By Steve Gray, Director at SG-retail
There is a lot to unpack when thinking about instore retail media.
It started instore and has been a thing ever since the first brands were launched. Brands have always wanted to advertise in and around shops – it makes sense to fish where the fish are.
The US gave birth to the big consumer brands, and they learned very quickly that distribution, high-impact merchandising and instore adverts were a recipe for brand growth – especially when this was backed up by mass-reach TV advertising.
They developed ‘retail media’ programmes that retailers felt compelled to support. They saw big sales uplifts and received significant payments when they promoted major brands on their gondola ends.
In the US, the balance of power between retailers and brands was hugely in favour of brands. They had national scale, whereas most retailers were regional. Profits from selling brands at scale were much greater than low margin retail. Even now, very few (two?) US grocery retailers command more than 10% market share. It’s very difficult for a regional grocer to turn down the big bucks that come when you support big brand promotions.
In Europe, it evolved differently.
In smaller markets, the leading national retailers (e.g. Tesco, Carrefour, Rewe, ICA, Ahold) captured market share faster and with that came higher relative profitability and the self confidence to set the retail agenda.
European retailers invested in marketing and distinctive brand assets. Tesco was blue and red and ‘every little helped’, Sainsbury’s was orange and you knew that ‘good food cost less’, Asda was green and underpinned by ‘Asda Prices’. Instore signage made it clear that you were being directed to buy what the retailer had procured and curated for you. Brands knew their place – fit in with the retailer’s agenda or face the consequences. This led to the formalisation of brand investment into retailer’s media programmes via ‘Joint Business Plans’.
European retailers began charging brands for ads in magazines, on instore radio, on shopping trollies, and poster sites around the store. These early Retail Media Networks (RMNs) started to professionalise when they were merged with the targeted marketing programmes facilitated by loyalty programmes that emerged about 25 years ago. The explosion in retail media interest over the last few years was largely driven by the arrival of onsite sponsored product ads pioneered by Amazon.
European retailers found it easy to create RMNs that combined instore and onsite retail media, backed by granular sales and loyalty data.
USA retailers latched onto the onsite retail media explosion and created RMNs that were mostly about onsite or offsite (marketing to the retailer’s customers when they are on other websites, on social media or watching connected TV), and are only now waking up to the instore opportunity.
The instore opportunity is large – 80% of sales are made instore and there are big, mostly JBP, budgets to drive it. Growth is being fuelled by digital innovations, especially screens, radio, point of sale and self-scanning aids.
The big win for retailers is to attract brand and media agency spend into instore media and to do this in a way that avoids their stores becoming big brand free-for-alls that distract customers and dilute the retailer’s own marketing messages.
The big win for brands is to leverage the unique ability of retail media to fuel brand growth by combining ‘physical availability’ & ‘mental availability’ to attract new-to-brand users and to do this at scale, profitably and better than the competition.
The big win for Media Agencies is to capture brand’s instore JBP spend – they have succeeded in many cases to capture the onsite spend as brands have outsourced this task to them as they have mostly judged the programmatic tools used to buy onsite media as too difficult for internal users to use – but they could more than double their budgets if they were asked to buy instore media as well.
Everyone wins if the tech companies can help retailers enable instore retail media to be bought programmatically against qualified audiences in ways that also help retailers to build their brands and help shoppers to get what they want quickly and easily.
But there are many points of contention and complications to navigate.
Retailers wrestle with who owns supplier’s JBP spend – the Commercial teams who might use it as a crutch to support margin and lower prices – or the RMN who see it as media income – at 90%+ margins. They often lack the required governance to get the balance right. And this can result in sub-optimal outcomes for shoppers and the retailer’s own brand positioning. They can struggle with execution as hard-pressed store managers strive to meet all of the required store standards and processes.
Brands wrestle with whether JBP spend is there to drive short-term sales uplifts or other commercial outcomes or whether it should be considered and governed as if it were media spend. If they give it to a media agency, it becomes media spend almost by definition, and this comes at a price, not least the agency’s double-digit margin, as well as the loss of its use as a commercial bargaining tool and the need to account for it as marketing spend rather than a sales discount. And very few agencies are geared up to buy it. They adapted to buy onsite as it’s similar to buying Google or Meta ads and so captured a large chunk of onsite retail media spend. They adapted to buy posters outside of shops as its similar to buying outdoor media.
There isn’t anything quite like instore retail media.
Media agencies wrestle with the complication of dealing with multiple retail networks and their analogue sales teams, offering access to millions of customers provided they complete and sign various forms, when they just need to place a single order to reach tens of millions of a particular audience quickly and to know that it happened, at a certain frequency, at an agreed cost, with only a vague requirement to find out if it ‘worked’ (which assumes they have a method that determines what ‘working’ means – which usually they don’t).
Brand’s marketing procurement teams fret about retailers seeming inability to guarantee that what got bought got executed (and their seeming casual approach to this relative to other media channels who have learned the hard yards of media auditing). It’s easy to withdraw spend from a media owner who can’t guarantee that they can deliver the ads as promised. It’s not straightforward to demand the same from retailers when they control distribution of your brand and your sales teams are telling you not to rock the boat and ‘its always been like this’.
Technology companies are getting there, and one or two like @Instore Marketplaces have enabled programmatic buying and compliance of instore radio and screen inventory at scale against defined audiences, but they must wrestle with the challenges of retailer adoption and brand/agency usage, and those are people, not tech problems.
Everyone wrestles with the need to measure holistically and to recognise that customers shop instore and online and that they do this via a repertoire of retailers that they use depending on who is nearest, can help them get everything they want quickly and at low prices, and so are influenced by multiple retail and media touchpoints and messages and can’t necessarily be understood even by loyalty card data.
Very few measure the right thing – new to brand user growth – and even fewer have the necessary tools to know what combination of media, retail media, price, promotion and physical presence drives this.
The way forward requires clarity of strategy, size of prize analysis, new operating models (insourcing/outsourcing/collaboration), people skills, technology uptake and top quality, multi-channel execution, and the right measures.
It’s worth spending time to get right because for brands there is the promise of breakthrough (new user) growth, lower media spend, and better skilled in-house, ‘connected’ teams.
For retailers, tiny shifts in brand media spend from traditional media to retail media create major profit uplifts.
For agencies, a new dawn (or disruption/disintermediation) awaits.
And for tech companies, there is the tantalising prospect of growth in ARR from a global user base.
It’s complex but solvable, as ever, if you need help with any of this, give us a shout.
