Taking a page from Amazon’s and Walmart’s playbook, a growing number of retailers are opening up their own media businesses, eager to get a share of marketers’ shifting dollars. They’re also searching for new ways to diversify revenue streams as e-commerce swallows up more market share. Here’s what you need to know about this growing trend.
Six rolls of paper towels, a bag of spinach, a dog leash and, oh yeah, a million media impressions targeting women aged 35-50. This may not be an unlikely order these days, as major retailers rush into the media space.
Take Kroger for example. The Cincinnati-based company, which was founded in 1883, launched its programmatic marketplace last month.
With some 2,700 stores across more than 30 states, Kroger is among the largest grocery retailers in the US. Powered by 84.51°, Kroger Precision Marketing’s new Private Marketplace enables marketers to reach consumers by applying Kroger audience data to programmatic campaigns within their preferred ad-buying platform. Through Kroger Precision Marketing, advertisers are also able to plan and buy media across the open web, social media and with publishers who partner directly with Kroger, including Pinterest and Pandora. Self-serve access points streamline the process.
Cara Pratt, senior vice-president of Kroger Precision Marketing at 84.51°, tells The Drum that the company decided to launch the business because it knew it “had an opportunity to help brand advertising and become more effective” and, ultimately, help consumers.
Kroger is the latest in a growing line of retailers investing more deeply in media. A mere week before Kroger's Private Marketplace launched, home improvement retailer Lowe’s announced it was debuting its own media business, providing omnichannel advertising services for brands in the home improvement and home furnishing category. Walmart, for one, kicked off its ad business way back in 2014 – it’s rebranded twice in the time since and is still evolving. Target opened the doors to its media practice in 2016. Walgreens has done the same.
So why are a growing number of retailers trying to seize a piece of the media pie? What’s the benefit for retailers – and for advertisers?
E-commerce accelerated everything
Retail media has been gaining popularity among both marketers and retailers for a number of years due in part to the widespread shift away from in-store shopping and toward e-commerce. In 2019, e-commerce sales accounted for some 14% of all retail sales worldwide. Since the onset of the pandemic, that number has grown significantly. By next year, it’s expected that e-commerce will capture 21% of retail sales. The media mix has naturally evolved in tandem with this shift.
“Retailers have always received funding from brands in exchange for access to the retailers’ shoppers. This was usually in the form of co-op advertising, trade funds,” says Jason Goldberg, chief commerce strategy officer at Publicis Groupe and host of the popular e-commerce podcast The Jason & Scot Show. “Now that more and more consumers are shopping digitally, those vehicles are moving online as well, in the form of retail media networks.”
For brands, there’s a clear benefit, too. With more and more shopping moving online – and retailers often carrying more SKUs on their e-commerce sites than in their stores – brands face new discoverability challenges. Their products aren’t guaranteed to be in front of shoppers’ faces. So digital advertising is the way to go.
And the trend is advancing at speed, Goldberg says, because online shopping tends to yield lower margins than IRL shopping. In the grocery category, for instance, he says, “consumers used to pick their own products off the shelf and drive them home, but now with digital grocery, the consumer expects the retailer to provide the picking labor and the delivery.” In response, retailers hope to offset shrinking margins with a stream of incoming ad dollars. “Selling ads is actually a lot more profitable than selling bananas, so the incremental gross profit from the ads is very appealing to low-margin retailers.”
He points to Amazon’s ad business as the ultimate case study, which could this year bypass the company’s cloud computing offering, Amazon Web Services, as the e-commerce giant’s biggest money-maker. “Other retailers see brands pouring money into Amazon and they all want their share of that money.”
In the traditionally brick-and-mortar space, perhaps no other retailer has seen such success in media as Walmart. It became one of the first major retailers to launch an advertising business when it debuted Walmart Exchange in the summer of 2014. Now known as Walmart Connect, the business has introduced self-serve tools and advanced targeting capabilities. And just three weeks ago, Walmart rolled out its new shopper insights tool Luminate, which will complement its very own demand-side platform (DSP). Walmart DSP was built in partnership with adtech firm The Trade Desk, and is expected to launch imminently.
And all of the investment going into Walmart’s ad business is paying off: recent data from eMarketer indicates that its US digital ad revenues are on track to hit $1.55bn this year, up more than 53% year-on-year. By year’s end, the grocery store chain will have absorbed 6.5% of all US e-commerce ad spend.
