Retail Media Networks Are Having A Moment But It Won’t Last

Retail Media Networks (RMNs) are really just a fancy way of describing retailers’ ability to use their own digital properties to sell advertising to brands, much like a media property would. But there are two key differences.

Unlike media properties, retailers have access to their customers’ purchase data, which in a cookie-less world is a treasure trove of insight that is increasingly difficult and/or expensive to get – and retailers can use that data to help guide their advertisers to much more effective spend.

And unlike with media properties, consumers on retailer sites are actually in a shopping mindset. Rather than trying to distract consumers from reading about the latest natural disaster or celebrity gaffe with an out of context offer for, say, dog treats, RMNs can target with much greater accuracy – “Oh, you’re looking for dog treats? Here are some sponsored treats to consider.”

So it should be no surprise that interest – and spend – in RMNs is growing like gangbusters. Statista estimates that $52 billion will be spent on RMNs in 2023. McKinsey predicts that spend will grow to $100B by 2026, or roughly double. To put that in context, Statista says worldwide digital ad revenue will be $616 billion in 2023, and should exceed $1 trillion by 2027. Still healthy growth, but not nearly at the same pace as RMNs – GroupM estimates that RMN spending growth will well surpass total digital advertising through 2027.

But not every company who spends on digital advertising is a contender to spend on a retailer’s site – at the very least, retailers are big digital ad spenders and they won’t be spending on each others’ sites. Who does spend on RMNs? Consumer package good companies (CPGs) – national brands in particular. Forbes research shows that 74% of brands already have budgets dedicated to RMNs, and Wakefield Research’s survey of CPG brands with advertising budgets of $100 million or more found that 64% of these companies anticipate that they will increase their spend on RMNs in 2023.

This is the first sign of trouble on the horizon, though, because according to that same Wakefield Research survey, most CPG brands are not spending incremental money on RMNs. Where does the money come from? Trade funds. Trade spending is the deals, placement fees, and other incentives that CPG companies put on the table in deals they make with retailers. In the grocery industry, as much as 40% of sales are made on promotions funded by CPG trade funds. PwC’s Strategy& estimates that in the US alone, CPG trade spend exceeds $200 billion. Booz & Company says CPG companies spend as much as 25% of gross sales on trade spend – more than they spend on digital advertising in general.

However, while RMNs have actually been around for a long time – I wrote my first piece of research at Forrester on the very physical retail media network of Walmart’s in-store TVs in 2005 – digital is definitely something different. For the first time perhaps ever, retailers are willing to cross the streams of once untouchable trade funds vs. advertising.

It’s easy to tell this is true – every retailer with a website and some traffic is opening up a retail media network, many as recently as 2021 or 2022. An incomplete list: Amazon, Walmart, Target, Home Depot, Wayfair, Kroger, CVS, Walgreens, Dollar General, Ulta Beauty, Petco, eBay, Lowe’s, Best Buy, Michael’s, Nordstrom, Albertsons, Macy’s, Kohls, and Costco. It’s so popular that even Instacart, Marriott, Lyft, Uber, and T-Mobile are getting into the game (T-Mobile not to target mobile users, but to target 1^st party data on its digital sites).

The Elephant in the Room: Amazon

When you look at the networks themselves, there is one that far outstrips the rest – Amazon. eMarketer estimates that in 2022 Amazon achieved a 76.9% share of retail digital media spend. By comparison, Walmart came in as the second largest with 6.1% share, followed by Instacart with 1.9%. Improvado, a marketing analytics platform, estimates that 88% of all retail media ad spend in the US goes to Amazon. And Insider Intelligence says that its growth still far exceeds everyone else, estimated to be over 20% in 2022.

Part of the reason Amazon is such a behemoth is because they have over 200 million Prime members in the US alone – that is prime first-party data (sorry). Traditional (bricks & mortar) retailers can fight back. Walmart, Target, Home Depot, Lowe’s, CVS, Walgreens, Costco, and Kohls all have much greater in-store monthly visitors than they have on digital. Walmart alone has more monthly visitors than Amazon has Prime members, making it a decent contender – if they can bring together their store presence and their digital presence in their offering.

Traditional retailers have an uphill climb. They can barely piece together shopper activity across online and stores for themselves, let alone leverage it for anyone else’s benefit. And CPG brands feel it – the Wakefield Research study found that 55% of CPG executives surveyed said “an inability to quantify ROI for leadership” was a top threat to their ability to justify increased RMN spending. The Interactive Advertising Bureau (IAB) says they’ll take on the lack of standards, but the first drafts aren’t expected until 2024 at the earliest.

