The big boy of retail media is Amazon - generating over $30bn in retail media income to augment their retail and subscription profits - the bulk of this coming from FMCG advertisers.
Overall FMCG advertising spend hasn't been growing and whilst digital spend has, Amazon's huge media profits are a function of them taking share from what otherwise would have been spent with Google or Facebook.
Late to the party and playing catch up are Wal-Mart ($2 billion+ in sales and growing 50% yoy), Kroger (we estimate on track for a possible $1 billion in 2022), Ahold Delhaize - who have announced a target of $1 billion within 4 years and Tesco and Sainsburys who have repositioned dunnhumby and Nectar360 respectively as retail media vehicles. Loblaws in Canada and Woolworths in Australia have both created retail media entities.Special mention to Instacart who are leading the pack of the new fast grocery players and are generating $300m of income from retail media equivalent to a whopping 30% sales. Many of these new entrants have baked retail media into their business models and one of the unexpected outcomes of retail media is that it makes low/no margin grocery e-commerce not only profitable but highly investable.
Everyone else is either making noises, making plans, thinking about it or unaware of the size of the prize that awaits. And the prize is huge, $100bn+ according to BCG and all incremental, bottom line cash.
So what's needed to capture fair share and optimise retail media income ?
- Like all things you need a strategy. Ideally one that starts with the customer and positions retail media as something that improves rather than hinders the overall customer shopping experience. Ads need to add value and not just for their revenue potential. If they hinder or harass what you gain in ad revenue you will lose in customer spend. The strategy must also define scope and embrace fast growing programmatic ads as well as traditional ambient media like magazines, posters and trolley ads.
- You need a CEO that gets it. Not straightforward, as retail media, especially digital, has only just started to become a thing and CEOs know how to buy products, run shops, organise supply chains not how to build publishing businesses. You need an aligned leadership team as retail media has no natural owner. It cuts right across Marketing, Trading, IT, Operations and Finance. And an owner who can set a vision, align others to it, deliver a P&L and create value for customers and advertisers. Probably not one for the Chief Data Officer although their role is paramount. Not for the Trading Director as they are good at buying not selling. Marketing directors must prioritise their own ads not those of third parties. It probably won't be long before we see the first Chief Retail Media Officers reporting directly to the CEO.
- A really good loyalty programme and/or lots of permission given first party data is essential. Prime, marketing permissions and outstanding customer data (who they are, what they buy, what they are searching for and want next) were essential building blocks for Amazon media. In grocery retail, diverse customers shop frequently for thousands and thousands of different products each with unique requirements and differentiated shopping habits.
- To show specific customers ads that augment their individual shopping journey whilst enabling advertisers to bid only for those customers who are judged relevant and attractive to them. To do this in real time, programmatically with sophisticated targeting, set up, placement, bidding and measurement requires a lot of technology. And there are a myriad of tech vendors to consider each with a small piece of the overall puzzle and each likely to overclaim their capability, inter operability and ease of use. The risk of making bad and expensive purchase decisions from big tech companies is high. No one got fired for buying Adobe, Salesforce, Microsoft etc but quite often they should have been.
- On top of the tech you will need people who know what they are doing, organised efficiently and effectively with clear roles and responsibilities. Difficult enough in mature businesses with standard functions. Very tricky when embarking on something new, cross functional, multi functional and with a small universe of qualified leaders and exponents and a multitude of solution providers who want you to outsource some or everything to them.
- One key task is the selling model as even the most highly personalised, automated and measurable audience and ad technology systems will not sell themselves. And don't think your traders can do it. They are good at buying not selling and unlikely to be able to cut it in ad land. Its important that you access marketing/brand budgets and not just the trade marketing pots. Its not the commercial teams who might ask for a display banner on the web site alongside the gondola end display, magazine ad and instore digital signage who can decide how much brand advertising budget to switch out of Facebook/Google and into your programmatic world. So don't expect them to. If you choose to do the selling yourself you will need competent people with connections, charisma and track record. Ideally with the scars to prove it. Or grey hair and glasses.
- Last but not least you need to measure everything from a customer point of view (how are ads adding value to customer's shopping experience, how are they impacting shopping and browsing behaviours over time and how is this impacting market share and profitability) and be able to visualise it to internal teams, brands and advertisers in the myriad of different ways that these companies want to see it. You must separate out trade spend from ad spend to be sure you are growing the pie and not switching from pot A to pot B. This probably needs separate billing systems and so CFO support and participation.
All great journeys start with a small step and it helps to have a map, compass and a guide. Not forgetting the Kendal Mint Cake. If you need any help please give us a call .
