Retail media networks are quickly growing as CPG, electronics, personal care, clothing, health & wellness, and other advertisers move more of their ad dollars from purely digital players like Google, Pinterest, Facebook, and Instagram to retailers like Walmart, Amazon, Target, Instacart, CVS, Walgreens, Kroger, and others. Advertisers have found that retail media networks often provide a better return on their advertising dollar than do traditional digital players. As a result, retailers are seeing digital advertising dollars become an increasingly important part of their revenue, customer growth, ecommerce, and basket-driving strategies.
Significant Reach = Significant Revenue
Retailers with significant reach have realized that they are able to sell access to their digital customer. This enables retailers to generate advertising revenues in the same manner as Google, Facebook, Bing, and Pinterest. Google built one of the most profitable companies in the world on digital advertising. In 2021, digital advertising spend is expected to reach $172B. By investing in retail media, many retailers are realizing that they can beat Google at its own game. CPG digital advertising spend alone is estimated to be $22.5B in 2021. These advertising revenues are pure profit to the retailer and drop straight to the bottom line. Amazon famously realized that in retail, the sale of consumer goods is often not where the company takes profit. For years, Amazon operated its business at zero-to-negative margins and was able to do so because its costs were offset by a very profitable Amazon Web Services (AWS) business. In essence, the AWS business (and investor dollars) subsidized the cost of products to consumers. In a similar manner, Amazon has realized in recent years that their advertising business is even more profitable than their AWS business. In 2020, it generated $12.75B in revenue for Amazon4, which is more operating income than the AWS business will generate. These profits have made Amazon the dominant player in ecommerce, with about 50% market share.
Similarly, Walmart is replicating the Amazon advertising model with Walmart Connect. Today, Walmart Connect generates over $2B+ per year in advertising revenues. Retailers have realized that if they do not capture their fair share of retail media dollars, they will ultimately pay an outsized price as their competitors leverage these revenues to finance lower costs to customers. Retail media today has become “table stakes” for a large retailer.
In the past year, we’ve seen:
- CVS Media Exchange launched in 2020
- Kroger Precision Marketing powered by Kroger’s 84.51° saw revenue growth double in 2020
- Albertsons partnered with Quotient to launch Albertsons Performance Media
- Dollar General relies on Triad to sell digital media for its web properties
- Walgreens launched Walgreens Advertising Group in 2020
- Instacart leverages its own retail media network to subsidize its delivery costs
By the end of 2021, any retailer that has not invested in a digital retail media arm will be at a structural competitive disadvantage to those retailers that have.