The Evolution of Retail Media Networks And Its Implications for Marketers

As consumers increasingly turn to digital channels for their shopping needs, brands are finding innovative ways to make a lasting impact, and retail media networks (RMNs) are at the forefront of this transformative wave. RMNs are undergoing a significant transformation, expanding beyond the shadows of e-commerce giants like Amazon. Brands are increasingly turning to retail media platforms offered by major players such as Walmart, Target, and Kroger to leverage consumer data and enhance personalized marketing experiences. In this article, we will explore the strategies and strengths of these key retail media networks and their implications for marketers. Additionally, we will examine the broader marketing trends shaping the industry.

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How it Works

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The concept of turning e-commerce sites into media platforms is not new, but recent years have witnessed a surge in interest from brands, primarily fueled by Amazon's colossal success in the advertising space. Other retail giants like Walmart, Target, and Kroger have followed suit, expanding their retail media platforms and reporting notable growth in performance metrics. In a Q2 2023 advertising results analysis across Amazon, Walmart, and Instacart, a shift was observed with brands investing more in sponsored ads and refining targeting on these platforms. Walmart, in particular, has emerged as a strong player, ranking among the top three platforms that U.S. shoppers turn to for online product searches. The increased interest in retail media is attributed to the frequency of consumer purchases, offering grocers valuable data on customer shopping behaviour.

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Consumer data collection through retail media networks has become a cornerstone of marketing strategies. As third-party cookies face challenges and privacy regulations tighten, brands are recognizing the need to explore marketing channels that offer robust data for enhanced audience targeting and personalized advertising experiences. It is highlighted that there is a growing demand for this type of data, foreseeing its increased importance in light of evolving consumer behaviours and privacy considerations.

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According to Digiday+ Research's CMO Strategies survey, retail media stands as the third most-used advertising channel, with 38% of marketers utilizing it. Display ads (61%) and social media (97%) precede retail media, but there is a notable trend indicating a potential shift in the future. As online buying trends evolve across generations, there is a possibility that retail media could surpass display ads, positioning itself as a preferred starting point for product browsing, research, and comparison.

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Walmart Connect

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Walmart Connect, after Amazon, is positioned as the second-most-used retail media network. Since rebranding in 2021, Walmart Connect has experienced remarkable growth, with a 125% year-over-year increase in click-through rates and a 40% boost in return on ad spend during Q2 2023. This growth is a result of deliberate changes made to Walmart's features, bid rules, and algorithm. Walmart Connect's emphasis on customer data is a significant draw for marketers. The platform provides access to first-party data on customer transactions, loyalty programs, in-store purchases, online browsing behaviour, and search activities. In an era where data privacy laws are tightening, having access to a network with such detailed customer purchase data is a valuable alternative. Despite its growth, some concerns have been raised about the level of data transparency and sophistication of Walmart Connect. The platform has historically offered fewer services to third-party sellers than Amazon, potentially hindering its appeal to certain advertisers.

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Target's Roundel

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Target's media network, Roundel, holds the third position in terms of usage among marketers. Its success is attributed to efforts to expand Roundel's reach, leading to a 60% growth in Target's ad business over the last two years. Roundel leverages Target's first-party customer data across its online site and mobile app, providing valuable insights into customer behaviour both in-store and online. Similar to Walmart Connect, Roundel offers brands detailed ad performance reporting on engagement, impressions, and sales. However, some users have expressed concerns about data transparency. Brands face the challenge of determining which retailer is more likely to reach their core shoppers, emphasizing the importance of audience targeting, campaign performance measurement, and flexibility to optimize campaigns in real-time.

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Kroger Precision Marketing and the Impending Merger

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Even though only 6% of survey respondents chose Kroger Precision Marketing, it reported a 13% increase in digital shopper engagement in Q1 2023. Kroger's impending merger with Albertsons Companies is expected to shake up the retail media landscape. The combined entity is anticipated to challenge Walmart Connect by offering a compelling ad proposition and a broader dataset for ad targeting. The merger aligns with the recognition that the game in retail media will be won or lost based on the scale of data retailers can provide. The Kroger-Albertsons merger combines the reach, sales, and data assets of both companies, forming a more potent advertising entity. The collaboration with Omnicom Media Group to establish retail media-related data standards showcases the commitment of Kroger and Albertsons to advancing the retail media landscape.

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Instacart's Entry into Retail Media Ad Market

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While not initially included in the research set, Instacart's noteworthy efforts in building its ad business cannot be overlooked. The company, which had its IPO in September, has made strides in enhancing its ad options for marketers. With over 1,400 retail banners and partnerships with 80,000 stores, representing over 85% of the U.S. grocery industry, Instacart has positioned itself as a significant player in the retail media ad market. However, challenges loom on the horizon. The increasing cost-per-acquisition for Instacart sponsored ads, as reported in Pacvue's Q2 2023 results, could pose concerns for brands. Marketers have identified the cost of media as the most significant challenge within retail media, echoing a common sentiment across various marketing channels. Additionally, Instacart acknowledges the potential impact of consolidation among major retail partners, highlighting the pending merger between Albertsons and Kroger. The dynamics of retailer relationships may influence contractual negotiations, the utilization of products, and even lead to the termination of existing retailer engagements.

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Global Expansion and the Future of Retail Media

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Beyond the U.S., retail media networks are expanding globally. China's Tmall and Latin America's Mercado Libre have been mentioned as other responses for the most-used RMNs in Digiday+ Research's survey. These companies have reported expansion plans and financial successes, reflecting the global growth of retail media. Microsoft's entry into the retail media space with its Microsoft Retail Advertising Network is another indicator of the industry's evolution. The expanded capabilities and media buying options brought by Microsoft are expected to level the playing field with rivals. Looking ahead, physical stores are poised to become the next major retail media channel. The in-store audience, on average, is significantly larger than the digital audience. Retailers are recognizing the potential for in-store audiences as valuable eyeballs for brand advertisers. A November 2022 study that found in-store audiences for top brick and mortar retailers are, on average, 70% greater than their digital audiences supports this shift.

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The strategies and strengths of retail media networks indicate a dynamic landscape with evolving opportunities and challenges for marketers. The emphasis on consumer data, personalized advertising experiences, and the impending convergence of major retail entities underscore the importance of staying agile in the rapidly changing marketing ecosystem.

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As retail media continues to grow both online and in physical stores, marketers need to carefully navigate the landscape, making strategic decisions based on audience targeting, data transparency, and real-time optimization capabilities. The global expansion of retail media networks and the entry of tech giants like Microsoft add new dimensions to the field, providing marketers with a diverse range of options. In a world where consumer preferences, privacy regulations, and market dynamics are in constant flux, marketers must leverage the strengths of retail media networks to create impactful and tailored campaigns. The future of retail media holds promises of innovation, global reach, and an integrated approach that encompasses both online and in-store experiences. As the retail media landscape evolves, marketers who embrace these changes and adapt their strategies accordingly will be well-positioned to capitalize on the vast opportunities it presents.