One of the reasons for Walmart’s clear success in the space is its early adoption. It saw that the consumer data on which it was sitting was in fact a golden egg. And now, with the deprecation of the third-party cookie fast approaching and consumer data privacy concerns on the rise, brands are scrambling to find new solutions for effective ad targeting. Retailers including Walmart look especially attractive, as they offer brands direct access to troves of first-party data, while promising privacy to consumers.
“Our combination of first-party data and omni measurement offers brands an unmatched suite of omnichannel advertising solutions,” says Rich Lehrfeld, senior vice-president and general manager of Walmart Connect. “Walmart Connect delivers a winning formula to marketers: reach plus data plus measurement.” Lehrfeld claims that media delivered via Walmart Connect reaches over 150 million customers every week. “We know how 90% of America shops,” he says.
Shopping for new data sources
As privacy comes into increasing focus – with new changes from the likes of Apple and Google – players such as Walmart benefit from advertisers’ growing wariness around Facebook. “We increasingly see more advertisers diversify, not necessarily shift ... their ad media spend [from big players like Facebook],” says Lehrfeld. “Marketers are gravitating toward technology solutions that put shopper privacy first, like our Walmart DSP, while unlocking the first-party, omnichannel data that helps them gain the insights they need about their customers to drive more effectiveness in their campaigns.”
And experts are in agreement: privacy woes are recalibrating advertising – and in many cases, putting retailers at a distinct advantage. “In the last few years, retail media has emerged as a strategic way for retailers to help consumer packed goods brands take advantage of their valuable first-party data; first-party data makes retail media resilient to changes not just in third-party cookies, but also changes affecting other identifiers like [Apple’s] Identifier for Advertisers,” says Sherry Smith, managing director of retail media, Americas at adtech company Criteo.
Smith emphasizes that access to first-party data not only enables better targeting and personalization, but also improves ad measurement – another hurdle raised by privacy changes. “It enables the measurable performance that brands are increasingly interested in; since the advertising and sales are happening within the same environment, brands can link ad spend down to the SKU level. When third-party cookies do go away, brands will lose a significant part of their data pool they use for targeting and measurement today. Retail media is primed to benefit as brands seek to fill the void left behind. I don’t see any other media channel with retail media’s combination of high-quality audience targeting, granular sales measurement and resilience to changes in the identity landscape.”
It’s the same argument being made by Lowe’s, which less than a month ago debuted its media business Lowe's One Roof Media Network. Marisa Thalberg, the company’s executive vice-president, chief brand and marketing officer, tells The Drum that “it’s becoming harder for brands to reach and meaningfully connect with consumers.” She says Lowe’s is well-positioned to help brands reach home lifestyle audiences, thanks to the retailers’ insights into its shoppers’ behaviors and interests. With the Lowe's One Roof Media Network, Lowe’s aims to “increase relevancy for our partner brands and provide a way to connect with consumers” – something Thalberg says is especially critical right now, when Americans are investing more in renovations and home lifestyle projects due to the pandemic.
One downside, according to Publicis Groupe’s Goldberg, is that specialty retailers such as Lowe’s don’t have the same reach or first-party data pools as industry giants Amazon and Walmart, so they have their work cut out for them.
That said, the trend is likely to prove a rising-tide-lifts-all-boats kind of phenomenon. Recent McKinsey data indicates that retail media – excluding Amazon and the Chinese market – is expected to grow at a 22% compound annual growth rate from now until 2024. “We have seen ratios of spending that indicate that brands are spending more than twice as much as they were just 18 months ago in retail media advertising, [which] would support the accelerated growth that McKinsey reports,” says Criteo’s Smith.
With more ad dollars going into retail, brands gain a privacy-safe means of reaching audiences with relevant messages – and traditional retailers are able to fuel growth amid the challenges of the brick-and-mortar exodus.
“There has not been a more exciting time to be in the industry,” says 84.51°’s Pratt. “We can be using [retail media] to communicate brand benefits and inspirational moments to influence behavior. And it’s critically productive when two market forces that are quite different, [consumer privacy and advertising effectiveness] are tailwinds. [But they can also bring about] a tsunami wave of benefits of what retailers with deep, rich, broad intelligence on behavior over time can bring forward to the advertising community.”