James Chandler, CMO, IAB UK gives us his thoughts on the thriving retail media sector.
What’s the retail media ad market currently worth?
The retail media market is fast gaining momentum, with more and more retailers leveraging their wealth of first-party data to sell advertising space in ever more immersive ways across their touchpoints – both online and in-store. Add closed-loop reporting into the mix – allowing advertisers to see the impact of their spend in highly measurable ways – and you can see why it’s such an attractive option for brands navigating a recession and the deprecation of third-party cookies.
We estimate that spend on retail media in the UK will have grown by 26% in 2022 to more than £3.4bn, up from £2.7bn in 2021.
What is the projected growth?
The first thing to say is that retail media is often talked about as if it is an emerging channel, but it’s not. Yes, it’s projected to see big growth over the next few years, but it’s already a huge market and is expected to outperform the overall digital ad market to become the dominant growth driver across European ad markets.
At the IAB, we estimate that the UK market will grow 17% in 2023 to just under £4bn, before reaching £7.9bn by 2026. To put that into perspective, the search advertising market – which emerged more than two decades ago – was worth £7.8bn just two years ago.
What is driving growth?
There are a variety of factors driving growth in retail media and all are having a significant impact in their own ways. Firstly, shopping habits have fundamentally changed. The pandemic fuelled a boom in ecommerce growth – with rates remaining well above pre-2020 levels despite a slow-down once lockdowns were eased – and we’re now starting to see that market accelerate again.
Added to this, the value of the first-party data that retailers own shouldn’t be underestimated as advertisers look for ways to reach their consumers without the need for third-party cookies. Many of the key and emerging players in this ecosystem know their customers extremely well.
Finally, the economic headwinds that the UK is facing are squeezing ad budgets and putting marketers under pressure to deliver measurable results. Retailers are perfectly placed to capitalise on this given the granular data they have and the possibility for closed-loop reporting. Together, these factors create an extremely exciting option for advertisers and will further supercharge growth in the channel – as we’ve seen in the US.
Where has retail media sprung from?
While it may be a relatively new addition to our vocabulary, retail media is more of an evolution than an entirely novel offering. In its most simple form, retail media is the digitisation of shopper marketing, which has been around for years.
However, retail media allows for far more sophisticated targeting, optimisation and measurement – allowing retailers and advertisers to keep pace with changing shopper habits and reach consumers at each stage of the path to purchase.
Who is big in this space already?
It’s a real mix of digital-first brands and high street stalwarts. Amazon is of course a big one, alongside the other digital companies such as ASOS, Deliveroo and The Hut Group. Meanwhile, retailers such as Boots, Tesco and Sainsbury’s are all key emerging players in the UK market.
In the US, Walmart has established a really strong offering – Walmart Connect – which could be a blueprint for how the UK’s retail media networks develop.
What are the key challenges for the sector?
Talent, education and standardisation. Retailers need to hire teams that have the skills and expertise to help them transition into being media owners. They need people that understand programmatic advertising and can help them to harness the capabilities of ad tech to build out their media offerings.
They also need to work out how to effectively integrate their retail media division into the wider business in order to create effective and efficient working practices where retail media isn’t just a siloed add-on.
At a cross-industry level, there is also a huge need for education about how digital advertising works and – above all – standardisation, particularly as many retail media offerings are being built in isolation. These two areas emerged as priorities in industry interviews conducted by IAB UK (see the next question for more on what we’re doing in this space). For retail media to truly thrive, we need to create shared metrics and standard formats as well as devising a consistency of measurement, terminology, ad units and so on.
What is IAB UK doing in this space to help?
Retail media is a key focus for the IAB in 2023 and we’ve conducted over 30 hours of interviews with people within the digital ad industry to understand where we should focus our efforts in order to grow the market. Two areas have emerged: standardisation and education.
We’re uniquely placed to equip retailers with the technical knowledge and practical advice they need to pivot into being digital media owners. We can also work with our members from across the digital ad industry to establish the shared standards that will become increasingly critical as growth in this area accelerates.
We’re creating a retail media working group – starting this month – to facilitate collaboration around standardisation, and we will be including retail media in our annual Digital Adspend report for the first time this year. We will also be hosting our inaugural Retail Media Digital Upfront in the autumn to spotlight how retailers are building out their media offerings and the unmissable opportunities for advertisers.