An Upper Limit of Advertising Inventory

We’re still in the early days of this next generation of RMN, and there is a lot of upward mobility in the space – definitely worthy of the enthusiasm and the forecasts. But there is an upper limit. With the stamped to open RMNs in the last two years, most of the brands who have enough gravity to draw in advertising dollars have opened RMNs. The rest are too small to stand on their own. According to Forrester’s fourth quarter 2022 “CMO Pulse Survey” 45% of advertisers say their biggest challenge with RMNs is the number of RMNs they have to manage, and 40% say it’s comparing the performance across RMNs. In the Wakefield Research survey, 99% of respondents say an RMN requires a minimum audience of 6 million monthly visitors, and 66% say they require at least 11 million. 97% said they would invest in smaller RMNs if they had some kind of cross-platform interoperability or aggregation.

Until someone figures out the aggregation challenge, there is a pretty finite market of retail media sites. And if CPG companies can’t prove that they’re getting value out of that market, their attention will turn elsewhere.

An Upper Limit of Advertisers

Just as there is an upper limit of retailers who can offer RMNs, there is an upper limit of companies who can really take advantage of them. In the Wakefield Research survey, 53% of respondents were using RMNs before 2019. But only 11% said they planned to start using RMNs in the future. And RMNs are only going to be good for brands carried by the retailers – no retailer is going to be game to advertise a product that can only be purchased on someone else’s site.

And even if more digital properties decide they can get into the RMN game, that doesn’t mean that brands would – or should – invest. Dog treats being advertised to people browsing for dog treats is far less of an interruption than someone getting offered dog treats while shopping for a hotel room (like on Marriott’s site, for example). At some point, the media network gets so far away from the retail purchase that it’s effectively the same as more “traditional” digital properties.

An Upper Limit of Consumer Receptivity

When the technology providers who enable RMNs talk about the benefits, they tend to claim that consumers want more personalized offers, and RMNs deliver – brands and consumers both win. But the offers being served through RMNs are not personalized. They’re targeted. That’s a huge difference.

Right now, in its early days, it’s easy for retailers to offer inventory that meets both brand and shopper objectives. But as their dependency on these revenues increase, and as brands seek to try to expand RMN results to include brand awareness as well as conversion, those objectives may compete.

We’ve already been down this road with in-store coupons. Even before those annoying receipt coupons mostly disappeared, the industry had moved away from brand-switching offers because not only did consumers not want the offers, they became actively annoyed with retailers for not recognizing their brand preferences. Pepsi will always want to reach customers who don’t drink Pepsi today. Letting them target Coke shoppers might make the retailer’s margins, but it also may very likely annoy Coke shoppers.

Personalization implies relevance. Serving an ad to someone who will never buy the product, not even maybe if you gave it away for free, is not personalization. It’s just targeting. And while no shopper is likely to switch retailers just because of an ad, it can be one of many annoyances – you’re always out of stock of this brand I love, you just raised prices again, I can never get a good parking place… It could truly end up being the last straw that broke the camel’s back. Anything that depletes consumer enthusiasm for a brand has the potential to snowball into losing that customer for life.

An Upper Limit to the Funnel

RMNs are so popular with brands because the distance between ad and purchase is very small. In the Wakefield Research study, 80% of respondents reported that “Paid Search” was the most important tactic offered by RMNs. Two-thirds of respondents said the most important objective of RMNs was to drive conversion and half of respondents said “to drive brand sales/share” was the second-most important objective. All down-funnel measures.

You can try to move up the funnel, but this is fighting against the exact strength of RMNs to begin with – you’re already so close to the purchase moment, why would you want to distract them with messages not relevant to their current stage of the purchase journey? Across the most recent research published, several note that RMNs are really only proven for conversion and not for brand awareness. Why would you try to make it something it’s not?

Smoke, But No Fire – Yet

RMNs in their current, very digital iteration are also in their early days and within that context there is still a lot of growth. But it’s not a panacea. The potential for abuse is already there. The Association of National Advertisers recently published a survey where 88% of CPG respondents said they feel somewhat or heavily influenced by retailers to advertise on their networks. And 42% of advertisers report questioning the value of their investments.

And, of course, consumers in general don’t like advertising of any kind, even when they perceive it as helpful in the moment. As one respondent in the ANA survey said, “The risk the retailers run is overuse of consumer data and consumers feeling they are being badgered by retailers and brands.” That is a tale as old as time – and RMNs bring nothing new to the table to fight that. As it is, as a shopper I’ve already trained myself to skip past the search results with the little gray “Sponsored” in the corner – much like I have trained myself to disregard banner advertising or see how quickly I can x-out a pop-up window without seeing the content.

RMNs have value. But they need to be considered in the context of what they can do, not what everyone wishes they would do.