Everybody loves Retail Media - except maybe the brands
Everybody loves Retail Media - except maybe the brands
When media negotiations become about shelf space and supply chains - and price inflation - headaches ensue
There is an ongoing joke in ad tech Twitter that “everything is an ad network’
Except that it’s increasingly not a joke. This year alone, Dick’s Sporting Goods, Drizly, Uber, Marriott and Lord and Taylor joined Amazon, Walmart Target and Walgreens and CVS others in the absolutely booming world of retail media (RM).
GroupM just upped its RM forecast for 2023 to $110 billion, after predicting $100 billion back just a few months ago. eMarketer even lists Walmart and Instacart as among the fastest growing media outlets for next year, ahead of TikTok.
What’s not to like, right? RM is basically found money for the Kroger’s of the world - a high margin revenue stream that ostensibly helps customers find more of what they want. And for marketers, the ROI is excellent, and the ability to track performance is outstanding.
Well, some brands and their agencies aren’t enjoying this surge so much. But they’re going along - grudgingly.
I was talking to an expert in this space recently, gushing (as I do) about RM’s potential, and she said “ask the brands if they feel the same way. And them how much it’s costing them.”
Costing them? I wanted to understand more - doesn’t RM allow for killer targeting - e.g. brands can match up IDs with retailers’s first party data, and then target people with high levels of intent?
Yes, but.
“There is a lot of tension in the system,” said Lauren Walker, managing director at Accenture Song. “This is really a massive disruption.”
What tension? Well according to Insider Intelligence analyst Andrew Lipsman, RM isn’t so fun for brands that don’t sell a lot of goods directly online.
“eCommerce is profitability-challenged for them to begin with as a low-margin business,” he said. “They are extremely cost-conscious on retail media ads.”
“Since the pandemic, a lot of dollars have flooded the space between big brands moving in, Amazon aggregators, etc. and it ratcheted up the competition for ads and it pushed up prices,” Lipsman added. “So a lot of brands/sellers are feeling the squeeze from that as well.”
Indeed, several folks I spoke to talked about how pricing had gotten tough on many RM sites -and that sellers were trying to stick with 2021 prices, even though eCommerce had come back down to earth as the world has reopened.
But there’s a bigger tension here that goes beyond price.
Media buyers, particularly data-tuned performance specialists, don’t want to get dragged into broader negotiations between brick-and-mortar retailers and their external sales teams. This used to be entirely the domain of ‘shopper marketing’ or trade promotions, but now it’s all getting muddled together.
As Walker explained, media buyers and brands have to think through a number of tradeoffs they never used to worry about. Traditional trade marketing teams have different budgets, different KPIs and varied levels of experience and understanding of digital advertising compared to media agencies, for example. “There is a massive learning and change that needs to happen,” she said. “Theres a business model that works at agencies, and trade marketing’s business model is different.”
Several marketers grumbled to me about ‘having to’ buy some RM inventory - whether they recommend it or not - or else their colleagues will have to grapple with lousy shelf space, in real life and online.
“It’s challenging as negotiations on retail media get pulled into larger merchandising, commercial negotiations,” said one advertiser.
“More and more retailers are requiring eCommerce media spend to be featured or displayed at the physical retail location,” said another.
As mentioned, RM is also a very new business for many companies -as is advertising and ad tech overall. Several buyers pointed out that some retailers’ ad capabilities have a ways to go in order to catch up with other media solutions. Yet like other far more established players, retailers are already acting like walled gardens.
“Many are not forthcoming with their data,” said Lipsman. “I think they took advantage of the demand during COVID with increased CPMs. But now the activity has stabilized and, in some cases, come down while the cost remain at the level when consumer activity was a lot higher.”
None of this means that brands are about to stop spending on RM - since clearly it’s performing.
As Accenture’s Walker noted, among the largest 11 countries, 92% of consumers now shop online. And thanks to RM, brands that were never direct-to-consumer brands suddenly are, and they can reach shoppers right at the point of purchase in a far more sophisticated way than they could in stores.
“That first shelf is biddable,” she said. “And it works almost better than anything else they do. So nearly every brand is saying, how do I go faster?”
One thing I’d question how much actual demand generation there is here, and whether more CMOs are going to questions whether these ads get way too much credit, like they long have with search.
But in the meantime, this could be a messy space, that screams for some consolidation (something Business Insider’s Lauren Johnson reported on recently). We’ll see if economic pressures in 2023 brings that about.
More likely though, we’ll just see more ad networks.