Retail media is expected to grow to a $120 billion market by 2025, but that growth will depend on whether retailers overcome at least three key challenges.
Xavier Falcon, NIQ’s global head of retail media and global SVP of retail product, and Steve Winnick, senior analyst at Coresight Research, detailed the ways retailers can overcome these challenges and leverage retail media networks (RMN) into lucrative margin opportunities in a recent Progressive Grocer webinar. To watch the webinar, click here.
The first challenge is related to what brands/advertisers expect from their RMN investment; retailers need to do a better job of showing the efficacy of campaigns.
“Brands are not going to bring too many new dollars into the pot until the retailer can really properly explain what the impact is, what the efficacy is, what the performance is,” Falcon said. “It is super challenging to do that with a simple basic campaign KPI like ROAS that doesn't tell that story.”
Falcon says the next evolution of retail media network development is a stage in which retailers can start showing the manufacturer or the brand, "Okay, this is how you are growing in our category; this is how you take share.”
Then brands will say, "All right, it’s time to spend more because we see that it works. We understand where the performance comes from and what it does to our performance at this retailer. We are actually reaching the right shoppers."
[Read more: "How Retail Media Is Becoming a Circular Movement"]
The next challenge discussed in the webinar was friction: Retailers have to remove the kinks from the retail media buying process.
“If it's difficult, if you are a company that's not easy to do business with, if it's not automated, it's not self-serving, it's not transparent, then there's going to be fewer campaigns running, and that is maybe the biggest impact on your overall revenue,” commented Falcon.
He said retailers should be focused on making sure they can offer the right kind of behavioral data to brands.
“What do you know about the shoppers? How good is your behavioral understanding, your first-party data essentially, and how many shoppers do you have identified?” Falcon pointed out.
The third challenge that could hinder RMN growth is having a fragmented RMN experience. Personalization initiatives, or lack thereof, for example, will impact which retailers lose advantage in the retail media market.
“Retailers really need to focus not working on silos and ensure attribution metrics are clear, channel-specific, and easy to understand,” Winnick said. “So building trust and greater collaboration are what buyers are seeking. We see a huge opportunity to align and provide more of a unified experience in this way.”
The webinar presented exclusive insights from a Coresight Research report, commissioned by NIQ titled “The US Retail Media Market: Understanding the Ad Buyer’s Perspective in CPG,” which surveyed 100 North American CPG companies to understand their views, needs, challenges and marketing spend around retail media and personalized offers. The research uncovered how CPGs are evaluating RMN spend, what they are looking for from retailers, and what is working and not working.
Winnick said one-fifth of marketing budgets are being invested in RMNs, and he expects the market to reach about $52 billion in 2023, up nearly 20% from the previous year.
“While Walmart captures close to 65% to 70% of the market, we are seeing more players enter the space, which is creating more opportunity as well as shared market across these newer programs,” Winnick said.
As for the rest of the RMN spend in the United States, “We're seeing based on our research as well as some in-depth interviews about 30% to 40% of these dollars coming from existing spend with retailers. So we're seeing shifting dollars coming from trade marketing funds. On our survey, about 94% of ad buyers said they will be shifting at least $1 from their trade marketing fund to RMN programs. In terms of the rest of the $52 billion, 50% to 60% are net new dollars entering the space. For a retailer, we see this is a huge opportunity to capture the net new dollars that are coming in that are available that brand advertisers are shifting from their digital media spend, from brand marketing etc., and are looking to spend them with retailers.”
According to Winnick, 73% of advertisers expect to spend more on RMNs over the next 12 months.
“Interestingly, we're seeing that spend across different retail categories, some newer ones emerging from beauty specialty general retailers. So we're seeing no sign of slowing down on the demand side. We're seeing that spend across more retail categories,” he said. For the retailers, retail media represents a very compelling high margin opportunity.
“We see it around 60% margins, depending if it's onsite or offsite,” Winnick said. “There's more sophisticated ad capabilities from search to display, so it's not hindering the customer experience in most cases, it's actually improving the experience, which was a previous kind of objection. … On average we're seeing retail media can represent about 1% of top-line revenues with a gross margin average of about 50%. To put this into perspective, a $10 million on-site media program can generate about $7 million to the bottom line, which is quite significant.”
Winnick says he’s seeing advertisers diversify their spend across a growing number of retail media networks; advertisers are splitting their spend across an average of six RMNs.
"Obviously, capabilities and scale and sophistication are critical to continue to deliver these experiences and retain those dollars,” Winnick said.
Falcon added some final tips for retailers looking to launch or scale up an RMN.
“To have a sustainable, profitable retail media business, you got to respect your customers, which are the media buyers, the brands," he said. "And so you ought to try to be as efficient as the other networks or other platforms that sell media to the brands. You cannot overspend on technology, on operations. You really need to become a true business. And that often happens by inventing your own tech stack that is specific to you as a retailer. You can take certain capabilities in-house around things like audience building or audience insights and media planning. You want people leading your media business that understand both retail and media, not one or the other, or it's going to be hard to build that internal partnership to consolidate and optimize your business.”