Insiders estimate that the retail media channel will be worth more than $106 billion by 2027. This growth trajectory is not from growth in ad spending. Rather, it’s indicative of a fundamental shift in retail economics. Advertisers are increasingly redirecting their funds from traditional publishers to retailers that are serving as publishers— and this trend is only projected to continue, with retail media spending likely to double in the next four years.
In this article, the CAPRAplus team will examine what’s driving this tectonic shift in retail economics, and what this shift means for your business.
How Did This Huge Shift in Spending Occur?
Amazon was the first retailer to meaningfully capitalize on the retail media space. Having generated $38 billion in advertising revenue last year alone, Amazon’s proprietary retail media network is now a mature product, shifting from an online-only model to in-store and offsite revenue streams.
As other major retailers have followed in the wake of Amazon’s success, pundits are framing retail media as the third big wave of digital advertising (the first being paid search through Google, and the second being social media spend). “What’s different about retail media is that it places the consumer at the center,” explains Kevin Struthers, Chief Product Officer and Co-Founder of Axonet. “Where search engine and social media advertising directs consumers to a third-party retailer site, collecting ad revenue in the process, retail media inherently capitalizes on the consumer’s intent through a direct search on the retailer’s website.”
The dollars from retail media are already at work. Walmart predicts that it will haul in $5 billion through retail media alone next year. For Uber, retail media was the boon that finally turned the company profitable. Indeed, with 1 in 5 digital ad dollars funneling toward retail media in 2023, retail media has firmly established itself as the new way to advertise.
What’s Driving this Continued Shift in Advertising Spend?
As data privacy regulations and tech company policies continue to grant consumers more control over the collection and use of their personal data, brands must increasingly relinquish certain means of tracking consumer behaviors. This data-led transformation has directed retailers to digital commerce as a single arena for attention. Leading QSR and coffee retailers, for example, are processing greater than 50% of their traffic via digital channels, which enables personalized messaging and value propositions through optimized data analysis frameworks.
“With big box, drug store, and other verticals tuning their storefronts toward a digitally-minded approach to attract new consumers, we’re actively witnessing a blurring of industry channels,” adds Struthers. “This signal loss makes first-party data ever more relevant, particularly in the Convenience and Energy sector, as CPG providers continue to lose access to other data streams.”
What Does this Shift to Retail Media Mean For Your Business?
As trade and shopper dollars shift to retail media, retail media has been able to fulfill more outcomes for brands. In response, national brand dollars have continued to migrate toward funding retail media initiatives. In the Convenience and Energy vertical, where brands like Casey’s and 7-Eleven have already introduced retail media networks, the brands that move early are likely to garner more funding.
“If you’re not engaged and your competitors are,” Struthers warns, “Your competition will capitalize on this shift in retail economics. They’ll receive greater third-party funding to invest in enriching their loyalty value proposition and strengthening their digital infrastructure, ultimately funneling high-margin digital revenue into their P&L.” In addition to these benefits, new funding sources enable retail media operators to make riskier investments, test more market concepts, and invest in a longer-term future.
Retailers investing in digital media are making decisions differently to increase their portfolio of addressable consumers, because addressable consumers drive retail media. “As retail economics shift around retail media, Axonet is focused on helping definitive winners emerge,” offers Struthers. “For those who don’t follow the shift in the near-term future, there will be stiff headwinds ahead.”
Kevin Struthers is the Chief Product Officer and Co-Founder of Axonet, a W. Capra company. Axonet serves the Convenience and Energy sector as the gateway to aggregated c-store data and retail media. For further discussion, contact Kevin at [email protected]o.
