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CMO Strategies: Beyond Amazon, the strengths of the top retail media networks — from Amazon to Target

Keeping the complexities of marketing channels in mind, Glossy+ Research has analyzed strategies and challenges across leading marketing channels — like programmatic display and social media — to identify key trends and best practices in our CMO Strategies series

In this installment, Glossy+ Research deepens its analysis of major retail media networks, including Walmart Connect, Target’s Roundel and Kroger Precision Marketing. Our first report on retail media analyzed the retail media landscape and its role in marketers’ playbooks, including a spotlight on Amazon.

Retailers turning their e-commerce sites into media platforms isn’t a new idea, but over the last several years retail media has been receiving more interest from brands. That’s thanks in large part to the enormous ad business Amazon has built. However, other retailers like Walmart, Target and Instacart have also been expanding their retail media platforms, with some seeing results at pre-pandemic levels and others experiencing major growth in performance metrics. 

In July, commerce acceleration platform Pacvue published its Q2 2023 advertising results across Amazon, Walmart and Instacart and found a shift in brands investing more in sponsored ads and increasing targeting on the three retail platforms. Walmart is also one of the top three platforms U.S. shoppers turn to when they begin their online product searches: 61% turn to Amazon; 49% to a search engine like Google; and 32% to Walmart.com, according to eMarketer.

Likewise, grocery store chains are becoming attractive retail media network (RMN) partners for brands thanks to consumer purchase frequency, which gives grocers more data on how their customers shop compared to other retailers. And grocers Krogers and Albertsons Companies are poised to change the retail media landscape even further with an impending 2024 merger. According to the companies, the combined entity would reach approximately 85 million households — and presumably the associated data. 

“We can’t ignore the importance of consumer data collection via RMNs,” said Maren Kelly, vp of marketing at brand commerce platform PriceSpider. “Brand demand for this type of data is expected to increase as brands realize the limitations posed by the demise of third-party cookies and privacy regulations. They’ll need to turn to marketing channels that offer data to help with enhanced audience targeting and personalized advertising experiences.”

Currently, retail media is marketers’ third most used advertising channel, according to Glossy+ Research’s CMO Strategies survey. Glossy’s survey found that over a third of marketers (38%) said they use retail media advertising, putting it just behind display ads (61% of respondents) and social media (97% of respondents) as a top marketing channel.

Over a third of companies use retail media channels

Source:  Glossy+ Research, 2023 | Q: Which of the following marketing channels does your company currently use?

However, PriceSpider’s Kelly said that retail media could eventually overtake display ads if online buying trends across generations continue. “In the U.S., millennials and Gen X are followed by Gen Z and baby boomers in digital buying rank,” she said. “As we consider the next few years of growth among these shoppers, we may see retail media move up above display ads as shoppers choose to start their product browsing, researching and comparing on retailers versus Google.com.”

Methodology

To map out marketers’ current digital playbook, Glossy+ Research sent out three surveys asking 635 respondents about past and upcoming investments, marketing channel tactics, preferences and business challenges. 

Glossy+ Research also conducted a focus group and individual interviews with marketing executives across industries.

Unpacking Walmart Connect – the top RMN after Amazon

Setting aside Amazon for this analysis, Walmart’s Walmart Connect and Target’s Roundel were marketers’ second- and third-most-used retail media networks at 24% and 21% of respondents respectively.

Walmart Connect and Roundel are main big-box RMN players

Source: Glossy+ Research, 2023 | Q: Which retail media channel(s), if any, does your company currently use? Select all that apply.

Walmart, for its part, has successfully expanded its ad business since rebranding its retail media network to Walmart Connect in 2021. According to commerce acceleration platform Pacvue’s Q2 2023 advertising results, Walmart Connect saw a 125% year-over-year increase in clickthrough rates and a 40% increase in return on ad spend in the second quarter of 2023.

Pacvue attributed Walmart Connect’s growth to tweaks Walmart has made to its algorithm and bid rules and features. In July 2022, Walmart added a number of API partners to Walmart Connect to improve the creative appeal of the ads being served to customers. The retailer also implemented a second-price auction that improved ROAS, according to an October report by Insider Intelligence. However, Pacvue also noted a decrease in ROAS of 4.8% quarter-over-quarter by Q3 2023, which it said seemed to signal a plateau in the results of efforts made by Walmart Connect earlier this year.

