opinion
Challenges that will shape the future include simplifying offerings, consolidating retailers, and building an infrastructure that connects the physical and virtual.
If 2024 is remembered for anything by marketers and advertising agencies, it won't be the demise of the third-party cookie, but a surge in interest and investment in retail media.
But the two stories are intrinsically linked.
Why is that? To answer this question, we need to focus on the future, a few years from now, and consider how the fundamentals of digital marketing are changing.
Google will probably disable third-party cookies in early 2025. The industry is still searching for healthy alternatives and is inclined to stick to infill solutions that utilize corrections and alternative information to put together a picture of audiences and outcomes.
But what about a more structural and enduring alternative? This is where retail media comes in.
No more surveillance advertising. You won't be overlooked.
Retailers may restructure media
In the UK alone, observers predict that brands will spend $4 billion on retail media this year, doubling this to nearly $8 billion by 2027. Global investment in retail media is growing faster than TV, with there now being well over 200 Retail Media Networks (RMNs) with more set to grow.
Brands are interested in using data and measurability across an omnichannel environment that is intrinsically linked to commerce and in-store point of sale, especially if it can build a brand rather than just sell a product.
Retailers are investing because the returns on advertising on owned media far exceed core retail operations, and they see great potential in retailing their own data to improve loyalty programs and the overall consumer experience.
In recent months, Tesco has revealed it is installing 1,800 screens across its stores, the Co-op announced the launch of RMN, the UK's biggest convenience store, Morrisons has expanded its in-store screens and loyalty services, Asda has also enhanced its media offering and Sainsbury's Nectar has partnered with The Trade Desk.
It's not just FMCG/CPG, though: T-Mobile has just announced it will set up a US-based RMN with up to 2,000 stores.
Amazon is by far the dominant retail media in the US and Europe and continues to innovate in interesting ways, notably integrating its ad-supported Prime Video assets with its vast retail data resources and robust tech stack: In the US, Amazon Live recently launched a free, shoppable, ad-supported TV channel.
Given the attractive margins retailers can earn from media revenue, there are every indications that a vast and significant advertising space is being created that could become a highly measurable alternative to other technology platforms.
Let's not get carried away
It’s clear that numerous obstacles stand in the way of retail media realizing its full potential as a digital marketing utopia.
So what are the challenges that will shape the future of retail media, and what will a more mature ecosystem look like? Whose job will it be to simplify the delivery of retail media to advertisers?
While agencies build dedicated e-commerce teams, those team members may miss the nuances of ad tech fees needed to keep operations on track. A programmatic partner like The Trade Desk is in the best position for all parties, but may not be the right choice for some retailers due to conflicts of interest. Finally, supply-side platforms offer advertisers a single entry point for planning and execution, as well as automated buying combined with advanced targeting capabilities, but cost transparency can be an issue.
No option is a panacea, and the most likely solution is a combination of supply-side, demand-side and retailer-specific platforms based on each advertiser's needs and priorities.
The need to create more streamlined access and scarcity of first-party data for all but the largest retailers will drive consolidation. There is no comparison between the scale of Amazon's data holdings and its advertising technology compared to much larger retailers in the U.S. and U.K.
In the US, only a handful of the largest retail brands, and in the UK only one or two, have the scale to offer brands truly effective first-party data-driven opportunities.
However, competition between,for example, supermarkets will limit these opportunities to,a collection of non-competing retailers of different sizes.,The quality of the RMN infrastructure, its customer data, and,its uniqueness are likely to be determining factors for,whether a retailer can participate in the retail advertising,network.
Connecting the virtual and the physical
Once these “collaborative” networks are established, it’s easy to imagine a shift towards more programmatic investment, but it’s important to remember that roughly three-quarters to 90% of grocery sales in the UK still take place in-store, so the focus will be on building the technology infrastructure for in-store measurement and content delivery, and building the conduits that connect online real estate with physical spaces to create an omnichannel proposition that brands are willing to pay for.
Some groups will be bigger and better than others. Large retailers will invest in technology to gain greater control over data, activation and measurement. They will also likely expand their media offerings beyond digital output to focus on in-store, video and audio. This will result in a more manageable marketplace emerging.
The publication of Europe’s first retail media measurement standard is a positive step, but there is still a long way to go for the IAB to address the need for standardization of audience measurement, creative formats and brand salience metrics.
The idea that retail media will become some kind of advertising utopia that offers a unified, single choice is way off the mark, but by the end of the decade we may see an incredibly powerful ecosystem emerge that becomes another focus of large-scale investment alongside search and social, but this time delivering performance marketing.
Nick Graham is a senior consultant to Kepler.
