Retail Media Networks, Part 1: What Are They?

Let’s talk about retail media.

More specifically, the rise of retail media networks launched by major retailers, looking to build new, sizeable, and highly profitable media revenue streams by taking advantage of their large audiences of loyal shoppers and the vast amounts of purchase data they collect from these shoppers.

In this 4-part series, I take a look at the origins and definition of retail media networks (or RMNs), examine the reasons for the rising interest and investment in RMNs, assess where different retailers stand in their evolutionary journey of launching and monetizing their RMN, and offer my point of view on what needs to happen in the retail media space in order for RMNs to live up to and deliver on their widely publicized potential.

Let’s start with an important definition. What is “retail media”? Here’s my version:

Retail Media Definition: Marketing tools, both advertising and promotional, a retailer offers that either:

1. Activate on the retailer’s own properties (both physical and digital) to reach the audiences of consumers who shop at its stores (a.k.a. “onsite media”), or
2. Utilize the data the retailer collects from its daily operations to reach and target these same (and other) consumer audiences on media properties (both physical and digital) owned by other companies (a.k.a. “offsite media”).

Over the past 2-3 years, many major retailers have launched retail media offerings, in some cases organizing and marketing them as separate entities from their core retail business. These include the largest players, such as Walmart, Target, Kroger, Best Buy and The Home Depot, but also top drugstore chains Walgreens and CVS, supermarket chains Albertsons and Ahold, and even dollar chains like Dollar General and regional grocers like Wakefern, Hy-Vee and Southeastern Grocers (SEG). And let’s not forget the retailer, who is probably singlehandedly responsible for the current excitement surrounding RMNs: Amazon.

The observations and analysis throughout this 4-part series apply to any retail class of trade, but I will focus my attention on retailers that sell consumer packaged goods (CPG) and represent a significant proportion of annual CPG sales. They are generally referred to as fast-moving consumer goods (or FMCG) retailers and include the following five classes of trade:

• Food – e.g., supermarket operators Kroger, Albertsons/Safeway, Ahold,
• Drug – e.g., pharmacies Walgreens, CVS, RiteAid,
• Dollar – e.g., Dollar General, Dollar Tree, Family Dollar,
• Mass – e.g., big-box retailers Walmart, Target, and of course, Amazon, and
• Club – e.g., membership discounters Sam’s Club, Costco, and BJ’s.

There are several reasons to focus on FMCG retailers when analyzing RMNs:

1. Budgets: CPG companies are the world’s top marketing spenders. CPG budgets account for 40% of all marketing dollars spent on advertising, promotions, and other marketing activities.
2. Frequency: Most people shop at FMCG retailers at least weekly – much more frequently than shopping for other non-CPG products. That kind of velocity of engagement creates ample opportunities for marketers to drive awareness, alter behaviors, and motivate purchases.
3. Data: Given the high-frequency of purchases and the vast number of product SKUs, the data captured by FMCG retailers’ point-of-sale (POS) systems, which includes every product in every customer’s basket, is of tremendous value to analytics teams looking to construct advanced algorithms to measure return on advertising spend (ROAS).
4. Sophistication: CPG companies, by virtue of their size and history, are the most sophisticated and inventive marketers, driving much of the innovation and advancements in the art and science of marketing, and thus deploying a much more diverse and advanced set of media and marketing vehicles in their campaigns than players in other verticals do.

The first step to understanding RMNs and their potential – and the focus of Part 1 of this 4-part series – is to have a clear understanding of the advertising vehicles and marketing tactics that today comprise the arsenal of retail media. They can be grouped in three categories:

Traditional Analog Media

These retail media tactics have been around for decades, and even centuries. Think of all the physical advertising messages and promotional activities that you encounter inside and around a brick-and-mortar store when you go shopping. This is not an exhaustive list, but here are the most common ones:

• Printed Circular – printed weekly booklet containing special deals and featured products and distributed in the store or delivered by mail or as newspaper insert to consumers’ homes
• In-Store Signage – signs, posters, banners around the store, including in the entrance area, stanchions and ceiling-mounted frames, over checkout lines, and special sections of the store, like the deli, seafood, pharmacy, etc.
• Outdoor Signage – posters, billboards, and other signage outside the store, including signs just outside the store entrance, signs and banners on the store façade, posters at the cart corrals, and in different spots across the parking lot (part of the larger “Out-of-Home” or “OOH” media fabric).
• In-Store Displays – merchandising displays, usually temporary, in different locations throughout the store, including endcaps, in-aisle, and action alleys.
• Shelf Talkers – signs and blades clipped directly onto grocery store shelves next to the products they are advertising, a.k.a. “aisle violators.”
• At-Shelf Coupons – mechanical coupon machines, tearpads, and take-one dispensers clipped to the shelf or attached to a freezer door, and instant redeemable coupons attached to product packaging.
• Cart Ads – advertisement panels on the front of shopping carts (both facing the shopper pushing the cart and facing out) and on the baby seat or handlebars of the cart.
• Floor Decals – advertisement signs in the form of large vinyl “stickers,” installed right at the shelf where the product is merchandised or anywhere else throughout the store.
• In-Store Sampling – promotional campaigns that offer shoppers a free sample, a tasting, or a demo of the product, usually involving a sampling station attended by a store associate.
• Checkout Dividers – 16-inch plastic bars used by cashiers to separate grocery items belonging to different customers.
• Receipt Ads – product and service ads pre-printed on the back of the thermal-printer receipt tape.
• At-Till Coupons – electronic coupons activated in real time by the contents of the shopper’s basket and printed either directly on the thermal-paper receipt or by a separate printer next to the POS terminal, such as that operated by Catalina Marketing.
• Direct Mail – physical mailers, including retailer-branded newsletters and magazines, “co-op mailers” (featuring multiple CPG brands), and “solo mailers” (sponsored by and dedicated to a single brand), sent to the home address of a retailer’s customers.
• At-Home Sampling – a box of free samples delivered at home to a retailer’s customers, most commonly used for products in the health and beauty, personal care, and baby categories.

Onsite Digital Media

With the advent of the internet, online advertising, e-commerce, and mobile technology, retailers gradually built a whole new set of owned digital media assets, through which they could now reach their shoppers electronically beyond the four walls of brick-and-mortar stores. With these new media properties, retailers joined other owners and operators of popular websites as “publishers” (i.e., media “real estate” owners) in the fast-growing world of digital and mobile media.

• Onsite Display – online advertisements, a.k.a. “digital display” leaderboard banners and side-panel ads, on a retailer’s own consumer-facing websites.
• Digital Circular – a PDF file or HTML replica of the print circular provided on a retailer’s website or digitized with rich interaction features (e.g., “clip to card”) and provided inside the retailer’s mobile app or by third-party shopping and savings apps.
• Targeted Email – promotional email vehicles, such as weekly newsletters, seasonal campaigns, or personalized messages (e.g., targeted by segment or for individual occasions), containing ads, product features, and promo offers.
• In-App Media – digital ads, including homepage banners, hero sliders, native ads, interstitials, popups, and video, delivered inside the retailer’s own mobile app.
• Product Search – sponsored-search ads and premium product placement (e.g., at the top of the search results) on a retailer’s e-commerce site, based on their proprietary data of the consumer’s history, preferences, and demographics.
• Digital Coupons – electronically distributed coupons, which can either be printed and presented at checkout (“print-at-home” or “PAH” coupons) or “clipped” to a consumer’s loyalty-card account and automatically redeemed the next time they shop with that retailer (“load-to-card” or “L2C” coupons).
• In-Store Radio – audio ads (usually, 30-second slots) inserted at set intervals throughout the digital stream of in-store ambient music and delivered via retailer’s in-store audio system.
• In-Store Screens – digital display monitors, sometimes interactive, installed in different locations throughout the store for both advertising and merchandising purposes, and either operated by the retailer or activated by a third party as part of a multi-location digital place-based media network.

Offsite Digital Media

Onsite – think of it as “digital media 1.0” – is publishers attracting valuable audiences to their digital properties and monetizing their proprietary access to these eyeballs. Offsite is “digital media 2.0,” whereby publishers collect proprietary data about the preferences and actions of the audiences who come to their digital (and physical) venues and leverage these data to access and monetize the same (or similar) audiences in venues they do not own. Retailers’ rich and unique first-party data is what allows them to be increasingly powerful players in offsite and programmatic digital media. Retailers either work with established ad-tech players (e.g., data onboarders, DMPs, DSPs, SSPs) or internalize some of these components within their in-house media groups.