Pacvue’s Q3 advertising results also found that Walmart Connect’s average cost-per-click at 61 cents was significantly lower than the average Amazon Sponsored Products CPC, which came in at almost $1.30, at the time of measurement. Clickthrough rates were marketers’ third-most-used KPI for retail media, according to Glossy’s survey results, with 17% of respondents saying clickthroughs were their main measurement of success for ads placed on RMNs. Lower CPC rates combined with Walmart Connect’s Q2 125% year-over-year increase in clickthrough rates demonstrates the effectiveness of its advertising platform, making Walmart Connect more appealing to marketers. 

As the second most used RMN after Amazon, Walmart Connect also has access to swaths of consumer data that can be used for ad targeting and personalization. With data privacy laws becoming stricter and Google continuing to inch the industry closer to the end of the third-party cookie in 2024, access to a network with customer purchase data is an attractive alternative.

PriceSpider’s Kelly said a positive attribute of Walmart Connect is that it provides access to first-party data on customer transactions, loyalty programs, in-store purchase and online browsing behavior and online search and browsing behavior. However, some of PriceSpider’s clients have expressed concerns about the level of data Walmart shares with them on RMN performance and demographics, as well as the platform’s overall sophistication and ad opportunities. While Walmart has had an online marketplace for over a decade, it has historically offered fewer services to third-party sellers than Amazon. For instance, Walmart only launched a fulfillment service for third-party sellers in 2020.

“When compared to the options available on Amazon, for example, Walmart Connect has been playing catch-up in terms of its platform offering and aligning with brands’ specific advertising objectives and requirements for retail media network spend,” Kelly said.

According to Pacvue, advertisers are spending more on Walmart Connect, with average ad spend increasing 14.5% year-over-year and 2.2% quarter-over-quarter. However, when Walmart disclosed its revenue from its media and advertising business for the first time last year, that number totaled $2.1 billion, which is only about 1.4% of Walmart’s annual revenue.

Kelly noted that while Walmart has been vocal about U.S. shoppers switching to its stores — and likely its in-house brands — given prolonged inflation and economic concerns, that could cause some advertisers to pull back spending on Walmart Connect. “Larger CPG brands typically spend on RMNs,” she said. “However, the recent uptick in shoppers switching to trade downs like Walmart’s Great Value brand could give brands pause on where to spend RMN dollars at a retailer with strong private label preferences among shoppers.”

Verizon Visible’s CMO Cheryl Gresham, who was CMO at Verizon Value at the time of our interview, said her company sells a lot of its products primarily or exclusively at Walmart because of the retailer’s value positioning for brands, including non-CPG brands. “The impact of what we see at Walmart is strong results,” Gresham said. “Whether it’s in store on the video screens, within social, within their search, we’re seeing Walmart being a strong contender in this space.”

Target’s Roundel plays up its data capabilities to appeal to brands

By comparison, Target’s media network Roundel was marketers’ third-most-used RMN, with slightly less than a quarter of respondents (21%) indicating they use it. Target’s respectable third-place standing is due in part to efforts the company has made to expand Roundel’s reach over the past few years.

In 2019, Target rebranded its RMN from Target Media Network to Roundel. At the time, Roundel’s president Kristi Argyilan, who is now svp of retail media at Albertsons Companies, said the rebrand signified a shift in resources to the retailer’s in-house media company. Target expected Roundel to power on-site and in-store advertising, as well as ads that appeared on a curated list of publisher sites in Target’s network, on TV and across other channels. 

And Target’s push to expand Roundel appears to have paid off. During the company’s Q4 2022 earnings call, executives said that Target’s ad business had grown 60% over the last two years. In its Q2 2023 earnings call, the company’s CFO Michael Fiddelke noted that although Target’s total revenue was down 4.9% in the second quarter compared to the same time period last year, “Within other revenue, we continue to see strong growth from our Roundel ad business, which offset declines in credit card profit sharing and other small income items compared with last year.”

Like Walmart Connect, Roundel emphasizes its ability to collect and provide customer data to brands. Roundel taps into Target’s first-party customer data across its online site as well as its mobile app, which can be used to trace customer behavior in stores too. “The most important piece of this business is that our first-party data allows us to base our audiences off of real people,” said Argyilan in 2019. “The results when you market and use data based on real people is significantly better than data pools that are out there.” 

In Target’s 2023 second-quarter earnings call, CEO Brian Cornell said the company has seen “… significant increases across our entire business in all five merchandising categories in both our stores and digital channels and in our Roundel ad business. And this growth reflects an increase in guest engagement, as measured by the number of visits they’re making to Target.” Cornell added, “ … the number of guest trips through the first half of 2023 was more than 169 million higher or more than 21% higher than in 2019.”

