The retail media era is upon us – but it will be a rocky few years ahead
The retail media market by all accounts is exploding and is forecast to reach $20bn in the US by 2024. Closer to home retail media spend is anticipated to more than double by 2025 (exc trade deals) to reach $1bn+.
As consumers rapidly embraced eCommerce, marketers have needed to double down on the digital shelf. This combined with the deprecation of the cookie and the threat of Amazon have created the perfect conditions for retail media to thrive.
The win-win of retail media
For retailers and brands alike, retail media is an appealing proposition. For retailers, particularly those within the grocery market, online shopping tends to yield lower margins. The physical store environment sees consumers do the heavy lifting - that is consumers pick their own products off the shelf and driving them home - but now with digital, the consumer expects the retailer to provide the picking labour and the delivery all for the same price. Even when click and collect options are at play, the retailer is still required to pick and pack the stock.
Retail media affords an opportunity for retailers 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 media is very appealing to retailers. But it isn’t just the allure of improving returns from eCommerce that has got the attention of retailers. Media businesses enable retailers to diversify revenue streams and drive growth as well as capitalise on capabilities they are building to effectively compete in the digital age. Success in the media space also further fuels the retailers ability to invest in building digital and data capability which also benefits the core business as much as it benefits the media offering.
For brands, retail media affords marketers with the ability to tie online exposure to offline sales. This closed loop measurement approach is one of the biggest advantages retail media businesses possess. It also enables brands to drive discoverability which is particularly important in the endless digital aisles. What’s more retail media networks enable brands to tap into rich behavioural data assets which are like liquid gold in a post cookie world.
A promising but bumpy road ahead in Australia
The concept of monetisation of retail assets is not new. Retailers both locally and globally have been monetising space in their stores for decades, however media networks in markets like the US & UK are far more mature and established than in Australia.
In 2012 Amazon launched Amazon advertising and it has become the 3rd largest digital advertising platform in the US behind Facebook and Google. Amazon’s strong dominance in retail combined with their strategic move into media drove the likes of other big retailers to follow. Walmart was one of the first which launched its retail media offering back in 2014 and Target in the US followed suit in 2016. Since then, a host of big names have dived head first into the retail media landscape as they seek to gain a slice of the action.
Closer to home however it’s a different story. The lack of competitive pressure and slower uptake of digital has seen local retailers drag their heels. Cartology (owned by Woolworths), was one of the first movers, having launched in 2019 and is now arguably one of Australia’s leading retail media players (however it is important to note it had been actively monetising data through Quantium for much longer). Chemist Warehouse and Appliances Online are some of the other brands with more established media networks but what we are seeing today in Australia is really the tip of the iceberg.
According to a recent article published by mi-3, many retailers are considering the launch of retail media networks and the verticals span not only CPG or FMCG, but consumer electronics, home and garden, apparel and even fashion.
But whilst ambitions are big, knowledge and capability of both retailers and advertisers alike will dictate how quickly the market capitalises on the opportunity.
Many retailers are still in their infancy in building digital, eCommerce and data capability, and this capability is critical ingredient to developing a successful retail media network. Those who have successfully entered the market in the US had a strong track record at building and leveraging that capability internally first for their core business before monetising it in market through a media offering. The second big issue for Australian retailers is scale. As eCommerce hasn’t been a core focus for many up until a few years ago, many traditional retailers lack scale in both digital audiences and data sets to build compelling offerings that can generate sizeable returns. Whilst retailers can get around this by partnering with publishers to build an off-network offering it can’t be substituted for the retailers digital and data properties.
But it isn’t just the retailers that will impact uptake and adoption. Knowledge and skill gaps on both the agency and brand side alike will also hamper uptake and appetite. With the emergence of these networks comes the need to educate the market on how best to leverage them as part of their broader marketing mix. This is such a problem that Woolworths themselves have built their own in-house media agency to work directly with clients to help drive uptake.
Challenges aside, it will be an exciting few years in the retail media space one which presents many opportunities for the brands who actively look towards embracing them. Those that do, are likely to benefit from first mover advantage as they exploit the opportunities they afford whilst their competitors are like a deer in headlights. For those looking to leverage them, here are a few practical tips to do so:
Partner to experiment. As many retailers are still building out networks – it affords the opportunity for brands to partner on betas and on other new product launches for those willing to learn alongside the retailer.
Get stuck in. For some agencies – retail media is an entirely new concept and won’t necessarily be front of mind. This means you may need to actively steer the agency towards your desire to invest in this space and challenge their thinking every step of the way.
Adopt a test and learn mindset. Like with any new channel or approach it is important to test, learn and iterate. Effectively leveraging and deriving value from these networks will only be done over time based on learning and evolution of approach.
Are you looking to take advantage of retail media networks or looking to build one? Arktic Fox has been partnering with a number of retailers to build their networks. Get in touch to find out how we could help you.