In three short years, retail media has gone from being owned almost exclusively by Amazon to a mainstream multi-billion revenue generator for retailers large and small, writes Bernd Bube, CEO and Founder of ADvendio.
Retail media has been one of the most successful responses to poaching that retailers have ever discovered. After years of watching its market domination eroded by pureplays and other disruptors, retail has recognised the power of its existing assets, both in-store and online. Building from their reward or loyalty schemes, first party data has turned out to be of the most insightful view of customers that an advertising campaign manager could ever hope to find – and it’s an asset retailers hold, ready-made, in their 1st party customer databases.
Boston Consulting estimates that the retail media market will grow by 25% per year to $100billion over the next five years and will account for over 25% of total digital media spending by 2026. Seemingly every week, a news headline trumpets the launch of a new retail media network, from arts and crafts supplier, Michael’s, to U.S. department store giant, Nordstrom. Meanwhile, GroupM predicts global retail media spend will reach $101billion this year – a 15% increase in just 12months.
While the history of Retail Media always starts with Amazon and although they remain the market leader with ad revenues of more than $38 bn a year, retailers want to do things differently rather than book business from anyone; brands they work with must recognise and respect retailers’ responsibilities to their customers and their long-term loyalty, and so reflect and support their own environmental, sustainability and governance (ESG) standards, particularly in sensitive areas such as beauty and health care. Superdrug, starting in 2022, took this approach by meeting with each of the brands it vetted for its retail media network to ensure that their products and ranges align with its own values.
In order to attract serious investment from third party brands, most retailers have had to create separate retail media divisions rather than simply load the task onto their own marketing departments. Tesco, for example, launched the UK’s largest closed loop grocery media and insight platform in 2021 but partnered with Dunnhumby to run it. The unique in the offer to brands is the data science in the Dunnhumby platform and the Tesco Clubcard loyalty program which reaches 20 million households as well as 7 million who use the app.
The closed loop measurement tools enables brands to see true return on spend on new product development, packaging, ranging and campaign effectiveness, currently an average return on ad sped (ROAS) of £6.60 compared to an average of £3.80 on other channels.
While core retail media started with retailers’ owned channels, Tesco (and others have since) used their first party to help brands reach consumers through other channels; Tesco recently partnered with ITVX and Pinterest to widen its ad reach.
Morrisons, with 498 stores and more than 300 petrol stations, was the last of the top four UK grocers to get into retail media and created a new internal agency team, the Morrisons Media Group, using insights from its MyMorrisons loyalty scheme as well as ecommerce data. Advertisers can also run ads on a store-by-store basis, based on their size and demographic.
And because this is first party data and is not shared with any third parties, there are few GDPR issues, although of course retailers have to demonstrate that they are protecting the data and are explicit about how it will be used. That said, working with third parties can be risky if they are the ones storing and therefore protecting the customer data with large fines recently handed out in Europe for data compliance missteps.
Sainsbury’s has the advantage of owning Nectar360, which manages Sainsbury’s and Argos shopper marketing services, and used this to launch its own Retail Media service. In order to give advertisers flexibility, the Sainsbury’s system enables them to edit campaigns on the fly and be more reactive so they can take advantage of seasonal weather or events. Average conversion rates of 60% to 70% are claimed as well as average ROAS of 300% to 450%.
Boots allows brands to create targeted advertising campaigns based on data from its Advantage Card loyalty scheme, which currently has 17 million active members shopping at 2,300 stores and online. This initiative was added to a trial partnership with Deliveroo and its Online Doctor service.
Meanwhile, ASOS is relying on the added value of Retail Media to deal with a recent loss of £87.4m in the six months to the end of February, compared to a profit of £14.8m in the same period last year. It launched a basic service in 2021 but now wants to go further, adding a sponsored ads product in the ASOS search results and product listings, a higher ad load per page, and running ads off-site and on connected TV to bring browsers back.
In the U.S., Walmart followed Amazon and started its ad business back in 2014. In 2021 alone the figures were huge. $1.55billion was predicted but it was actually $2.1billion, up more than 71% year-on-year. In 2022, it grew to $2.7billion, up 30% on 2021 but still huge growth and now expected to grow by over 40% in 2023.
It is still early days for Retail Media so the predictions are for plenty more innovation. Amazon is already going after business from what are called non-endemic brands, those that do not sell physical goods on its marketplace, including cars, insurance and hospitality. It is also predicted that retailers might start sharing anonymised shopper data in order to reach even larger audiences and also to reach more brands by offering greater scale through shared participation in data lakes. This also means that targeting will become more precise because the behaviour of a single customer can be seen across multiple channels.