An increase in the number of shoppers visiting Target since 2019 presumably means Roundel has more consumer data to offer brands in 2023 than it did four years ago. Roundel also offers brands ad performance reporting on engagement, impressions and sales. However, PriceSpider’s Kelly said some of PriceSpider’s clients have expressed similar concerns about the level of data shared by Roundel as they did about Walmart Connect. 

“For brands, it’s about assessing at which retailers they are most likely to reach their core shopper, the purchasing consumer, and move them successfully through the path to purchase,” Kelly said. “From considering factors such as audience targeting, to campaign performance measurement, to the ability to track and optimize results, brands are really looking to invest retail media network dollars where they will have the flexibility to optimize campaigns inflight and gather data to inform future strategies and spend on retail media networks.”

Overall, Kelly noted that recent data shows Walmart is in a stronger position with consumers headed into 2024 versus Target (though both retailers are presenting cautious outlooks), which could help brands prioritize spending on Walmart Connect over Roundel.

Kroger, Albertsons set to challenge top RMNs after merger

Trailing behind Walmart Connect and Target’s Roundel, Kroger’s Kroger Precision Marketing was selected by less than one-fifth of survey respondents (6%) as a retail media network their company currently uses. However, that may soon change as the grocer is set to grow its RMN, which it launched in 2017, through the company’s impending merger with supermarket giant Albertsons Companies. (Albertsons has its own RMN, Albertsons Media Collective.) The companies have said they expect their merger to be complete in early 2024. 

On its own, Kroger Precision Marketing, reported a 13% rise in engagement from digital shoppers in Q1 2023. Kroger’s CEO Rodney McMullen attributed the increase partially to in-store customers beginning their shopping trips through Kroger’s mobile app or website as they search for online deals and coupons and create curated shopping lists. “We value this behavior as digitally engaged households are more loyal, spend nearly three times more with us and help grow our alternative profit businesses like Kroger Precision Marketing,” McMullen said.

Kroger’s impending merger with Albertsons will, according to experts, bring an increased focus to retail media, and the combined entity may even be able to challenge Walmart Connect by presenting brands with a more compelling ad offering and a greater breadth of data to use in ad targeting. The combined entity will be able to reach approximately 85 million households, according to the two companies when they announced the merger. 

“Retail media is a game that is going to be won or lost based on the scale of data that retailers are able to bring to bear,” said Sean Turner, chief technology officer at Swiftly, a technology platform that works with retailers to power their websites and apps. “This new entity [Kroger-Albertsons] allows them to combine all of the reach, sales and data assets of both Albertsons as well as Kroger to form an even more powerful advertising entity.”

As noted earlier, one obvious edge retail media has over other marketing channels is its access to customer purchase data through sites that are built for commerce. And ahead of their merger, Kroger and Albertsons are two of several retail media network partners that recently collaborated with Omnicom Media Group (OMG) to help it hammer out retail media-related data standards, as outlined in OMG’s Council on Accountability and Standards in Advertising (CASA) retail subgroup. 

Cara Pratt, senior vp of Kroger Precision Marketing, explained the reason her company took part in CASA. “Retail purchase signals hold the potential to transform advertising,” said Pratt. “But today, not every retailer is handling their data with the same accuracy or reliability. We’re at a moment where advertisers need every retail media network to invest the resources and talent it takes to operate a credible media company. As more retailers get serious about media, the impact will resonate across the advertising landscape.”

Instacart makes inroads into the retail media ad market

Although not among the retail media networks included in Glossy+ Research’s answer set, Instacart, which had its IPO in September, is noteworthy for the concerted effort it’s been making within the past year to build its ad business. 

Founded in 2012, Instacart originally forged its reputation by creating a formidable user experience for selling groceries online in the U.S. According to the company’s August 2023 S-1 filing, the platform works with more than 1,400 retail “banners” – essentially brands – across more than 80,000 stores that represent more than 85% of the U.S. grocery industry. 

During the pandemic Instacart benefitted from a boost in home grocery deliveries, but its core delivery business has since slowed and the company is now focused on enhancing its ad options for marketers. In October 2022, Instacart made it easier for brands to launch new deals, promotions and incentives on their Instacart ad campaigns with self-service access and related capabilities. The following month, Instacart introduced shoppable ads and since then has been expanding into different formats including shoppable display, shoppable video and brand pages.

