Could a Retail Media Backlash Be in the Offing?
Brands don't seem as enamored as retailers
Retail Media is not exactly entering its “trough of disillusionment” phase, since there is still so much growth occurring, and you have credit card giants like American Express and Mastercard pushing into the sector.
That doesn’t mean there isn’t some level of disillusionment.
If you squint, you can see signs of potential cracks in the RM foundation, starting with:
How many companies are partnering with, rather than competing with Amazon. Case in point” Macy’s.
You see Kroger cutting back its retail media division.
If you haven’t, read Media, Ads + Commerce analyst Andrew Lipsman’s post exploring just how few retail media companies are likely to scale.
Those breadcrumbs would seem to be signs of the long-predicted consolidation or aggregation in this space. But if you probe a bit deeper and talk to some folks close to the industry, they’ll tell you that while retailers such as Walmart love the fat profit margins retail media affords, many of the advertisers aren’t wild about funding them.
Especially when there are persistent doubts about just how effective retail media ads are at driving new sales (versus just capturing ones that were gonna happen anyway), as well as nagging questions over just how trackable incrementality really is.
In addition, it’s worth pointing out, as Jeriad Zoghby, Chief Commerce Strategy Officer at IPG mentioned to me, that many of retail media’s biggest ads spenders - consumer packaged goods brands - are struggling. Procter & Gamble plans to lay off 7,000 people, and may dump some brands. Kenvue is cutting 4% of its workforce. General Mills is going through a multiyear restructuring, as is Unilever.
So it stands to reason that companies like these might be less-than-enthused about funding an ad category that often feels like a cost. That is, unless they feel really confident that retail media spending can drive new demand.
“Everyone’s looking for incremental growth, right?” said Michael Komasinski, CEO of Criteo on the Next in Media podcast this week.
“That is just sort of an obvious statement, but that really is the core. That’s what drives it. And so in terms of [these new] partnerships…they are predicated on the assumption that another, that the other partner, the counterparty there is bringing some kind of incremental demand that they’re not going to be able to achieve in any other way or on their own.”
That would seem to be the reasoning behind Criteo’s new deal with DoorDash, which occurs just months after the delivery firm seemingly bolstered its own ad business through an acquisition.
What’s going on here?
“The growth over the last four or five years has largely been the migration of traditional trade spend into digital media,” said Komasinski. “A lot of that migration has passed, right? And so like our GM of retail, Melanie Zimmerman said, ‘the easy money is over.’”
Does that mean the party’s over? Not necessarily. “It doesn’t mean that the growth rate of the sector has to slow down,” Komasinski said. “It just means that you need to overcome those growth challenges. And what is that? That’s now trying to play for a bigger share of wallet for national media budgets. And the way you do that is by reducing friction in being able to buy across retailers in an easier, more fluid way, getting measurement standards more consistent and opening up new pipes that allow that to flow in a more programmatic fashion.”
Of course, an aggregator of retail media tech would say that. But it makes sense, given the fact that more niche RMs won’t necessarily be well positioned for national ad dollars, and have a finite set of endemic spenders.
As for the CPG giants, who may not love spending on retail media to ensure relationships and/or shelf space - are their budgets finally coming together as one so they can potentially exert more clout in the market?
“It’s changing, but it is slow,” said Komasinski. “I would describe it as somewhere in the middle innings in terms of convergence. You definitely still have separate teams, especially inside of big brands. But there’s definitely much more focus on trying to holistically measure that spend, even if it might sit with different teams.”
“So now there’s some kind of an overlay [system] that [can identify] what those budgets are, where there’s overlap on retailers, and how that’s laddering up to incrementality. even where brands have not consolidated the teams or even inside of agencies, there’s still a push to measure holistically and there’s certainly awareness of those overlaps.”
When there are overlaps, that’s where CFOs often like to squeeze out some savings. We’ll see. In the meantime, check out the full episode here.