The training wheels are off, and retail media networks are becoming big business. But uncertainties remain as more grocers and food retailers enter the space.
It has been just over a decade since Amazon launched what is widely believed to be the first retail media network.
In the years since Amazon’s digital advertising business has grown to sales of $11.6 billion (up 19% year over year) in its most recent quarter. And across the industry, retail media opportunity for grocers and food retailers has grown from a tiny slice of the pie to a major revenue driver—with even more impressive returns predicted for the future.
“For us, it’s a massive opportunity,” Kroger CEO Rodney McMullen said at an investor conference a couple of weeks ago. “If you look at CPGs, they’re spending $100 billion to $120 billion a year on media. Our share of that is just a fraction of what we think we should get or can get. Now we have to earn our right to get that. … So, to us, we think we’re just getting started.”
Once reserved for only the biggest retailers, even independents are now getting in on the action.
In February, the Independent Grocers Alliance (IGA) teamed up with digital circular firm Ideal by Design House on what it called the first retail media network for independent grocers.
“When brands go to invest their media dollars, there is no reason for independent retails to be left out,” IGA President and CEO John Ross said in a statement at the time.
What is a Retail Media Network?
In short, retail media is simply another digital stream by which consumer packaged goods (CPG) brands can advertise—like web search or social media. What began as advertising through in-store ads, coupons, in-aisle sampling and more has grown to entail digital advertising on retailer websites, apps, and social media platforms.
In some cases, retailers own these channels directly and, in others, grocers might align with a company like Instacart’s Carrot Ads or others to run advertising operations.
For us, it’s a massive opportunity. If you look at CPGs, they’re spending $100 billion to $120 billion a year on media. Our share of that is just a fraction of what we think we should get or can get. Now we have to earn our right to get that. … So to us, we think we’re just getting started. — Kroger CEO Rodney McMullen
But these e-commerce channels can now extend far beyond old-fashioned, broad-stroke ad plays, giving CPGs the chance to get their message to a highly targeted audience—thanks to access to all-important first-party data—while also being able to closely track the ad’s performance.
And the opportunity for both retailers and advertisers is potentially huge. At stake by 2026 is $820 billion for retailers that develop new media networks and $280 billion for CPGs due to higher returns on ad spending, according to a “Commerce Media” report by consulting firm McKinsey & Company last year.
“Even though several retail and e-commerce giants have multibillion-dollar ad businesses, it’s not too late for newer entrants to get into the game by leveraging their first-party customer data,” McKinsey said in the report.
Tracking Retail Media’s Growth
The pandemic prompted many consumers to start shopping from their phones if they weren’t doing so already. This created a new, highly engaged audience for digital ads.
Media investment firm GroupM last year predicted that retail media advertising will increase by about 60% to $160 billion by 2027. A Wakefield Research report found that 64% of CPGs expect to increase their retail media spending in the next year.
Food retail executives, during their latest earnings calls, pointed to the recent growth in high-margin retail media revenue as a bright spot amid continued economic uncertainty.
There’s a huge group of our members who see a search ad online or on their phone when shopping but purchase the product in-club. Previously, it was not possible for our advertisers to connect the in-club purchase to their online ads to know what drove sales. With our new attribution model, advertisers can understand what’s motivating purchases across all channels accurately, especially for search ads. — Tim Simmons, Sam’s Club SVP and chief product officer
Walmart’s ad sales business, Walmart Connect, reported $2.7 billion in sales for the fiscal year that ended Jan. 31, up nearly 30% year over year. For the fourth quarter, Walmart Connect sales rose more than 40% from the year before.
“Today, the vast majority of our overall profits are attributable to in-store, brick-and-mortar in the U.S.,” Walmart CFO John David Rainey said at an investment conference last month. “If you fast-forward five years, we are much less dependent on that as an income stream than some of these other faster-growing parts of our business.”
Target launched its retail media network, Roundel, in 2019. The retailer recently said it has grown more than 60% over the last two years, though it declined to say how much money it was bringing in. But Target last month called Roundel “an important part of the future.”
What do CPGs want?
While grocers might look at retail media networks as a high-margin pipeline of relatively “easy money,” CPGs are choosy about where they spend their ad dollars.
Fifty-six percent of those surveyed by Wakefield said they want raw shopper data, 55% want transactional data, 53% seek basket data and competitive insights, 51% want to store data, 47% are looking for loyalty metrics and 35% want SKU-level data. About two-thirds (66%) of CPGs said they would expect to reach at least 11 million customers to consider a retail media partnership.
Demonstrable return on investment was also seen as a key element to a successful retail media network, the report found.
“As investment in retail media networks (RMN) grows, so too must RMNs’ offerings to entice CPG executives into partnering with them,” Wakefield noted.
What’s New and What’s Next in Retail Media Networks?
In short, expect to see more retailers create ad networks. And expect existing retail media networks to get more robust.
Dollar General, which debuted its DGMN media network in 2018, announced last week that it had completed testing of a new partnership with Facebook and Instagram parent Meta. The development allows advertisers to reach Dollar General’s more than 90 million customer profiles across the social media platforms, the retailer said.
“Our team provides full end-to-end campaign support and creative services while measuring closed-loop, attributable store sales,” Charlene Charles, head of DG Media Network operations, said in a statement. “We look forward to extending the reach of DGMN through the world’s largest social platform to deliver even more effective media for our advertisers.”
Walmart-owned warehouse retailer Sam’s Club last month announced new functionality that allows advertisers to connect search and sponsored product ads to offline sales, giving greater insights into in-store sales that might be driven by online advertising.
“There’s a huge group of our members who see a search ad online or on their phone when shopping but purchase the product in-club,” Tim Simmons, Sam’s Club SVP and chief product officer, said in a statement. “Previously, it was not possible for our advertisers to connect the in-club purchase to their online ads to know what drove sales. With our new attribution model, advertisers can understand what’s motivating purchases across all channels accurately, especially for search ads.”
Instacart earlier this year added display ad functionality for CPGs, in addition to the company’s sponsored product offering.
“Display ads enable national CPG brands to promote engaging, targeted, creative banners to raise awareness and consolidation of products, helping to drive bigger baskets for grocers,” Instacart said.
Uncertainties and Potential Retail Media Pitfalls
Despite their recent growth, retail media networks remained moored in the Wild West. Much is unknown.
“Retail media is very new, and who knows where it’s going?” Deborah Weinswig, founder and CEO of Coresight Research, told WGB. “In a year where there’s so much concern about sales and the sector and whatnot, it doesn’t really matter on the top line. A year ago, most of this didn’t exist. That’s why I think the sector’s so interesting.”
Although there is much white space in retail media marketing, advertisers do not have unlimited budgets. So grocers will need to be savvy—and potentially form alliances—to bring in the most dollars.
Nearly all CPG executives surveyed by Wakefield (98%) said they would be “open to working with more than their ideal number of RMNs if they were part of a consortium, offering the ability to reach customers across multiple retailers using the same technology platform.”
Here’s another minefield to consider: Amid soaring inflation, grocers have found a gold mine in their private-label brands—an area to which most in the industry are dedicating significant investments. But what does that mean for burgeoning retail media networks?
“The question is, in a retail media world where the retailers are getting paid for space, how do the economics look at the end of the day, and is that actually where retailers should be spending time and effort?” Weinswig said. “If you’re too over at private label, are you losing out on easy money? I’m sure there’s a balance there somewhere.”