Although Instacart’s ad business is relatively new, it was on an upward trajectory in the first six months of 2023, with ad revenue increasing 24% from $327 million to $406 million. “In the past few years, retail media has grown so much,” said Instacart’s CMO Laura Jones. “It can be such a powerful lever for CPG brands and for their bottom line. For example, we have 6,000 brand partners on our ads platform, and these are CPGs that are being sold on the platform and that are choosing to improve the performance of their sales by investing in our own retail media.” 

However, while ad revenue was up for Instacart, acquisition costs also increased for brands in the first half of the year. According to Pacvue’s Q2 2023 advertising results, the cost-per-acquisition for Instacart Sponsored Ads increased 7% from 99 cents in Q1 2023 to $1.06 in Q2 2023. That could mean trouble for Instacart as marketers told Glossy their biggest concern within retail media was cost of media. Ninety-two percent of respondents to Glossy+ Research’s CMO Strategies survey said cost of media was the biggest challenge they faced with RMNs — also a common concern for marketers across channels.

Cost of media is the biggest challenge

Source: Glossy+ Research, 2023 | Q: What is the biggest challenge you perceive with each of the following retail media networks?

Beyond potential cost of media concerns, Instacart also noted in its S-1 filing that consolidation amongst major retail partners, such as the pending merger between Albertsons and Kroger, could impact “contractual negotiations with such retail partners, result in lower utilization of our products, or lead ultimately to termination of existing retailer engagements.”

Bryan Gildenberg, founder of commerce consultancy Confluence Commerce, agreed that the merger between Albertsons and Kroger could hurt Instacart, because Albertsons is a very large part of Instacart’s current business. “And Kroger’s attitude to Instacart is very different from Albertsons,” Gildenberg said. “Kroger has an infrastructure that is able to do some of the stuff that Instacart does and a preference for trying to solve this problem internally [rather] than go for a third-party.”

Nevertheless, Instacart’s Jones says one of the company’s strengths is that it caters to all brands. “We’re retailer agnostic,” Jones said. “We are always focused on driving the business of our retail partners and providing CPGs with the ability to do national buying across retailers, as opposed to having to go to each different retailer independently. For us, it’s a big investment and part of our vision to power every single grocery transaction.”

With new entrants and international competition, retail media expected to continue its rise

Retail media is expected to keep growing both online and in-stores in the coming years, with more companies investing in retail media networks thanks to digital-first shopping trends and RMNs’ data collection capabilities. Microsoft made the most-recent RMN move in September by launching its Microsoft Retail Advertising Network. Microsoft’s ad platform and its wider range of media buying capabilities with retail media will help level the playing field with rivals, according to Mike Froggatt, a Gartner analyst.  

Retail media networks based outside of the U.S. are also expanding their reach. This was evident in Glossy+ Research’s survey results in which respondents included both China-based Tmall and Latin America’s Mercado Libre among their written-in “other” responses for most-used RMNs. The companies themselves have reported recent expansion plans and financial successes. In June, Tmall’s parent company Alibaba announced that it will launch local versions of the e-commerce site in Europe. In August, Mercado Libre reported in its Q2 filing that its net revenue grew 57.2% year-over-year to reach $3.4 billion. 

In response to retail media’s growth, retailers and agencies are preparing their brands and staff for expanded business opportunities by offering training on retail media tech. Interpublic’s UM opened a space in its New York headquarters where IPG employees and clients can experiment with the latest commerce and retail media tech. Walmart is offering a certification program to educate agencies and brands about Walmart Connect’s capabilities. The retailer will give participants who successfully complete the course LinkedIn-enabled digital credential badges.

Looking to the future, physical stores are poised to be the next major retail media channel, as in-store audiences are substantially larger on average than digital audiences. A November 2022 study by Insider Intelligence found that for 13 leading brick-and-mortar retailers, including Walmart, Target and Kroger, their in-store audiences were on average 70% greater than their digital audiences, citing data from Placer.ai and Comscore Media Metrix Multi-Platform. 

Many digital surfaces inside of stores, including brand displays on shelves and video advertisements on TVs, are expected to get frequent exposure, according to the study. 

“Retailers tend to think about people in stores as foot traffic, but they also need to be looked at as eyeballs for brand advertisers,” said Andrew Lipsman, principal analyst for retail and e-commerce at Insider Intelligence. “Retail media has always been looked at in terms of search and bottom of the funnel, closed-loop performance — and it should be all of that. It is very much true to the initial value proposition of retail media. But it’s becoming a full-funnel marketing opportunity.”


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Pacvue

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