built on have crumbled.

Price is king and volume growth is happening but customers are still migrating to retailers that offer a clearer vision of who they are.

Customers want to feel that they know what the store they shop in stands for. Is it price, quality, range or ease of shop?

For the customer to understand this first of all the retailer must know this. I fear that until Asda truly knows who they are and what they stand for, its results will continue to be behind expectations.