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We are often asked by retail clients, how big is their retail media opportunity. Like many things the answer depends, but in all cases we can say that size matters.
The first key factor is the size of the ad market in which the business operates. Media markets still tend to operate nationally and so the size of the media market in which you operate matters. A retailer in the USA, all things being equal, has a much bigger opportunity than a retailer in Ireland.
As does the size of the retailer's share within that market. In the UK, Tesco has a much bigger opportunity than, say, Asda, simply because it is twice the size.
The next key driver is the size of the market’s ad spend accounted for by the retailer’s suppliers or likely advertisers. You might operate in the world’s biggest ad market but if you are an own label fashion brand (eg Uniqlo) whose suppliers don’t spend on advertising then the likely retail media opportunity from these suppliers is very negligible.
Next we look for the size (or level) of competitive intensity. The greater the competitive intensity between highly advertised brands competing for market share within the retailer, the higher the potential retail media spend. This is why it works so well for Amazon, marketplaces and major supermarkets. If brands don’t spend to advertise within the retailer they will lose share and given that all brands want to grow, they will likely spend with that retailer to achieve it. Retailers whose strategy is to curate one leading brand per category, and even if that brand is a heavy advertiser in a big media market, are likely to have a much smaller retail media opportunity than those with a wide assortment (there are exceptions to this as we discuss later).
Then we look at the size and relative importance of ecom. Retail media is not just more efficient when its digital but it plays a much more strategic role, relative to the physical store, for brands that have high sales in ecom channels.
In a physical store a brand can , to an extent, rely on its shelf presence and packaging to drive a certain amount of trial and repeat purchase. Each consumer walking down the aisle has an equal opportunity to select from the brands that are presented to them and everyone sees the same. The Brand’s physical presence, recall, distinctiveness and propositional advantages will win through. This is not true in ecom (and this is still not well understood by many senior brand executives). In ecom, the retailer will curate a selection of products and present them in a “grid” each time a customer searches for a sub category, brand or lands on a sub category page via the website navigation. When a customer shops by phone, the size of the grid is fairly small, only a few brands from within a sub category make it. And increasingly the grid is personalised based on what the retailer knows about the customer. Brands for whom that customer has relatively high loyalty might make it, brands that want to attract and convert that customer might not. Given that brands can only grow share by increasing their user base, not being available to potential new users, consigns a brand to stagnation, only being bought by the people who already buy it. Retail media, and especially sponsored product ads solve this problem for the brand (particularly when they only show them to potential users and when they only pay when a new user buys them). And for the retailer they are disproportionately profitable.
It was Amazon’s huge success with sponsored product ads, and their subsequent adoption by other retailers that ignited the explosive growth we are seeing in retail media.
Our next criterion is the size of the strategic importance of the retailer to the brand. If an advertised brand perceives the retailer who distributes it, to be strategically important, perhaps the retailer’s brand creates a halo effect or the retailer has monopoly distribution rights, then the brand will see a benefit in advertising to create footfall for the retailer, even when it already might have 100% share within that retailer. Thus retailers with low brand competitive intensity can still create sizeable retail media streams if they partner with heavily advertised brands.
Finally, the size of the retailer’s strategic focus and commitment on retail media makes a huge difference. The way it integrates retail media into the overall customer, category and business strategy, building the necessary people and technology capability and introducing the right metrics will all make a huge difference to the size of the retail media business it generates.
When it comes to sizing the prize, size matters.