• Offsite Display – managed-service online ads, including banners, side-panels, hero sliders, interstitials, popups, and video, etc., offered on third-party websites and mobile app properties.
• Programmatic Display – online advertisements on third-party websites and mobile apps, accessed and transacted algorithmically in real time via automated ad exchange platforms.
• Online Search – sponsored ads and premium placement (i.e., at the top of the search results) on Google and other major online search platforms.
• Social Media – digital advertisements, activated either programmatically or via a managed-service provider, within user feeds on major social media platforms.
• Influencer Marketing – a form of digital “content marketing” involving endorsements and the creation and distribution of paid content by social media influencers with significant following.
• Targeted SMS – digital ads, including text blasts, personalized messages, and location-triggered texts, delivered directly into the text-message inboxes of target audiences.
• DOOH – programmatic or managed-service ads activated in a variety of “Digital Out of Home” networks, including digital billboards, poster boards, and various monitors in highly trafficked locations, such as transit hubs, transportation arteries, stadiums, malls, movie theaters, etc.
• Connected TV – digital TV ads and content delivered programmatically to viewers utilizing internet-connected smart TVs, computers, tablets, and phones used for video streaming, over-the-top (OTT) boxes, and gaming consoles.

In addition to selling the above tactics à la carte, many retailers, such as Kroger, Albertsons and SEG, are offering Bundled Solutions, combining several tactics that together aim to solve a specific need for brand managers. The most common multi-tactic packaged programs (a.k.a. “integrated solutions”) include New Product Launches, Event Amplifications, Seasonal/Themed Events, and Brand Support/Loyalty Programs.

Finally, the overview of retail media offerings would not be complete without mentioning the efforts most retailers are making to monetize what is arguably their most prized strategic asset – their massive and proprietary shopper data. Most major retailers – Kroger, through its 84.51° unit, is probably the market leader in this space – are leveraging their household-level loyalty and POS transactions datasets to create compelling Media Targeting and Measurement tools that enable sophisticated pre-campaign planning and personalization and post-campaign results tracking and ad-spend optimization. These include offerings like custom shopper segments and look-alike audiences, as well as closed-loop measurement of media exposure, sales uplift, and ROAS, which retailers can sell separately from the media offerings with their RMN.

Generally, retailers rely on third-party vendors and partners to activate the majority of these media and marketing solutions, but for some of them, they are increasingly creating in-house media teams who “cut out the middlemen” and sell to brand advertisers directly. I will cover this trend of in-housing certain media capabilities in Part 3 of this series.

Traditionally, the store and its associated retail media have been considered “bottom-of-the-funnel” media (a.k.a. “shopper marketing” or “conversion media” or “promotional media”) – the last push marketers give their target consumers at the point of purchase to get them over the line and inspire or motivate them to make a purchase. Customarily, marketers have earmarked just a small portion of their marketing budgets to shopper marketing.

The broad menu of advertising and promotional tools retailers offer today and the rise of digital media vehicles powered by their rich shopper data allow them to play a much bigger role than before in the media and marketing strategies funded by their CPG suppliers. Thanks to the broad audiences retail media can now reach via both onsite and offsite channels, retailers are increasingly contending for “top-of-the-funnel” media (a.k.a. “national” or “brand”) dollars, which comprise the vast majority of CPG marketing budgets. Marketers spend their national dollars to build brand equity, awareness, interest, and loyalty among their target consumers, and they have traditionally been allocated largely to mass media channels, such as broadcast, print, digital, and outdoor.

I’ll cover the reasons behind retail media’s rising popularity in Part 2, but chief among them is the promise of retail becoming a true “mass medium” and attracting a meaningful share of the large brand budgets that today mostly go to TV, radio, print and online digital media.

But will that promise ever be fulfilled? I’ll offer my thoughts on what needs to happen for retail media to live up to its potential in Part 4 of this series.